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According to Equal Employment Opportunity Commission (EEOC) statistics, pregnancy discrimination charges against employers have increased by almost 50% over the period between 2000 and 2010. Although the actual charge numbers are much smaller than other types of discrimination charges such as race and sex, it is a good idea for employers to avoid these types of claims by making sure they understand the regulations related to pregnancy.

While the main federal law covering pregnancy discrimination in the workplace is the Pregnancy Discrimination Act (PDA) – an amendment to Title VII of the Civil Rights Act of 1964 that specifically applies its protections to women affected by pregnancy, childbirth, or related medical conditions—pregnant employees are also protected by the Americans With Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and any state laws that might apply.

Regarding state laws, it is especially important for employers to understand how their state’s regulation, if any, interacts with the federal law or provides additional benefits. For example, the State of California’s regulation covering pregnancy is the Pregnancy Disability Leave (PDL). The PDL provides more generous benefits to employees and the employee threshold count for coverage begins with five employees.

In comparison to state laws such as the PDL in California, the PDA applies to an employer if they have 15 or more employees. It prohibits an employer from firing an employee because she is pregnant. It also requires the employer to treat a pregnant employee who cannot work in the same manner that you treat other employees who are forced to take a leave of absence because of a medical disability. Also, FMLA applies when an employer has at least 50 people within a 75-mile radius and the pregnant employee has worked for the company for at least a year and for a minimum of 1250 hours in the last year. It requires the employer to allow the pregnant employee to take up to 12 weeks of unpaid leave in connection with the birth of her child.

Under the PDA, an employer may not refuse to hire, or take other adverse employment action against, a pregnant woman because of her pregnancybecause of a pregnancy-related condition, or because of the prejudices of co-workers, clients, or customers. Court decisions have shown that employers cannot attempt to prevent pregnant employees from doing work just because the employer believes it may pose a hazard to the unborn child. Although it may be hard to understand, a simple situation where an employer approaches a pregnant employee and attempts to stop her from working for fear of her safety could unintentionally provide the basis for a discrimination suit. It is the employee’s responsibility to request an accommodation. As with any other workplace accommodation, the thing to do for an employer is to wait until the employee brings up the condition and asks for accommodation. A good guideline is for an employer to base any decision on whether an employee can do the job on medical documentation, not a manager’s interpretation.

The following are some guidelines for employers to consider regarding workplace pregnancy:

  1. Because of additional leave laws in many states, an employer should be aware how federal and state laws intersect and can have complicated interplay.
  2. Employers should have clearly understood leave policies and train all managers on how to accommodate employees. If there are special leave policies that an employer maintains that are not required by law, the employer should make sure pregnant women have access to such leaves.
  3. Employers should maintain one “parenting” leave policy that is gender-neutral. It is a common mistake to have separate policies for males and females and making an assumption that women will be the primary caretakers. Such a policy would be considered to be discriminatory.

Employers should also be sensitive to inappropriate verbal comments made to a pregnant employee such as how “huge” the employee is or questions about due dates. However, even more dangerous is when a manager makes an assumption that a pregnant employee is not returning to work after the completion of her pregnancy.

A recent California Court of Appeals case (Narayana v. EGL, Inc., 9th Cir., 2010) delivered a very strong message to California employers that courts in California do not consider independent contractor agreements relevant to the question of whether a worker is an employee for purposes of the California State Labor Code.

In Narayana v. EGL, Inc., EGL hired three workers to provide pick-up and delivery services for the company’s operations in California. The workers signed independent contractor agreements with EGL that acknowledged that they were not EGL employees and had vendor relationships between them and EGL.

Despite the independent contractor agreements, the workers sued EGL in a California court alleging that the company had misclassified them and other drivers as independent contractors and failed to afford them employee protections contained in the California labor code that included overtime compensation, off-duty meal periods, accurate wage statements and payroll records and reimbursed business expenses. In addition, the workers alleged that EGL was liable for unlawful wage deductions, waiting time periods and violations of the state’s unfair competition law.

The suit was originally heard before a federal district court that did rule that, based on the declarations in the agreements, the workers were independent contractors. At that time, the case was dismissed. However, the case was appealed to the Ninth circuit court which then reversed the district court’s decision.

The Ninth court ruled that the existence of agreements that label workers as independent contractors is not decisive under California’s multi-factor test for employment. Furthermore, the Court found several indicators of an employment relationship, including the following:

  1. The agreement included automatic renewal clauses and could be terminated by either party with a 30-day notice or breach of the contract.


  1. The delivery services which the workers provided were an essential part of EGL’s regular business.
  2. The company instructed the workers on how to conduct themselves when receiving assignments and packages, responding to customer complaints, and handling damaged freight.
  3. The workers used employer-provided forms, received inter-company memos and attended meetings on company policies.
  4. The workers had to submit advance notice of vacation days.
  5. The company required the workers to wear uniforms with the company’s name and the workers were provided regular company ID cards.
  6. The workers drove exclusively for the employer.
  7. The jobs provided to the workers by the company didn’t require any high level skill, any special license, or any skills beyond the ability to drive.

In considering this case, California employers that hire independent contractors should carefully review their contractor relationships. Among things to consider, a California employer should review the extent to which they direct and control the work of contractors; the degree of permanence of the relationship; which party provides office space, business cards, marketing materials, tools, and equipment; whether training is provided by the business; whether performance reviews and discipline are issued; whether the contractor is engaged in a distinct occupation or business; the amount of skill required for the work; and how the worker is paid such as by the job or hourly.

As compared to many other highly industrialized countries, the United States does not have any “national holidays” regulations requiring private employers to offer paid holidays. However, the United States, through the U.S. Congress, has created several “federal” holidays for federal institutions and employees. Federal holidays include New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Columbus Day ,Veterans Day, Thanksgiving Day and Christmas Day.  Federal law cannot force state, municipal or other local governments to observe or recognize federal holidays in any ways. Although most states do recognize all federal holidays, there are exceptions such as when Arizona and New Hampshire refused to establish Martin Luther King Jr. Day as a legal holiday until well after all other U.S. states did so. In addition, there are various state and local holidays such as Patriots Day in Massachusetts, Pulaski Day in Chicago and Cesar Chavez Day in California.

As in most U.S. states, California private employers are not required to provide paid time off or premium pay when employees work on a designated holiday when the business is closed. If an employee works on a holiday, the employee is paid their usual rate of pay unless it is the employer’s policy to pay extra rates such as time-and-one half. Also, California law does not require the employer to pay any additional pay if an employee works on the day of a holiday unless it’s part of their common practice or if the employee has worked during a weekday. California law, in addition, does not require its employers to close for business on any holiday or to give their employees the day off for a particular holiday.

Even though there is not federal or state regulations requiring private sector employers to provide paid holidays, it is a common practice for employers to provide between eight and 10 paid holidays per year. According to the U.S. Bureau of Labor Statistics in 2009, an average of eight paid holidays were provided to 77% of private industry workers in the United States.

The following are some key points to remember for handling holiday pay in California:

  1. Premium Pay. A private sector employer is not required to treat a holiday any differently than any other workday. There is no requirement for an employer to pay a higher rate of pay or provide time off, with or without pay. Unless required by union contract, private sector employers have the discretion to provide holiday pay as well as provide or not provide a premium payment when an employee works on a holiday. In addition, the employer can set out rules for holiday pay such as requiring the employee to work the day before and day after the holiday to receive the holiday pay.
  2. Overtime. Paid holidays are not considered “hours worked” and are not included when calculating overtime. For example, a Monday is a paid holiday and an employee works eight hours per day, Tuesday through Saturday. There would be no overtime for the employee in that workweek. The employee would be paid eight hours of holiday pay and 40 hours of straight-time pay.
  3. Working on a Holiday. If an employer provides for holiday pay and an employee is required to work on a company holiday, the employee would be entitled to at least eight hours of holiday pay and pay for hours worked during the holiday.  Making holiday pay to floating holiday/personal day may be possible, but need careful practice due to the relationship with regulations.   

The combination of the Great Recession and the Obama Administration’s emphasis on adding more muscle to regulatory agencies are creating strong forces to rein in past with the use of independent contractors.

Over the past few decades, there has been a great deal of growth in the use of independent contractors by U.S. employers. There is widespread belief within the U.S. government that many of the independent contractors are really employees and that these misclassifications are affecting the federal government’s bottom line where employers fail to pay taxes they would be required to pay if a worker was classified as an employee. With the loss of millions of jobs during the past two years during the Great Recession and a federal government deficit running in the trillions of dollars, the federal government is now heavily motivated to confront the problem of misclassification.

President Obama’s 2011 budget request includes a proposal for a joint initiative between the Department of Labor (DOL) and the Department of the Treasury to decrease employee misclassifications. The proposal is projected to increase federal Treasury receipts by more than $7 billion over 10 years.

The DOL added 250 new wage and hour inspectors to its organization in 2009. Its 2011 budget request also includes $25 million for a “Misclassification initiative” enforcement effort. The request would fund 100 additional wage and hour inspectors and competitive grants to boost states’ incentives and ability to address the misclassification issue.

Also, the IRS recently launched a three-year audit campaign to examine the tax returns of 6,000 randomly selected employers nationwide. Among other issues, the IRS will determine whether employees have been properly classified and all payroll tax obligations have been paid. If an employer is found to have violated employment tax laws, it could face additional taxes, penalties and interest charges.

New federal legislation regarding misclassifications may also be coming, including the Independent Contractor Proper Classification Act (ICPCA), which President Obama sponsored when he was in the U.S. Senate. Although the ICPCA is currently inactive, it could be revised soon.

Employers should begin to take some steps to prepare for possible inspections and audits. Misclassifications can be very costly, resulting in owing misclassified employees back overtime and other pay as well as other civil penalties. Reviewing and, if necessary, reclassifying employee status can stop liability from continuing to build up. In some situations, it may even save an employer from agency fines and lawsuits.

While there are a number of factors that determine whether a worker is an employee or independent contractor, the following key points should help you in a self-audit of classifications:

  1. The agreement between you and your worker as to status is only one factor considered. A worker can be considered to be an employee even if you have established an independent contractor agreement in place. Employers should not assume that just because an employee agreed to be paid as an independent contract, government agencies or the courts will agree.
  2. The primary factor that carries the heaviest weight in determining if a worker is an employee or independent contractor is how much control the employer exercises over a worker. If the worker contracts for you and others, sets his or her own schedule, and supervises his or her own work, the worker is more likely to be considered an independent contractor.  However, if the worker is required to work set hours at the employer’s place of business, and/or the employer has great say over the employee’s schedule, he or she is more likely to be considered an employee.
  3. Independent contractors are generally not engaged in the employer’s primary business. They typically are engaged in an occupation that, while useful to the employer, is distinct from the employer’s business.

Although this issue of independent contractor misclassification is quite old, it has continued vitality. There has been a significant increase in litigation, government enforcement and legislation over the misclassification of independent contractors in the last few year. It is equally clear that the focus on independent contractor misclassification, far from slowing down, will only continue to pick up steam.

Although most companies typically maintain their own policies, procedures, special forms, filing deadlines and other requirements for employees to receive business expense reimbursements, in California employees have the legal right to be reimbursed for their work-related expenses.

In a recent 2009 lawsuit, Stuart v. RadioShack, a former employee filed a class action lawsuit against the company claiming he and other employees were not reimbursed for all work-related expenses. RadioShack  argued that the employee didn’t follow internal company procedures for requesting reimbursement including filing expense reimbursements on time. Therefore, the Company, as stated in its procedural guidelines and Handbook, opted to not reimburse the employee for not meeting the requirements.

A U.S. District Court in California, on hearing the case, rejected RadioShack’s arguments and held that the employee expense reimbursement rights cannot be waived. The court further held that as long as an employer knows, or should know, that employees are incurring work-related expenses, it is the employer’s duty to take steps to make sure that employees are reimbursed.

Although this case has not been heard yet in the California Supreme Court for a further ruling, it is most likely that the U.S. District Court’s logic will be followed by California Courts. As a practical matter, employers should consider the following:

  1. Employers should no longer refuse to pay “late” expense reimbursements requests from employees who have submitted their expenses later than the company’s deadline.
  2. Employers should closely monitor their employees activities that result an employee incurring work-related expenses and make sure the employee has receipts and uses the reimbursement request forms.

Employers should obtain written verification from departing employees that they have requested reimbursement for all work-related expenses before leaving the company.

There are many difficult challenges and questions that constantly come up in the human resource function of any company in any industry. However, one of the most challenging and sometimes frustrating ones is that of employee misclassification. As you may know, the U.S. labor system, for purposes of determining who receives overtime payment, classifies employees either as exempt or non-exempt. The exempt worker is paid to “perform a job” and is generally not paid overtime and the non-exempt worker is paid exclusively by the hour which includes receiving overtime pay.

The difficult challenge comes into play when you have misclassified an exempt worker who should really be a non-exempt or hourly worker. After you’ve gone through the testing procedure (both California & Federal have separate exemption tests) and have determined that you have a misclassified employee, what are the options that you have before you. In theory, there’s only one option to totally reduce the risk from misclassifying an exempt employee who really should be non-exempt and that is reclassifying the employee as non-exempt and paying the back wages. However, in reality we’ve seen other solutions as well. Although these solutions are not perfect, they may work to some extent depending on various factors. Here are three different approaches to consider. In all the situations listed below, there is a misclassified employee or employees who are exempt and need to be reclassified as non-exempt.

  1. You reclassify the exempt employee to non-exempt and make the back pay.

The most direct and correct approach from a legal perspective is to reclassify the employee as non-exempt and pay the employee for back overtime. In this situation, you might typically interview the employee – both to confirm the correct classification for the job and to determine the estimated overtime owed. This may be difficult especially if you, the employer, don’t have any records of hours worked by the employee. Your only means of resolution may be to get the employee’s idea of how much overtime was worked. To get resolution, you will need to obtain the employee’s written agreement that the estimated overtime hours are correct to their best understanding. This is important because if the employee later comes back and sues for additional overtime, they will have a hard time in any court or mediation setting to later come back and give a reasonable explanation why their amount changed.

  1. You decide to do nothing.

Another option, believe it or not in these days of lawsuits over anything, is to do nothing. Although this isn’t a recommended approach, an employer can simply take a risk that the employee won’t say anything or challenge the misclassification. There are many real-life situations where employers know their employees are misclassified and they make a determination that there is a low risk of the employee speaking up or even knowing they are misclassified.

  1. You reclassify the employee with no back pay.

You could reclassify the exempt employee to non-exempt but not compensate the employee for back pay. This option, however, requires a calculated risk as much as the previous option. With the reclassification and the employee now available to receive overtime, it may be just a matter of time before the employee starts raising questions about why the reclassification occurred and why you’re not paying the back overtime wages.

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March 2011
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