CALIFORNIA EMPLOYMENT LAW Steptoe & Johnson LLP Katessa C. Davis and Edward Gregory

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1 Last Updated: September 2013 CALIFORNIA EMPLOYMENT LAW Steptoe & Johnson LLP Katessa C. Davis and Edward Gregory Table of Contents 1. Overview 2. General Issues 3. Employment Policies and Employee Handbooks 4. Hiring Process 5. Compensation and Benefits 6. Termination of Employment 7. Immigration 8. Federal Employment Law 9. State Employment Law 10. Employment Law Resources 1. Overview It is critical that social sector organizations familiarize themselves with the employment laws that affect their employees and organization. Often, social sector organizations begin with like-minded persons informally coming together to address a challenging social problem. Regardless of the ties between those who work together on a social mission, the organization must obey applicable employment laws and implement compliant policies and procedures. The following is an overview of state and federal employment laws that apply to social sector organizations located in California. This overview does not provide a comprehensive analysis of every law that might apply to California employees and should not be acted upon without specific legal advice based on a particular situation. Employment laws can differ greatly by state and even by municipality and county. If your organization and employees are located in a different state, you should consult the employment law pages of LawForChange for that state. 1

2 2. General Issues a. At Will Employment The conventional relationship between an employer and an employee hired for an indefinite period of time is called employment at will. Under this arrangement, either the employer or employee may terminate the employment relationship at any time, with or without cause, and with or without advance notice. In the absence of a written contract or other evidence indicating an agreement that an employee may be terminated only for cause, employment is generally presumed to be at will. Many California employers choose not to rely on this general presumption and require their new hires to acknowledge in writing that their employment is at will and agree that nothing will change that arrangement other than a written agreement signed by the employee and the head of the organization. In addition to for cause contracts, it is important to remember that there are a number of special state and federal laws, many of them discussed below, that limit an employer s unfettered right to terminate at will employees. These laws prevent employers from firing employees, whether at will or not, for unlawful reasons like discrimination or retaliation for whistleblowing or complaining about discrimination. b. Temporary Employment and Consulting Relationships Many employers use the services of temporary employees, independent contractors, or consultants (and of independent contractors and consultants employees) to supplement their regular workforce. When an employer hires an employee for a temporary period (e.g., for seasonal work or a short-term need), the temporary employee is still an employee of the employer, and the relationship is governed by the same laws that apply to other employees. Because temporary employment is sometimes limited to a specified term, the at will presumption may not automatically apply so it is best for employers to exercise caution, take the same approach as for employees generally, and have temporary workers agree in writing their employment is at will. As with any employee, legally-mandated benefits, such as workers compensation and unemployment insurance, must be offered to temporary employees. Optional benefits, such as 401(k) plans, may or may not extend to temporary employees, depending on the terms of the documents governing those plans. A true independent contractor or consultant is not considered an employee of the employer. Instead, such an individual is considered self-employed and payments made to him or her are considered contract payments, rather than wages. However, it is important to make sure that the arrangement between the organization and the worker passes the applicable legal test for independent contractor status. The Internal Revenue Service ( IRS ) and 2

3 other governmental agencies use various tests for determining whether a worker is an employee or an independent contractor. Despite variations among the tests, they tend to share the same primary factors. As a practical matter, workers who perform the same job and report to the same supervisors as regular employees are typically deemed to be employees, no matter what their title is or what their contract with the organization says. Additional factors used in determining a worker s status include: the degree of control the organization exercises over the worker s hours and manner of performance; whether the organization provides the worker s tools and/or employee benefits (e.g., medical insurance, vacation benefits, etc.); the worker s length of service; and the method by which the worker is paid (e.g., on an hourly versus project basis). The consequences of incorrectly classifying an employee as an independent contractor can be far-reaching and expensive for an employer (e.g., liability for unpaid payroll taxes and corresponding penalties, liability for unpaid unemployment insurance and workers compensation premiums, and increased exposure to governmental audits, employmentrelated civil suits and administrative claims). c. Employment Agreements While it is not legally necessary to sign formal employment agreements with employees generally, social sector organizations may wish to enter into written employment agreements with one or more employees in vital positions. Such an agreement typically spells out the terms of employment such as duties, compensation, and benefits. The agreement may include an at will provision like that described above, or, for a particularly vital employee, may describe the circumstances under which either party may terminate the employment. Vital employees are often required to agree they will keep certain information confidential even after they leave employment. Whether any such agreement should be used, and, if so, whether its terms should be tailored to fit a specific situation, should be discussed with an employment attorney before it is presented to any employee or prospective employee. d. Government Contractors A number of laws impose specific requirements on employers who contract with the government or a government-funded agency and on employers who receive grants or other funding from the government. These laws include special equal opportunity laws, affirmative action laws, prevailing wage laws, and drug-free workplace laws. The application of the laws depends on the value of the contract or funding and/or the number of employees in the company. 3

4 e. Employee Records At least seven state and federal laws mandate different lengths of time various employment records must be kept. For practicality s sake and to protect an employer in the event of a lawsuit by the employee, many employers keep the bulk of an employee s personnel file and other records for the duration of employment plus four years. This covers nearly every law, except for three types of records that must be removed before a file is discarded and retained for a longer time: Pension and welfare plan records (six years for general information and as long as needed for information used to determine individual benefits); Records of on-the-job injuries causing loss of work time (five years); and Safety and toxic/chemical exposure records, including Material Safety Data Sheets (30 years). State law - Under state employment laws, a California employer is either required to or should maintain the following records on each employee: At least 2 years applications, personnel records or files, membership records (for labor organizations), employment referral records and records of sexual harassment training and education. At least 3 years dates of hire, re-hire, or return to work after some period of separation; the ages of any minors employed; beginning and end dates for each pay period; hours worked by and wages paid to all employees; records of itemized wage statements for each employee, showing the name and address of the legal entity that is the employer, the employee s name and identification number (only the last four digits, if Social Security number is used), the dates for which the employee is being paid, gross wages earned, total hours worked, number of pieces/units and applicable piece/unit rate (if paid on piece rate), the hourly rates in effect during the pay period and the number of hours worked at each, all deductions, and net wages earned after deductions. At least 4 years written employment contracts. Federal law - In general, under federal laws, an employer is either required to or should maintain the following records on each employee: 1 year documents related to hiring, accommodations, promotions, discipline, and discharge, including: job applications, resumes, or other employment inquiries responding to advertisements or job opening notices, including records pertaining to failure or refusal to hire any individual; records relating to promotion, demotion, transfer, selection for training or apprenticeship, layoff, recall, or discharge of any employee; job orders 4

5 submitted to an employment agency or labor organization for recruitment of personnel; test papers completed by applicants or candidates for any position; any physical examination results considered in connection with personnel actions; advertisements or notices relating to job openings, promotions, training, or opportunities for overtime work; requests for reasonable accommodation for disability or religious observance and records of any accommodation granted. (One year will cover the limitations period for most claims under Title VII of the Civil Rights Act of 1964 ( Title VII ), the Americans with Disabilities Act ( ADA ) and the Age Discrimination in Employment Act ( ADEA ). See Section 8 below for summaries of these and other federal laws). 3 years Payroll records listing each employee s full name, home address, date of birth, sex (for Equal Pay Act purposes), occupation/job title; time of day and day of week on which each employee s workweek begins, his or her regular rate of pay, the basis for determining his or her regular rate (including any payments excluded from the regular rate), as well as his or her straighttime earnings, overtime premium earnings, additions/subtractions from wages for each pay period; each employee s total wages for each pay period, and date of payment and pay period covered by each payment; employment contracts, employee notices, plans, trusts, and collective bargaining agreements. 2 years Supplemental payroll records such as basic time sheets or production records reflecting individual employees daily starting and stopping times and/or daily amount produced; records of additions to, or deductions from wages of individual employees; wage rate tables for computing piece rates or other rates used in computing straight-time earnings, wages, salary, or overtime; and any records needed to explain the wage rate differentials between males and females within the establishment (e.g., production, seniority, or other bona fide business criteria). (Such information may be necessary in responding to claims under the FLSA, including the Equal Pay Act.) 6 years or longer Records of the background data supporting filings, reports, and other required disclosures pertaining to pension and other employee benefits plans covered by ERISA must be retained for six years. Organizations must also retain records sufficient to determine the plan benefits due or that may become due to employees or beneficiaries as long as such benefits may be payable. 3 years Records related to family and medical leaves including: basic payroll and employee data (used to determine qualification for protection under the Family and Medical Leave Act ( FMLA )), dates and hours FMLA leave is taken, hours worked in the 12 months before the start of leave, copies of employee notices furnished to employer, copies of notices provided to employee of rights and responsibilities under FMLA, employer polices 5

6 applicable to use of family and medical leave, documents verifying premium payments of employee benefits (both employer-paid and employee-paid portions of such premiums), records of any disputes with employees over use of FMLA leave. These documents will assist in showing compliance with FMLA. 3 years or 1 year after termination I-9 Employment Eligibility Verification Forms. These forms must be kept for a minimum of 3 years or 1 year after the employee s employment ends, whichever is longer. 4 years Tax records related to income tax withholdings. This is required by the Federal Insurance Contribution Act and the Federal Unemployment Tax Act. 5 years Occupational illness or injury records. These records, required by OSHA, should be kept for 5 years after the year in which the injury was sustained or treatment ended, whichever is longer. If the employer is a federal contractor, it should maintain records of its employment outreach efforts to people with disabilities for 5 years. 30 years Records of employee exposure to toxic substances. Such records are required by the Occupational Safety and Health Act ( OSHA ). At a minimum, social sector organizations should maintain one or more personnel files for each employee, containing any offer letters and agreements signed by the employee, required wage and hour records, records regarding promotion, transfer, compensation, termination, and disciplinary action, and any documents used to determine the employee s qualifications for employment. Immigration information and other confidential documents, such as reference checks and investigative files for harassment claims, should be kept separate from an employee s regular personnel file and should be kept confidential. In its role as an employer, an organization should generally not have access to medical records. Medical records are subject to special state and federal privacy laws and regulations and no organization should receive or maintain them without first consulting an attorney. 3. Employment Policies and Employee Handbooks Written policies serve to clarify expectations, reduce risk and, in some cases, comply with statutory requirements, such as those in the Family and Medical Leave Act ( FMLA ). In addition, both state and federal law require that legal notices be posted in an area accessible to all employees. For example, an employer must post notices describing employees rights under family and medical leave laws, antidiscrimination laws, and the Uniformed Services Employment and Reemployment Rights Act ( USERRA ); identifying its workers 6

7 compensation insurer, detailing its anti-harassment policy and state and federal wage and hour laws. There are organizations that provide updated posters containing these notices (e.g., the California Chamber of Commerce at Policies for any employment manual or handbook should include: a. Anti-discrimination Federal laws prohibit employers from discriminating based on race, color, religion, sex, national origin, veteran status, pregnancy, age, disability, or genetic information. California law imposes more stringent requirements with respect to many of these protected categories and adds to the list of protected categories by prohibiting discrimination based on ancestry, medical condition, sexual orientation, and marital status. These anti-discrimination laws prohibit an employer from making employmentrelated decisions such as hiring, firing, promoting, demoting, giving pay raises, and setting other employment terms or conditions based on a person s protected status. Besides mandating equal treatment, anti-discrimination laws bar retaliation against employees who complain about or seek protection from discrimination directed at themselves or others. Employers must also be aware of their obligation to make reasonable accommodations for employees whose disabilities or religious beliefs conflict with employment requirements. These obligations, which exist under both federal and state law, are unlike other equal employment opportunity laws in that treating all employees equally will not satisfy the obligations. Instead, employers must take positive steps to reasonably accommodate employees with disabilities or specific religious practices. Failure to comply with anti-discrimination laws can result in expensive lawsuits or government agency investigations and hearings. For further information, see the antidiscrimination laws described in the Federal Employment Law and California Employment Law sections below. b. Harassment Both federal and California anti-discrimination laws prohibit workplace harassment of employees protected under those laws. Two types of conduct constitute harassment in the workplace. The most obvious occurs when a supervisor makes a job promotion or benefit dependent on the receipt of sexual favors, so-called quid pro quo harassment. The other type occurs when an employee has to endure comments, touching, physical gestures, or other behavior creating a pervasive hostile environment. While harassment is often thought of as sexual, sexually harassing conduct need not be motivated by sexual 7

8 desire under California law. It is also important to note that harassment based on race, disability, age, or other protected categories is also prohibited. An employer is required to take all reasonable steps necessary to prevent the occurrence of either type of harassment. An appropriate and comprehensive policy that expressly prohibits harassment and provides more than one avenue for employees to report harassing behavior is a must in any workplace. Employees should be encouraged to report any harassing behavior to their supervisor, or either a human resources representative or senior manager designated to investigate such reports. Reasonable steps to prevent harassment include periodic dissemination of the harassment policy, harassment training (particularly for supervisors), prompt investigation of complaints, and prompt and effective remedial action, if harassment is found to have occurred. Managers who observe or learn of conduct that violates the anti-harassment policy must act to stop the conduct and bring the matter into the investigation process, whether or not an aggrieved employee has come forward. As with discrimination, employers cannot retaliate against individuals who complain about harassment or participate in harassment investigations. Organizations with 50 or more employees must ensure California-based supervisors receive two hours of sexual harassment training within six months of hire or promotion, and every two years thereafter. c. Injury and Illness Prevention The Occupational Safety and Health Act ("OSHA") regulates work place safety for employers in businesses which affect commerce. Under OSHA, employers are required to furnish their employees with a place of employment free from recognized hazards that are causing, or are likely to cause, them death or serious physical harm. Employers must also comply with occupational safety and health standards which are issued under the Act. "Right to Know" regulations issued under OSHA require that employees in certain industries be warned about hazardous materials and chemicals to which they may be exposed. OSHA sets forth a detailed procedure for adopting safety and health standards and provides for inspection, investigation and enforcement. Citations issued for noncompliance can result in civil and criminal penalties, including fines and, for violations causing the death of an employee, imprisonment. States are allowed to develop and enforce their own plans setting and enforcing occupational safety and health standards. Some industries have specific statutes which regulate employee safety and health. Also, see the California OSHA sections in the California Employment Law section. 8

9 d. Workplace Violence Employers should take steps to prevent violence in the workplace. These may include policies against bringing weapons into the workplace, taking prompt and appropriate action against any acts or threats of violence, and creating an environment that will reduce the likelihood of workplace violence. State law provides time off for employees who are victims of domestic violence. See California Law, below. 4. Hiring Process The hiring process includes inviting and reviewing applications, interviewing and checking references for potential candidates, all leading to selecting and offering a job to the successful candidate. Federal and state laws limit what employers can ask and require of candidates and mandate affirmative steps to ensure disabled candidates have a fair chance to qualify. a. Applications, Interviewing and Reference/Background Checks The application process generally includes publishing the open position and accepting applications. Every help-wanted advertisement should contain an equal opportunity statement. Anti-discrimination laws prohibit certain questions on the application, particularly those that might elicit information about an applicant s protected status and those that are not job-related. As with applications, federal and state anti-discrimination laws prohibit certain inquiries when employers interview candidates and check their references or backgrounds. Again, questions likely to elicit information about a person s age, disability, child bearing decisions or plans, or other matters related to protected status are prohibited unless they are directly related to legitimate job requirements. Those who interview candidates and check references should have a working knowledge of the laws governing those activities. Employers who use outside organizations to conduct background checks must comply with federal and state credit-reporting laws, which require that applicants be given certain written information and sign specially-worded consent forms. Federal and California disability laws oblige employers to take affirmative steps to ensure disabled persons receive a fair opportunity in the hiring process. If a pre-employment test is given, reasonable accommodation must be made for an applicant who requires it. Testing or other criteria not related to the essential functions of the position may not be used if they have discriminatory impact on applicants. 9

10 b. Payroll Information California Labor Code , which went into effect in 2012, equires employers to provide employees upon hire a written notice of: The rate or rates of pay, including any rates for overtime, as applicable; Allowances, if any, claimed as part of the minimum wage; The regular payday designated by the employer; The name of the employer, including DBA; The physical address of the employer's main office and a mailing address, if different; The telephone number of the employer; the name, address, and telephone number of Workers Compensation insurance carrier; and Any other information the Labor Commissioner deems material and necessary. A form for this purpose can be found at: c. Immigration In order to verify new hires are either U.S. citizens or authorized to work here, an employer must require every employee to complete an Employment Eligibility Verification (I-9) Form and produce required documentation within three business days of hire. Failure to follow the I-9 process can result in penalties and an audit by Immigration and Customs Enforcement ( ICE ). In August 2010, regulations implementing the electronic Form I-9 were approved. These regulations now require employers to use electronic Form I-9s. Guidance may be found in U.S. Citizenship and Immigration Services ( USCIS ) publication M-274: Handbook for Employers, available at Once eligibility to work in the U.S. is established, the employee s immigration status should not be used in other employment decisions. An employer cannot discriminate against an employee based on immigration status or nationality. 5. Compensation and Benefits A number of federal and California laws regulate employment compensation and benefits. Each social sector organization should adopt a compensation scheme that is compatible with the organization s mission and furthers its human resources goals. 10

11 a. Wages Most private California employers regardless of size are governed by both federal and state wage and hour laws. Federal and state wage and hour laws differ in a number of ways, and, when they do, employers must follow the provision more favorable to employees. For example, both the U.S. and California require employees be paid a minimum wage rate. But, while the federal minimum wage rose to $7.25 per hour in July 2009, California s minimum wage has been $8.00 per hour since January Note: The San Francisco city minimum wage increased to $10.55 per hour, effective January 1, The city minimum wage applies to employees who work within San Francisco s boundaries. Guidance may be found at California employers must pay $8.00 per hour and employers with San Francisco employees must pay $10.55 per hour, the higher of the two. Payment of the minimum wage is one of two major requirements under federal and state wage and hour laws. The other is payment for overtime work. Here is a basic summary of California s overtime pay requirements: An employer must pay one-and-one-half an employee s regular rate of pay for: All hours worked beyond eight in a single workday; Any work in excess of 40 hours in any one workweek; and The first eight hours worked on the seventh consecutive day worked in a single workweek. An employer must pay double the employee s regular rate of pay for: All hours worked beyond 12 in a single workday; and All hours worked beyond eight on the seventh consecutive day worked in a single workweek. There are industry-specific exceptions to these requirements. Please consult with legal counsel for further information. Overtime laws are not limited to hourly employees. Unless certain limited exemptions apply to make a particular employee exempt from overtime laws, employees paid in other ways, such as salary or commission, must also be paid one-and-a-half or double their regular pay rate for overtime hours. 11

12 b. Bonuses Bonuses can improve employee retention and provide employees extra incentives to reach targets. Employers who pay bonuses (other than certain irregular, entirely discretionary gift bonuses neither announced nor expected before they are paid) should adopt a written bonus plan to ensure clarity and consistency. Consult with counsel before paying bonuses to overtime-eligible employees some bonuses must be adjusted based on overtime earnings. c. Taxes An employer must have each new employee complete an IRS W-4 certificate and withhold appropriate federal and state income taxes and social security taxes from the wages it pays him/her. Under federal law, funds withheld must be deposited in certain depositories accompanied by a Federal Tax Deposit Coupon (IRS Form 8109) or through the Electronic Federal Tax Payment System (EFTPS). An employer s Quarterly Federal Tax Return (IRS Form 941) must be filed before the end of the month following each calendar quarter. Willful failure to collect, account for, and pay withholding taxes will subject the employer to a significant monetary penalty, and in some cases will result in personal liability for those responsible for remitting the withholding taxes. Most employers, including nonprofit organizations that are not 501(c)(3) organizations, must also file an Employer s Annual Federal Unemployment (FUTA) Tax Return (IRS Form 940) and pay any balance due on or before January 31 of each year. Details may be found in IRS Circular E, available at Employers who are 501(c)(3) organizations, however, are not required to file a FUTA Tax Return. If payment of tax is required, any balance is due on or before January 31 of each year. Details may be found in IRS Circular E, available at and in Publication 15A. California law requires personal income tax withholding and employers should have each new employee complete a DE 4 certificate for that purpose. Further Guidance may be found in the California Employment Development Department s DE 44 publication, available at d. Mandatory Benefits Workers Compensation. Every private employer in California must either maintain workers compensation insurance or obtain a certificate of selfinsurance. Workers compensation benefits are the only benefits available to an employee who is injured in an on-the-job accident or who becomes ill from 12

13 on-the-job conditions. This means employees cannot sue their employers for workplace injuries or illnesses the workers compensation system provides their exclusive remedy. Unemployment Insurance. Employers must contribute to an unemployment insurance ( UI ) fund. When an employee is granted unemployment benefits, those payments may or may not be counted against the employer s UI account, depending on several factors. One factor is how long the employee has worked for the employer. Employee eligibility for unemployment benefits can be quite complex. Detailed information and examples can be found on the California Employment Development Department s website at EDD publication DE 44 explains employers withholding obligations and can be found at State Disability Insurance and Paid Family Leave. California s State Disability Insurance ( SDI ) program provides temporary benefit payments to workers who experience wage loss because they are unable to perform their regular or customary work due to non-work related injury or illness or because of pregnancy or childbirth. Paid Family Leave ( PFL ) is a component of SDI. That extends benefits to those unable to work because they need to care for a seriously ill family member or bond with a new child. Employees pay for these benefits by wage deductions, which employers are required to withhold and pay to California s Employee Development Department. Again, see the EDD s DE 44 publication, available at Federally Mandated Benefits. Traditionally, apart from Social Security, federal law has not mandated benefits in most employment settings. Under the Patient Protection and Affordable Care Act ( ACA ) enacted in March 2010, however, beginning January 1, 2015, employers with 50 or more fulltime employees will have to pay tax penalties to help offset costs to the extent their employees need federal healthcare assistance (for example, where the employer does not offer affordable healthcare coverage to its full-time employees and an employee reaches out to an insurance exchange to obtain coverage). Smaller employers, on the other hand, may receive tax credits to help them provide employee healthcare benefits. And employers who provide retiree healthcare benefits may be eligible for reimbursements to help defray the costs of covering retirees not yet eligible for Medicare. e. Leaves of Absence. Several federal and California laws either require or govern leaves of absence, depending on the reason for the leave. Two of the more complex leave laws, governing state and federal Family and Medical leave, do not apply to small employers. 13

14 With certain exceptions, the federal Family and Medical Leave Act ( FMLA ) requires employers with 50 or more employees to provide unpaid family or medical leave of up to 12 weeks in a 12-month period for the birth or adoption of a child, for the serious health condition of the employee or spouse, parent or child of the employee, or for a qualifying exigency arising out of the fact that a spouse, child or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in the support of a contingency operation. In addition, eligible employees may receive up to 26 weeks of leave in a 12-month period to care for a service member or veteran family member with a serious illness or service-related injury. A serious health condition includes inpatient hospitalization and subsequent treatment therefore as well as continuing treatment by a health care provider, including pregnancy. To be eligible for FMLA leave, the employee must have worked 12 months or longer, performed at least 1,250 hours of service for the employer in the 12 months prior to the date of leave, and must work at a site within 75 miles of which the employer has 50 or more employees. If the employee s need for leave is foreseeable, the employee must provide his or her employer with 30 days notice before taking leave. When the need for leave is unforeseeable, the employee is required to provide notice as soon as practicable. For purposes of FMLA, the term spouse now includes a same-sex spouse where the employee resides in a state such as California, which recognizes same-sex marriage. The California Family Rights Act (CFRA) is similar to the FMLA. CFRA and FMLA leaves run concurrently for all purposes other than: Leave due to disabling pregnancy or pregnancy-related conditions (a separate, state source of leave rights, runs concurrently with FMLA, but not CFRA, leave); Leave to care for a registered domestic partner (available under CFRA only); Leave for a qualifying exigency related to a family member s military service (FMLA only); and Leave to care for an ill or injured service member (FMLA only). Other state leave laws, such as California s Domestic Violence Leave law, are described in the California Employment Law discussion, below. Leave laws generally do not require paid leave. f. Voluntary Benefits Many employee benefits are not required by law, but employers choose to provide them in order to attract and retain the most qualified workers. For example, an employer is not required to provide retirement, healthcare, long-term disability or severance benefits (except as discussed above with respect to certain employer penalties that will apply under the ACA, beginning January 1, 2015). If an employer chooses to establish such 14

15 benefits, however, federal laws like the Employee Retirement Income Security Act ( ERISA ), the Consolidated Omnibus Budget Reconciliation Act of 1985 ( COBRA ), the Health Insurance Portability and Affordability Act ( HIPAA ), and the Mental Health Parity and Addiction Equity Act of 2008 ( MHPAEA ) provide certain protections to employees and beneficiaries, impose detailed administrative procedures for benefit claims, and subject many such plans to complex governmental agency regulations. Likewise, employers are not required to pay for vacations. But an employer who elects to do so should follow a uniformly applied written policy to help ensure compliance with federal and state law. California wage and hour law requires that vacation pay be treated like wages once vacation hours are earned or accrued, they cannot be forfeited just because a new year begins or an employee leaves employment (i.e., no use it or lose it rules allowed). As reiterated in the Termination of Employment discussion, below, accrued, unused vacation must be paid at termination. Sick pay is different accrued benefits can be forfeited unless employers choose to combine vacation, sick leave, personal days, and floating holidays into a single paid time off or PTO policy. PTO may easier to administer than time off for vacation, sick pay and various other reasons, but, in California, all PTO leave must be treated like vacation. 6. Termination of Employment As discussed in the General Issues section, above, absent an employment contract providing otherwise, a social sector organization may ordinarily terminate an employee with or without cause, provided there is no violation of anti-discrimination laws or other expressions of public policy (e.g., whistleblower protection laws). Before termination, an organization should thoroughly review all records concerning the employee in question, and carefully assess the risks of litigation. Advance notice of termination should normally be given. In most cases, the organization should consult with legal counsel before terminating an employee. a. Wage Payment At Termination Where the employer is the moving party in the termination or an employee gives more than three days notice before resigning, the employer must pay all wages and accrued vacation benefits immediately at the time of discharge. When an employee quits and gives fewer than 72 hours notice, the employer must pay all wages and accrued vacation benefits within 72 hours after notice is given. An employee who gives fewer than 72 hours notice is entitled to receive his/her final wage 15

16 payment by mail if he/she so requests and designates a mailing address. The date of the mailing is considered the date of payment for purposes of the 72-hour rule. b. Severance Agreements/Releases Employers are generally not required to provide severance pay, unless they have agreed to do so. If an employer offers severance pay, it may condition payment on the employee s signing a release and waiving all legal claims against the employer. If an employer seeks such a release, the payments or benefits offered as severance must be over and above what the employee is already entitled to receive without the release (e.g., employee is already entitled to be paid all wages earned and all accrued but unused vacation). Federal law contains specific statutory requirements for waivers of age discrimination claims and prohibits waivers of certain wage and hour claims. Due to the complexities involved, employers should consult an attorney to draw up a severance and release agreement. c. Unemployment Insurance Unemployment insurance provides benefits to those who are unemployed through no fault of their own. A discharge for misconduct may disqualify a claimant from receiving unemployment compensation benefits. To be eligible for payments, an applicant generally must: Make a claim for benefits in accordance with the regulations; Be unemployed through no fault of his/her own; Earned $1,300 in one quarter, or must earn $900 in one quarter and total base period earnings of 1.25 times that amount; Be able to work and available for work; Be actively looking for work; and Have registered for work and conducted a search for suitable work as directed. Unemployment benefits are financed through employer contributions. Under the experience rating provisions of the state unemployment insurance law, most employers pay contributions at a rate of 1.6 to 6.2% of their total payroll. The employer s contribution rate depends on its individual benefit ratio (benefits charged to its account for a certain period divided by its total payroll for the same period) as well as the level of funding of California s Unemployment Compensation Fund. d. Continuing Health Care Requirements The Consolidated Omnibus Budget Reconciliation Act of 1985 ( COBRA ) requires employers who establish medical benefits plans to notify employees and their 16

17 beneficiaries they have the right to continue their plan coverage at the time of a qualifying event that would otherwise end such coverage. Termination of employment is a qualifying event, unless it results from gross misconduct. COBRA applies to employers with 20 or more employees and requires those who elect to continue their medical plan coverage to pay for it at a rate slightly above (102%) the sum of the employer s and employee s premiums. Insurance companies providing group health insurance coverage to California employers with fewer than 20 employees are generally obliged to permit terminating employees and their qualified beneficiaries to continue coverage under state law. 7. Immigration (Federal Law) With globalization and the increasing benefits of a diverse workforce, social sector organizations located in the United States often seek to employ foreign personnel. This is particularly true with organizations that are already working and addressing problems not just in the United States but around the world. A variety of permanent and temporary visas are available, depending on factors such as the job proposed for the alien, the alien s qualifications, the availability of certain visas, and the relationship between the U.S. employer and the foreign employer. Permanent U.S. residents are authorized to work where and for whom they wish. Temporary visa holders have authorization to remain in the United States for a temporary time and any employment authorizations they obtain are often limited to specific employers, jobs, and even specific work sites. When planning to bring foreign personnel to the United States, U.S. employers should allow several months for processing by the U.S. Citizenship and Immigration Services ( USCIS ), as well as by the Department of State and the Department of Labor. Furthermore, employers should be aware that certain corporate changes, including stock or asset sales, job restructuring, change of job sites, and changes in job duties, may dramatically affect (if not invalidate) the employment authorization of foreign employees or require the filing of an amended petition. a. Permanent Residency (the Green Card ) Permanent residency is commonly based on either family relationships, such as marriage to a U.S. citizen, or offers of employment. Permanent residency gained through employment often involves a time-consuming process known as PERM, which can take several years. Employers considering permanent residency as an avenue for an alien employee should always analyze the requirements for a permanent residency filing before bringing the prospective employee to the United States. Employers rarely sponsor someone from abroad for permanent residency. Usually the individual is here in nonimmigrant status already. 17

18 b. Temporary Visas Examples of commonly used temporary visas are set out below. i) B-1 Business Visitors, and B-2 Visitors for Pleasure/Medical Treatment. These visas are used for brief visits to the United States of six months or less. Neither visa authorizes employment in the U.S. except in very specific situations. B-1 business visitors are often sent by overseas employers to negotiate contracts, attend business conferences or board meetings, or fulfill contractual obligations such as repairing equipment located in this country. B-1 or B-2 visitors cannot be on a U.S. payroll or receive U.S.-source remuneration. ii) F-1 Academic Student Visas Including Practical Training. Foreign students can come to the United States in F-1 status for academic training or M-1 status for vocational training. Students in F-1 status can engage, within certain constraints, in on-campus employment and/or off-campus curricular or optional practical training for limited periods of time. Vocational students cannot obtain work authorization but may sometimes receive practical training after completing their training courses. iii) J-1 Exchange Visitor Visas. These visas are for academic students, scholars, researchers, and teachers traveling to the United States to participate in an approved exchange programs. Potential employers should note that some J-1 exchange visitors and their dependents are subject to a two-year foreign residency requirement before being allowed to change status and return to or remain in the United States. iv) TN Professionals. Under the North American Free Trade Agreement, Canadians and Mexicans who qualify and fill specific defined professional positions can qualify for TN status. Such professions include certain medical/allied health professionals, engineers, computer systems analysts, and management consultants. TN holders are granted three-year stays for specific employers. Other employment is not allowed without prior USCIS approval. Particularly with regard to Canadians, paperwork required for filing these requests is minimal. v) E-1 Treaty Trader and E-2 Treaty Investor Visas. These are temporary visas for persons in managerial, executive or essential skills capacities who are generally employed by companies that engage in substantial trade with or investment in the United States. E visas are commonly used to transfer managers, executives or engineers with specialized knowledge about a foreign company s proprietary processes or practices to that company's U.S. operations. Generally, E visa holders receive a five-year visa stamp, but are approved for entry two years at a time. A visa treaty must exist between the 18

19 foreign national s country of origin and the United States. Spouses of E visa holders are eligible to apply for work authorization. vi) E-3 Treaty Alien in a Specialty Occupation Visas for Australian Citizens. E-3 visas are for Australian citizens who will be employed in the United States in specialty occupations requiring at least a bachelor s degree. A U.S. employer must pay its E-3 workers the higher of the actual wages it pays its U.S. workers or the prevailing wage for U.S. workers in the local commuting area, based on the Department of Labor s ( DOL s ) online wage library or another valid salary survey. These temporary visas are granted for a period of two years and are renewable indefinitely. Spouses of E-3 visa holders are eligible to apply for work authorization. vii) H-1B Specialty Occupation Visas. H-1B visas are for persons in specialty occupations that require at least a bachelor s degree. Examples include computer programmers, engineers, architects, accountants, and, on occasion, business persons. H-1B temporary workers are granted initial, three-year temporary stays, with possible extensions limited to an aggregate of six years. H-1B visas are employer- and job-specific. A U.S. employer must pay its H-1B workers the higher of actual wages it pays its U.S. workers or the prevailing wage paid to U.S. workers in the local commuting area, based on the DOL s or other valid salary studies. viii) L-1 Intra-company Transferee Visas. These visas are most often used to transfer executives and managers (L1-A) or persons with specialized knowledge (L-1B) from international companies to U.S.-related companies. L-1 visas provide employer-specific work authorization for an initial three-year period, with possible extensions of up to seven years in certain categories. Some L-1 managers or executives may qualify for shortcuts in permanent residency filings. Spouses of L-1 visa holders are eligible to apply for work authorization. ix) O-1 and O-2 Visas for Extraordinary Ability Persons. O-1 and O-2 visas are for persons who have extraordinary abilities in the sciences, arts, education, business or athletics and enjoy sustained national or international acclaim. Persons who assist in O-1 artistic or athletic performances are also eligible. x) P-1 Athletes/Group Entertainers and P-2 Reciprocal Exchange Visitor Visas. These temporary visas allow certain athletes who compete at internationally recognized levels to come to the United States to work. Entertainment groups who have been internationally recognized as outstanding for a substantial period of time may also be included in this category, as may essential support personnel. 19

20 c. Immigration and Nationality Act ( INA ) The INA bars employers with four or more employees from discriminating based on citizenship or immigration status. Employers may not treat individuals differently because they are or are not U.S. citizens, recent permanent residents, temporary residents, asylum seekers, or refugees. U.S. citizens and work-authorized immigrants are protected from document abuse employers may not demand more or different documentation than required to verify identity and employment eligibility; nor may they reject reasonably genuine-looking documents or specify certain documents over others. d. Immigration Reform and Control Act ( IRCA ) IRCA requires employers, regardless of size, to inspect and verify documentation establishing the identity and eligibility to work in the United States of every newly hired employee and makes it unlawful to hire ineligible aliens. The employer must verify the identity and employment eligibility by having all new hires complete Employment Eligibility Verification Forms ( I-9 ) forms. Employers risk significant fines and penalties for failing to comply with these documentation requirements or hiring workers who are not authorized to work in the U.S. 8. Federal Employment Law Described below are some of the more significant federal laws and regulations, not pertaining to immigration, that affect the employment relationship. a. Title VII of the Civil Rights Act of 1964 ( Title VII ) Title VII prohibits employment discrimination based on race, sex, color, national origin, or religion. The law applies to all employers with 15 or more employees and prohibits discrimination in areas of job advertising, recruiting, hiring, promotion, compensation, benefits administration, and termination. Title VII also prohibits harassment based on an individual s protected characteristics, as well as retaliation for engaging in conduct protected by Title VII. To recover damages, an individual who has suffered injury as a result of a Title VII violation must file a complaint with the Equal Employment Opportunity Commission ( EEOC ) within 180 days of the alleged discrimination. If the employee elects to file charges initially with a state or local fair employment agency, the EEOC charge must be filed within the earlier of (i) 300 days after the alleged discrimination, or (ii) 30 days after receiving notice that the state or local agency has terminated the proceeding under state or local law. (If California s Department of Fair Employment and Housing ( DFEH ) accepts a discrimination complaint for investigation and determines the matter also falls within the EEOC s jurisdiction, the DFEH will dual file the complaint with the EEOC and continue its investigation. DFEH findings are usually accepted by the EEOC.) 20