DLSE Revises Wage Notice and FAQs: Good News and More Good News

Good news for employers: On Thursday April 12, 2012, the Division of Labor Standards Enforcement ("DLSE") issued a more streamlined, user-friendly template for California's Wage Theft Prevention Act. The new template notice can be accessed here. The DLSE also released a revised FAQ, which can be accessed here. More good news: employers need not issue a new notice to new hires who received earlier forms, unless, of course, there is some substantive change to report.

Background. As of January 1, 2012, the Wage Theft Protection Act (California Labor Code Section 2810.5; Assembly Bill 469) has required employers to provide new hires with wage notices that include specific information. The statute authorized the DLSE to add content deemed "material and necessary" to the list of eight items specifically covered by Labor Code 2810.5.

Just before the effective date, the DLSE issued a controversial template for the new wage notice. A day later, the DLSE released a set of Frequently Asked Questions (FAQs), which escalated the controversy still further. Employers objected that the DLSE's convoluted form went far beyond the statute. The DLSE subsequently revised its FAQs twice, on January 3 and again on January 23, but not in a manner employers viewed as positive. Employers were vocal about their frustrations. Although the DLSE did not necessarily make all of the changes requested by the employer community, the DLSE has moved in the right direction with its April 12 revisions.

Key Improvements. The new template omits confusing, legalistic fine print at the beginning and end of the form (e.g., deleting reference to the DLSE website where the form could be found in other languages and the list of categories of employees not entitled to the form). And there were a number of substantive and process improvements.

• Signing by both sides is optional. The DLSE had initially required that the form be signed by both employer and employee. No such requirement appears in Labor Code 2810.5. The FAQ explains "As of April 11, 2012, the template has been updated to indicate that the Acknowledgment of Receipt is optional. Signatures by the employer or employee may provide assurance and confirmation that the notice was, in fact, provided by the employer and received by the employee, as intended by the Legislature. While the use of this acknowledgment thus better protects both the employer and employee, it is not required." The DLSE also added that the employer representative "may be any person the employer has authorized to sign the acknowledgment."
   
• When the form must be provided is clarified to mean "a date determined by the employer and employee," but "in no event later than the first day services are performed by the employee." Earlier versions of the FAQs were confusing as to the meaning of "at time of hire" and implied that the form would need to be provided earlier than the first day of work in certain circumstances.
   
• More guidance for temporary services firms, staffing agencies & professional employer organiazations (PEOs). The new template is simpler to navigate when a temporary services firm, staffing agency or professional employer organiazation (PEO) is involved. Earlier versions of the template contained confusing references to "worksite employers" and "other enitities used to hire employers or administer wages or benefits." That overbroad language gave rise to concerns that third party benefits administrators needed to be listed.

The new form asks: "Is hiring employer a staffing agency/business (e.g., Temporary Services   Agency; Employee Leasing Company; or Professional Employer Organization [PEO])? ? Yes ? No." If "yes" is checked, the form asks for the name, physical and mailing addresses and telephone number of the other entity for whom the employee will perform work.

A recruiting service or simple payroll processing service is not a staffing agency or business for purposes of the notice. The FAQ states: "Identification of the other entity for whom the employee performs work does not itself establish liability among the respective businesses (staffing agency and client business for whom work is performed) but simply identifies the other entity for whom work is performed by the employee for which liability as an employer for wage payment and/or workers' compensation coverage can be determined, if necessary, with respect to the rights of the employee who performs services."

• Changes in assignments. The FAQs also describe how the temp services firm/staffing agency/ PEO must update the notice after a change of work assignment. "If the staffing agency/business knows the client business (the 'other entity for whom this employee will perform work') where the employee is to be placed, the client business information must be indicated in the notice provided 'at the time of hire….'" If other placements are known at the time of initial placement, the staffing agency/business can list the other known placements. Subsequent placements are substantive changes to the information provided in the first notice. Within seven (7) calendar days, notice of the change must be given either by providing a whole new notice or reflecting the change in an itemized wage statement or other writing.
   
• Written vs. oral contract eliminated. Employment contracts in California are typically a mixture of implied, oral and written terms. Employers were concerned about how best to handle the original template's requirement to state whether the employment contract is written or oral. The new template no longer requires stating "written" vs. "oral," but instead requires designation of whether a written agreement exists which provides for the rate(s) of pay. If the answer to the question is "yes," then the employer must check another box stating whether all rates of pay are included in the written agreement or not.

Lingering Issues of Concern

• When is there a written agreement? The new formulation eliminating the "written vs. oral" dilemma is an improvement for employers, but the language still is not crystal clear. Some employers may have only part of their pay structure reduced to writing (e.g., written commission agreements) and their answer to the follow-up question about whether all rates of pay are included in the written agreement would be "no." Other employers may have a document that contains comprehensive formulas for all rates of pay (shift differentials, weekend, holiday, etc.) and their answer could be "yes," but only if they are willing to characterize that document as a written agreement. Reserving the ability to change and amend such a document will be important. Judgment calls must still be made. Reminder: all California employers must put their "commission" agreements in writing by January 1, 2013.
   
• Multiple pay rates remain confusing. Although there are new examples in the revised FAQs, the basic problem remains that the regular rate of pay for overtime is a complex, variable calculation. According to a new example, an employer should give the lowest overtime rate (based on base pay) and indicate what factors may cause upward adjustment. "Overtime Rate: At least $13.50/hour (1½ times regular rate) & $18.00/hour (double time rate), subject to upward adjustment based upon earned commissions (10% of sales) and bonus (2% of department gross sales)."
   
• Name of the employer. The new FAQs clarify that the employer must specify its full formal legal name including "Inc.," "Co.," "Corp.," "LLC," "Partnership" (if part of the full legal name of the business). The employer must specify any other name it is "doing business as" ("dba"). "Dba" includes both formal fictitious business names and informal names which are different from the legal name. Employers with multiple lines of business and independent subsidiaries who desire to preserve corporate separateness should take care to use the name of the specific employing entity (or entitites), not the parent or holding company's name.

In summary, the new template and FAQs are welcome, but complexities and strategic judgment calls are needed in checking the boxes and filling in blanks of the new wage notice. Employers should contact their employment law counsel for individualized advice.

By: Dana Howells

Dana Howells is senior counsel in Seyfarth's Los Angeles office. If you would like further information, please contact your Seyfarth attorney, or Dana Howells at dhowells@seyfarth.com.