Legal News & Tips

You Won Your Lawsuit! Now, Can You Be Reimbursed for Your Legal Fees?

April 13, 2015 By Israel Samuels LLP Leave a Comment

It depends.

If you had a dispute with a British firm, and British law applied, then the “loser pays” rule would likely apply. This rule has its roots in the admirable objective of trying to avoid frivolous lawsuits or vexatious litigation, as well as encouraging settlement of lawsuits where one party is clearly “in the right” and is likely to prevail if the matter goes to trial.

But the “American Rule”, which applies in most states, allows the prevailing party, in most legal disputes that go all the way to trial, to be reimbursed for costs and attorney fees only if that is specified in a written contract, provided for as a matter of specific statute because a significant public benefit was vindicated, or for certain types of actions alleging fraud.

Awareness of the likely result if a dispute arises, with regard to this issue of legal-fees reimbursement, can also be an issue when your attorney is drafting a contract for you. Should every contract contain a “loser pays” legal fee clause? Some attorneys would say “always” or at least “almost always”. Others might argue, at least for particular types of contracts, that you’re better off without such a clause, because that will discourage lawsuits by either party unless they’re “strong.”

What it comes down to is this: the inclusion or exclusion of a “loser pays” provision in a contract into which you enter can be a strategic decision, often based on “legal factors” with which most laypersons will not be familiar. At the very least, you should discuss this subject with your attorney to better understand his personal preferences regarding various contractual provisions, because the ultimate decision resides with you as to whether particular provisions such as this should be included or excluded.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Offer to Compromise: Can It Be Used Against You?

April 6, 2015 By Israel Samuels LLP Leave a Comment

You’ve had an argument with a supplier, or customer, or someone with whom you’ve had a little “fender-bender.” There’s a major disagreement over how much is owed and if you are even responsible.

You believe that you didn’t really do anything wrong, and shouldn’t owe anything. But your lawyer warns you that legal fees to vindicate your position could easily cost you tens of thousands of dollars, which could exceed the total alleged damages, and there’s no way to get your attorney’s fees back.

So, you pick up your phone, call the other party, and without admitting any legal responsibility, offer to pay him $5,000 to “go away.” He says “put it in writing, I’ll think about it.”

So, you write a brief one-sentence email repeating your offer. After some back and forth, the other party refuses your offer, and files a lawsuit.

As the legal maneuvering gets under way, your adversary files a motion with the court, asking for judgment in his favor based on his contention that your written offer to settle, amounts to an admission that you are responsible. After all, why would you offer to settle if you really had no responsibility?

The answer: Your adversary is wrong. California Law (Evidence Code §1152) provides that an offer to compromise cannot be used against you, in an attempt to prove your responsibility.

But do remember that there are exceptions or differing interpretations for many laws. It is risky to try to handle it on your own, so this is another situation where involvement of your attorney at an early stage of attempting to resolve the dispute may be worth its weight in gold.

New Legal Name/Social Security Number Not Good Cause for Firing

March 30, 2015 By Israel Samuels LLP Leave a Comment

An employee presents your HR staff person with a changed name and a new social security number. You have strong suspicions that the information given you when the employee was hired was false, or that the employee did not previously have the legal right to work in this country, or perhaps even to be in the country.

DO NOT decide to terminate the employee to avoid any problems.

At least not without a careful further investigation. Employers should not automatically terminate employees who present new legal documents without first reviewing the matter with an attorney who will consider all the legal issues raised by new documents.

Last year, a new immigration-related retaliation law was passed in California to, among other things, protect an immigrant from being discriminated against, discharged or retaliated against for updating or attempting to update his or her personal information.

This year, legislation was passed and signed into law to clarify what is meant by “personal information”—specifically adding “name” and “Social Security number.” This amendment was added to Labor Code Section 1024.6 and went into effect January 1, 2015:

1024.6. An employer may not discharge an employee or in any manner discriminate, retaliate, or take any adverse action against an
employee because the employee updates or attempts to update his or her personal information based on a lawful change of name, Social Security number, or federal employment authorization document. An employer’s compliance with this section shall not serve as the basis for a claim of discrimination, including any disparate treatment claim.”

In the past employers could take the position that an employee who misrepresented key information at the time of hire could be automatically terminated. Now employers must exercise caution and seek legal counsel before termination of an employee who updates his or her personal information. Employees may make legal changes to their name or Social Security number and may not be terminated for doing so.

As for the Form I-9, if the employee presented original documents that established identity and work authorization at the time of hire and the employer certified that the documents appeared genuine and the employer had no knowledge that an employee was not authorized to work, there is no I-9 violation.

Going forward, if the employee provides new legal documents, the employer should re-verify employment of that employee based on the new documents. There are now penalties that permit an employee to recover damages and attorney fees. It is important for employers to be aware of this law and not terminate employees for this issue, unless they are completely sure they comply with applicable law when doing so.

Proprietorship, Partnership, Corporation, LLC: Which is Best for Your Business?

March 23, 2015 By Israel Samuels LLP Leave a Comment

If you are operating a business as a sole proprietorship, or as a partnership if there is more than one co-owner, you probably pay self-employment taxes (social security, etc.) on your entire share of the company’s profits. Corporations and Limited Liability Companies (LLC), on the other hand, are taxed differently.

A corporation pays its share of employment taxes and withholds certain required income and employment taxes from employees’ compensation. Corporations and their employees pay these taxes only on the reasonable salaries paid to employees, not on the total profits of the corporation.

Learn the differences between a Sub-S and a Sub-C corporation, and decide which is best for you.

If you have any doubts about whether you have adopted the best form for your business, or are starting a new business or subsidiary (or buying a business), have a planning meeting with your attorney and your accountant to evaluate what form of organization would be best for your enterprise.

Worker Commute Time Should Be Compensated If Duties Are Performed

March 16, 2015 By Israel Samuels LLP Leave a Comment

The general rule is that an employee’s commute to work, from home to the company door, is unpaid.

But what if an employee – say, a service technician – drives his/her own vehicle to the first worksite of the day, with tools, equipment and spare parts in the trunk?

The law is not so specific that it defines in great detail all situations which might arise. The obligation to compensate an employee depends upon whether the time spent meets the definition of “hours worked” found in the Industrial Welfare Commission Orders, Section 2, Definitions.

“Hours worked” means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.”

The Division of Labor Standards Enforcement (DLSE) gives guidance about travel time in its Opinion Letter 2003.04.22, stating in part: “Also, if the travel involved the employee being required to deliver any equipment, goods or materials for the employer, the travel, no matter how extended, would be compensable.”

On the basis of this definition, when an employer directs an employee to deliver tools and equipment, the employee is working and the hours are compensable.

On the other hand, if the employee is simply driving to the first place he/she is to report for work without any additional obligations imposed by the employer, that commute time is not compensable.

When an employee is performing a duty for the employer, the fact that it is the employee’s first commute of the day does not negate the obligation to pay for all hours worked. This means whether the employee is driving his/her own vehicle or a company vehicle, he/she is on the clock when commencing to drive to the work location.

Also, keep in mind that if the employee is driving his/her own vehicle, mileage reimbursement will be required.

Deciding what is and is not hours worked can be complicated. We recommend that you develop a policy about travel time payment and make sure your managers/supervisors are aware that asking an employee to deliver equipment
to a job site may create a time and mileage obligation for the company.

Workers’ Comp Rates: Big Increase Ahead (State Fund)

March 9, 2015 By Israel Samuels LLP Leave a Comment

Just after last month’s issue of Business Briefs was published, the State Compensation Insurance Fund announced that it would be boosting its workers’ comp rates effective April 1. The announcement advises that insured employers will be paying, based upon the overall average, about 9% more under the modifications. Some employers however will be hit harder than others as State Fund is boosting tier A and B by 5%, dropping the 6% group discounts and increasing territorial surcharges in southern California 6.5% for Los Angeles and 4.8 for the rest of the area.

That means that effectively, a tier A or B account which is currently in a group and located in Los Angeles could see an increase of 17.5% [6% for the group, 6.5% LA territory, and 5% for the tier]. Accounts in Los Angeles not in a group will see increases of 11.5%.

State Fund, California’s market of last resort, is also increasing its requirements for schedule credits and debits to $25,000 and increasing minimum premiums by 25%.

Reactions from the brokerage community have been very strong, objecting to the increasing burden and negative factors affecting workers’ comp brokers as well as their business clients.

How will it affect your business, if you are a State Fund client? Well, if you don’t have too many employees relative to your size (as measured by annual revenues), it may not be a major cost factor for you. But for most State Fund clients, it appears as though there may be a major increase soon.

Since the new rates will not go into effect for a few months, now is the time to call your insurance broker for expert guidance in determining the impact on your business, and whether there are any reasonable actions you might be able to take to minimize the cost increase impact on your bottom line.

Sexual Harassment: A Potential Hidden Exposure

March 5, 2015 By Israel Samuels LLP Leave a Comment

An interesting case was decided earlier this month when a California Appellate Court overturned a trial court and ruled that an employer cannot be liable for failing to take reasonable steps to prevent sexual harassment in the workplace if there was in fact no sexual harassment.

Let’s look at the applicable Law. Government Code §12940 says that it is an unlawful employment practice for an employer to fail to take “all reasonable steps” necessary to prevent discrimination and harassment from occurring.

The jury found the employer “not guilty” for sexual harassment, and that should have been the end of it.

But the employee’s attorneys had also included another accusation in its complaint, namely, that the employer had also failed to take reasonable steps to prevent the sexual harassment from happening. The jury agreed with that proposition.

Astounding, in our view. And the Appellate Court agreed, overturning this ruling. When failing to take preventative action is itself a legal violation, but what was to be prevented does not occur in any case, the employer cannot be held liable for “failing to take preventative action.”

Monographs Available

March 2, 2015 By Israel Samuels LLP Leave a Comment

As one of the services we provide, we are pleased to make the following informative summaries available to our readers on request.

Dispute Resolution
Corporate Formalities
Collecting Business Debts More Easily
Defining the Work Week (re Overtime)
Mechanics Liens for General Contractors
Selling Securities in California
Exempt and Non-Exempt Employees
Life Insurance Ownership
Pregnancy Disability Leave
Final Arrangements (Estate Planning)
Employee Equity Plans
Pay Deductions (When Allowed)
Fictitious Business Names
Shareholder Loans & Guarantees to Company
Employee Termination Policies & Procedures

New Laws – 2015

February 23, 2015 By Israel Samuels LLP Leave a Comment

Every year California seems to be deluged with new employment-related laws and 2015 will be no different. In addition to changes to minimum wage laws, here are some of the more significant changes that will require employers to update their hiring practices
and Employment Manuals:

1. Employers Cannot Discriminate Against Those Without A California License
Employers are prohibited from discriminating against applicants and employees without valid California driver’s licenses and new California law permits issuance of driver’s licenses irrespective of immigration status. New laws make it a Fair Employment and Housing Act (FEHA) violation for an employer to discriminate against anyone without a license and now specify that discrimination based on national origin includes discrimination based on having a driver’s license. As a practical matter this means employers cannot require a valid California driver’s license or discriminate against applicants and employees who have alternative driver’s licenses.

2. Remedies And Grounds for Retaliation Claims Expanded
Laws that forbid retaliation against an employee or applicant for engaging in protected conduct now require a $10,000 penalty be awarded to the employee(s) who suffer a violation; define unfair immigration-related practice to include threatening to file or filing a false report/complaint with any state or federal agency; and prohibit employers from discriminating, retaliating, or taking any adverse action against an employee for updating personal information based on a lawful name change, social security
number, or federal employment authorization document.

3. Mandatory Paid Sick Leave Starts July 15, 2015
Under the Healthy Workplaces Healthy Families Act of 2014, effective July 1, 2015, all California employers must permit employees who have worked 30 or more days in California within a year of their employment to accrue paid sick leave. There is no exemption for small employers or part-time and temporary employees. Paid sick days must accrue at a rate of one hour for every 30 hours worked, but may be capped at 48 hours (or six 8-hour work days). Accrued but unused sick days must carry over into the following year (subject to the 48 hour/six day accrual cap). Employees are not entitled to be paid for accrued but unused sick days on termination of employment, but must have unused sick leave reinstated if rehired within one year.

Employers must provide written notice of employees’ available paid sick leave; document and retain for at least three years records of employee paid sick leave usage and accrual; and provide new employees notice of entitlement to paid sick leave and the right to file a complaint for violations, and post a workplace notice from the Labor Commissioner on the Act.

The posting and notice requirements became effective January 1, 2015. There is also a rebuttable presumption of unlawful retaliation for any adverse employment action occurring within 30 days of an employee engaging in certain protected activity under the Act.

Employers with existing sick leave or paid time off policies are not required to provide additional leave, if their existing policies: (1) already comply with the law’s accrual, usage, and carry over requirements; and (2) provide no less than 24 hours of paid sick leave annually.

It is imperative employers update their sick leave and record-retention policies (including their employee handbooks) to ensure compliance with the Act.

4. Rest Break Compensation
Legally mandated rest or recovery periods must now be counted as hours worked without a deduction from wages.

Wage & Hour Assessments

February 16, 2015 By Israel Samuels LLP Leave a Comment

Wage and Hour Assessments are an essential function you should perform for your business at least once a year, or hire someone to do this for you (your accountant, attorney or a qualified HR consultant are often good people to perform this important function).

Such assessments are an essential component of good business management, to help ensure that you are not inadvertently violating the law, and perhaps exposing yourself to some very stiff monetary penalties which can run into thousands of dollars, even for a small business.

Some businesses think they can escape this exposure because they arrange to not have any employees. How? By labeling or defining everyone as an independent contractor (or so they think!).

Wrong! (often)

How you label the people who perform the work of your company is only one part of the equation. The government defines who is an employee and who is an independent contractor. Their rules count for a lot more than your own definitions.

Here is a sobering statistic: employers are about three times more likely to be sued for violations of the Fair Labor Standards Act (FLSA), the federal law regulating wage issues, or the comparable state wage and hour laws (which in California can be substantially more onerous than the federal laws), than they are for discrimination or harassment.

That fact, when combined with stepped up enforcement by the Federal Department of Labor (DOL), or the California Division of Labor Stands Enforcement (DLSE, often referred to as the “Labor Board”), should prompt you to conduct periodic internal wage and hours audits, to make sure you are complying with applicable law in your relations with your employees. We suggest legal counsel assisted audits be done at least once each year, and perhaps even twice annually if you have high labor turnover or a workforce where
such audits may be more complex. Your attorney should be contacted whenever there is a significant change in the law affecting employment or in the number of company employees; when independent contractors are hired; and whenever the nature of the business’s employees’ work changes.

Here is a quick checklist of the most significant issues that are routinely encountered and of which every employer should be aware:

1. Classification Of The Company’s Workers
(a) Employee Versus Independent Contractor
Workers are classified by criteria set by an Internal Revenue Service (IRS) test and by other Federal and State tests. Preliminarily determine whether your workers are really “employees” for wage and hour compliance purposes. The FLSA does not apply to true independent contractors.

If you hire independent contractors updated written agreements that clearly define the relationship are imperative but, by themselves, are insufficient. The actual interaction between your business and these workers will define your relationship irrespective of the contract language.

Thus, in your review, ask how much control or direction do you have over the contractor’s work? Is the contractor realistically economically independent from your organization? If you are uncertain about your response to either of these questions, seek legal advice.

Misclassification of these workers can result in a steep back tax bill, among other consequences, if you’re audited. It can also result in significant hourly wage issues that involve heavy penalties.
(b) Exempt Employees
A second classification to review is that of “Exempt Employees.” These are usually salaried employees that have been classified as exempt from the FLSA’s and DLSE’s timekeeping and overtime requirements. You must support each position your business claims to be
exempt by applicable exemption criteria.

This requires identification of the exemption that your business claims applies to the position. After you have identified what you believe to be the applicable exemption consider the position’s compensation rates and job duties. Some exemptions for salaried
positions can be jeopardized by improper wage deductions. Review organizational charts, salary ranges, and job descriptions, in addition to informational exchanges between exempt employees and their supervisors.

This can be time consuming and can call for the most difficult judgment calls. It is the employer’s burden to show that an exemption applies. Therefore, when in doubt, seek counsel, but err toward non-exempt employee reclassification. Consider that the cost saving or other benefit derived from exempt classification may not be worth the risk of a misclassification claim.

Misclassified workers are entitled to back overtime for up to three years in addition to liquidated damages and attorneys’ fees should the matter go to court. To top it off, California’s “waiting time penalties” can be a very major cost to you.
(c) Non-Exempt Employees
Non-exempt employee classification requires review of your current timekeeping method to assure it accurately captures all work hours for non-exempt employees and that it is being used correctly. Supervisors should not alter time records without employee
approval or verification. Question time records that appear too uniform, or areas where overtime has dropped though there are no new hires or declines in productivity. Scrutinize all employee activities to make sure all work time is being recorded and no work is “off the clock.” Issues to consider are whether work is performed before or after the employee clocks in and out, travel time, break time, and mobile work or work from home.

Non-exempt employees must be paid at least minimum wage for all hours worked. Specific state and federal laws speak to how it must be calculated. Analyze any deductions from pay. Although some deductions are permitted, many are not. Check with legal counsel before making any deductions.

The FLSA requires overtime be paid at one and one half times the employee’s regular hourly rate. However, some State and local laws may impose a different calculation. The overtime requirements apply irrespective of whether the nonexempt employee is hourly, salaried, commissioned, piece rate, or any combination thereof. Note that there are also some State laws that prohibit piece rate or commission work for certain types of workers. If you have any employees who live in or regularly work in another state, which can apply in many cities near a state border, the neighboring state’s employment laws may apply.

Failure to include bonuses, commissions, and other incentive payments to nonexempt employees when calculating the overtime rate is a common potentially expensive error. Also ensure there are no illegal “comp time” arrangements. A private employer may not provide
employees with compensatory time off (“comp time”) rather than overtime, unless expressly permitted by law.

2. State and Local Laws
In addition to Federal wage and hour laws, many states, including California and localities, such as San Francisco, Oakland and Los Angeles, have minimum wage and overtime rules that are more burdensome than federal law. California law also regulates the timing of paychecks and issuance of paychecks on termination.

3. Written Policies
Review your written wage and hour policies. Determine how they would look to a court or to the DOL or DLSE. How clear do they communicate the company’s rules? Do they explain how time is recorded, how break times work, and where employees can go with any questions? Is the intention to comply with all laws and prohibition of “off the clock” work clearly conveyed? Employment Manuals are not static documents. They need to be reviewed and updated. If your internet or phone use policy is longer and more detailed than your wage and hour policy, you could probably use an update.

4. Supervisors
Your organization is responsible for wage and hour mistakes made by supervisors. Individual managers and owners can be individually liable for FLSA or DLSE violations. Consequently managers and supervisors should be required to undergo periodic formal training in the basics of wage and hour law, including how to handle complaints or questions about hours or pay, and that working off the clock is never allowed.

5. Employment Practices Liability Insurance
If you don’t have this kind of policy in place, please at least take the time to talk with your insurance agent about it. All it takes is one claim a decade, of the type covered by an EPLI policy, to justify the expense.

Most EPLI policies do not cover wage and hour-related lawsuits. Therefore, we suggest legal counsel or an HR compliance consultant be brought in on the same periodic basis to provide this training. It is a few hours of preventative care that can save tens of thousands of dollars in claims.