DLSE Revises Wage Notice FAQs-- More Bad News for Employers

Beginning January 1, 2012, the Wage Theft Protection Act (Assembly Bill 469) requires California employers to provide notices to all new hires that include specific information. The new statute authorizes the Division of Labor Standards Enforcement ("DLSE") to add other required information deemed "material and necessary" to the list of eight items specifically covered in the statute. The new law is summarized in our October 13, 2011 California Labor and Employment Legislation Alert.

On December 29, 2011, the DLSE published a template for employers to use in order to meet their obligations under the Act, which is codified at California Labor Code Section 2810.5. The template, now available on the DLSE's website in English, Spanish, Chinese, Korean, Vietnamese and Tagalog, raises more questions than it answers regarding an employer's obligations. https://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html

One day after issuing the template, the DLSE released Frequently Asked Questions (FAQs ), then revised the FAQs on January 3. On January 23, 2012, the DLSE extensively revised its FAQs again. http://www.dir.ca.gov/dlse/FAQs-NoticeToEmployee.html

Although the DLSE template is only a few weeks old, California employers already have found that it is difficult to complete. The January 23 revised FAQs will not make compliance easier.

Concerns Raised By The New FAQs

Current employees. The original December 30 FAQs stated that current employees, not just new hires, should be provided with a 2815.10 notice, although the statute requires notices be given only at time of hire and seven days after a change in the information. The DLSE retracted the earlier view that giving a notice to current employees was required, but in the latest FAQs takes the position that it is "best practice" to give a 2810.5 notice to current employees as well as to new hires.

"Time of Hire" has been made more controversial by the latest FAQs. "The concept does not necessarily depend on the first day of work by the employee but may be sooner where there has been an offer and acceptance of employment establishing an employment relationship." This is followed by a confusing discussion of unilateral versus bilateral contracts. Cutting through the legalese, employers must provide the notice to new hires "reasonably close in time to the inception of the employment relationship." This language would seem to make it appropriate to send the notice after all contingencies on a contingent offer are satisfied or to give the notice with other "new hire paperwork" and other forms on the first day of work.

Signing the Notice. Labor Code 2810.5 nowhere requires the notice to be signed. The FAQs take the position the notice must be signed by both sides. The employee signs to acknowledge receipt only. However, the new FAQ seemingly makes the employer's signature into something more. "23. Why does an employer representative have to sign an acknowledgment on the notice? A: Employers often consist of various legal entities which are not individuals/persons. The acknowledgment provides assurance that the information on the notice is from the employer and that the employer is providing the information to each employee. This acknowledgment better protects both the employer and employee that the statutory notice is in fact provided as intended by the Legislature. The employer representative may be any person the employer has authorized to sign the acknowledgment." Employers who have developed 2810.5 forms which are not signed by both parties should modify their forms, at least prospectively, to include an employer signature.

Pay Days. The FAQs opine that the employer need not provide a specific date (month, day, and year) for each pay day. Most employers were probably not planning on listing all pay dates indefinitely. Per the DLSE, "The information provided should be sufficient for an employee to understand when she will be paid." The DLSE wants to see both the interval (weekly, bi-weekly or semi-monthly) and well as any recurring day of the month or day of the week, as applicable. Examples given in the FAQ include: "1st and 15th of every month; 1st and 2nd Friday of every month, each Friday of every month."

Rates of Pay. This will be a difficult area for employers who pay multiple pay rates. The notice must include "[t]he rate or rates of pay and basis thereof whether paid by the hour, shift, day, week, salary, piece commission, or otherwise, including any rates for overtime, as applicable." The Legislature's inclusion of language referring to "the rate or rates of pay" contemplates that several rates may apply to an employment relationship. Many of the new FAQs are devoted to questions regarding multiple pay rates. One possibility is to create a separate sheet describing the pay rates and attach it.

Benefits Administration. The new FAQs do not tackle one of the toughest issues presented by the DLSE template-- how to correctly fill out the overly broad questions aimed at joint employment relationships which sweep in third party benefits administration. If the worksite employer uses any other business or entity to hire employees or administer wages or benefits, the form requires completing two sections, one for the worksite employer and one for the other business. Both sections need not be completed if the only other business is a recruiting service or a payroll processing service. The information that must be provided about "the other business" includes whether the other business is a professional employer organization (PEO), employee leasing company, or a temporary services agency, and requires physical address of main office, mailing address, telephone number, and other names. In some cases, characterizing the relationships according to the DSLE categories may not be a simple matter. Employers have questioned whether the reference to benefits administration by a third party requires information regarding third party administrators, such as a FMLA administrator or an Employee Assistance Program (EAP) provider firm. The DLSE should not be concerned about benefits administration in situations where there is a single employer. Properly completing the form in contingent workforce situations (temporary services, leasing, outsourcing and contracting) should be done with the help of counsel.

Overtime Regular Rate. Overtime may be owed at either time and one-half the regular rate of pay or double the regular rate. The "regular rate" may not be readily calculable because it may include bonuses and commissions and other forms of compensation that vary from pay period to pay period. The DLSE's revised FAQs acknowledge this difficulty and, while not sufficiently clear, give an example of how to handle variable overtime. "In such cases, it is sufficient that an employer provide the minimal overtime rate based upon a multiplier of 1½ or double times the hourly rate and also indicate that such specified overtime rate is subject to upward adjustment when other specified forms of wages are earned during the applicable pay period." One problem with this language is that in certain circumstances overtime can adjust either upwards or downwards. The new FAQs state that a variable regular rate is the only time an employer can be inexact about the overtime rate. Bottom line: give the overtime based on a base rate of pay and include a statement about what factors can cause regular rate variations.

Workers Compensation. The DLSE requires insurance carrier's name, address, telephone number, policy number or, if self-insured (Labor Code 3700), certificate number for consent to self-insure. The new FAQs clarify, however, that a change notice need not be given if only the policy number changes if the employer posts the new policy number. However, if anything else changes, including insurance carrier contact information or a change in carrier, statements in the legislative history indicate that a poster with the correct information does not satisfy the requirement of giving employees a written notice of the change in seven days.

Written vs. Oral Contract. The FAQs address, but do not resolve, how best to complete the DLSE template's "check the box" question on whether the employment agreement is written or oral. Most employment agreements are a complex mix of written, oral, and implied components. Some employers may be comfortable with checking "written," others will probably want to indicate a mix of both. Many employers have written at-will agreements, which means the contract is written at least in part. The FAQs opine that the 2810.5 notice will not undercut at-will employment based on a theory that "at-will is compatible with both written and oral agreements." Most employers will still attempt to avoid any doubt by including an at-will reminder in the 2810.5 notice. The FAQs recognize that an employer may tailor the notice. One suggestion is to modify the DLSE form to reflect that the notice is a written agreement governing pay rates, and to include, if appropriate, an at-will reminder, such as "This notice is a written agreement on rates of pay, and confirms that your employment is at-will, meaning that either you or (the Company) can end the employment relationship at any time, without or without cause or notice."

There is a possibility that legal challenges may be brought against the DLSE regarding the template and the FAQs. However, unless and until a court clarifies employer obligations under the new Wage Theft Protection Act, employers should consider contacting employment law counsel for individualized advice on how best to comply with the law.

By: Dana Howells

Dana Howells is a Senior Counsel in the firm's Los Angeles office. If you would like further information, please contact your Seyfarth Shaw LLP attorney or Dana Howells at dhowells@seyfath.com.