Posted on February 14th, 2017
Introduction
If you own a business in the great state of California you already know the odds are stacked against you if a labor law issue comes up with one of your employees.
As more unfair employment laws pass, you will find that more often than not, they benefit employees while placing a bigger burden on us employers. In fact we have recently made a demand to the state to release an employer rights bill.
Employers in California have always had a general sense that the laws are one sided and unfair.
However, there are a few California Employment laws that are so unequivocally insane you’ll want to pull your hair out!
Here are 5 of the most ridiculous provisions of employment law that screw employers:
1) No Protection Under Corporate Law
Any savvy business owner knows that one of the primary advantages to forming a business entity like a Corporation or LLC and separating your personal assets from your businesses assets is to avoid personal liability for lawsuits related to your business.
To put it simply: if someone sues your company, it is the company’s assets that are at risk and not your personal assets such as your house so long as you have followed the rules of having a corporation, such as keeping your businesses assets and your personal assets separate.
BUT.. Labor lawsuits are the ONE area of law in California where you can be held PERSONALLY liable for a labor claim made against your business.
Even worse, a supervisor who is not even an owner of the business can be held personally liable for labor claims.
So much for 200+ years of Corporate laws separating business owners from their businesses liabilities.
2) I’m Suing, But You’re Paying For It
The current system is designed in a way that employees have nothing to lose by suing their employer.
And unfortunately, it doesn’t even matter if they have a bad case or even no case at all!
Why?
Because the employee’s attorney takes their case on contingency.
Meaning, their attorney does not charge them unless they win.
So why would an employee’s attorney take that kind of risk? Because if they win anything at all the law requires you the employer to pay ALL OF THEIR LEGAL FEES.
When an attorney takes an employee’s labor case they literally have no financial risk. Couple that with a potential for a big financial reward, what’s there to lose?
So, if it costs nothing, what’s to stop them from suing?
You might be thinking: Well if they have no case, I’ll win and I won’t lose any money.
Ha, if only it were that simple!
In fact, the employee only has to win ONE cause of action for the employer to be on the hook for ALL of THEIR lawyer’s fees. Yes, you heard that right.
You lose on one thing and you are responsible for paying their attorney’s outrageous fees.
For example: You’re accused of 5 infractions. You proved without a doubt that you were not at fault for 4 of them. But the 5th, you did make a minor mistake. Well guess what?
You now pay ALL of the employee’s attorney costs for handling the case.
Now, what if the employee get’s a small payment from you because of a frivolous accusation?
Not only would you be paying out a couple thousand dollars to them, but you could potentially be paying over a $100,000 to their attorneys. Keep in mind, trials can last over a year and in that time their lawyers are racking up costs at the highest billing rates.
Imagine a simple case where the employee wins on one cause of action like some missed overtime or meal breaks. Maybe the jury awards $50k. That hurts but it may be something you can survive.
But wait, how about the attorney fees to the employee’s attorneys? If the case went the typical year and a half, you are likely to owe more than double the award above in attorney fees to the employee’s attorney for suing you.
Now that $50k problem is suddenly a $150k problem. Ouch!
What If I Win Everything?
Let’s say you win everything and the employee is not awarded one dime. Congratulations! Big win for the home team, right? Not quite. You still have to pay your own lawyers to defend you.
Even if you are 100% right and the employees claims are absolutely false, there is no getting out of an employee lawsuit with zero cost to you.
INNOCENT until proven GUILTY does not apply when it comes to labor laws.
3) George got a raise? Where’s mine?
In 2016 the governor of California signed the “California Fair Pay Act” (CFPA). Another well intentioned law with unavoidable consequences for employers. Though it operates under the guise of “equal pay for equal work”, the actuality of the law places a big burden on businesses.
Under CFPA, the employer must “prove” that wage differences for the same or similar positions are based on the reasonable application of the following:
-Seniority system
-Merit system
-Measuring system of quantity or quality of work
The biggest headache of this law is the encouragement for employees to share rates of pay, even though the historical American norm has been for it to be a bit taboo or even unprofessional for employees to discuss pay with each other.
In addition, you cannot discourage employees from sharing what they make, which creates potential problems as there may be legitimate reasons why one employee is paid more than another (better performer, seniority, etc).
By discussing pay differences, an employee making less than another can now demand to see proof of why this pay difference is justified, putting you, the employer, on the defensive. The employee may go for a discrimination claim if the employee is part of a protected class.
So you may have legitimate reasons why one employee makes more than another and it fits the legal standards but now you must have a way to prove it.
4) I burned your store down, the smoke made me sick, now pay me.
The absurdity of workers comp law is that irrespective of why a workers is fired, they only look at whether the applicant was an employee and whether the claim was for an injury at work.
An employee can completely cause havoc in the workplace and then sue after being terminated in workers comp court for an injury.
It is a very regular practice for an employee to claim a continuous injury and receive benefits after being terminated for a claim filed after termination.
Even worse, an employee that has filed a workers comp claim prior to termination can be the absolute worst employee you have ever had after filing and you are likely stuck unless you also want to face a wrongful termination claim.
You may think that workers comp is not a big issue because insurance covers the claims but every time you have a claim, including fraudulent claims your premiums go up.
Your premium can quickly double after a few claims. If you have too many claims, your insurance drops you altogether creating an entirely new problem since the law requires every business to have workers comp insurance.
5) Meet my friends; they will decide how much you have to pay me.
In a jury trial, you are suppose to be tried by your peers. But how many business owners actually end up on a jury?
First, only about 1% of the population are business owners and have employees so the jury pool is not likely to include anyone sympathetic or even someone that can understand the difficulty of running a business and managing employees.
Second, it is not likely that any smart attorney on the employee side would allow an employer on any jury. It is likely a business owner would be removed with one of the peremptory challenges allowed to the the employee’s attorney.
Third, even if there were some good candidates allowed on your jury, they will likely be the minority and not have much sway in the outcome.
Typical juries consist mainly of employees and former employees. They are more likely to sympathize and identify with the employee rather than side with “business”, which is evident through the long history of outrageous awards given to employees in California.
Want some examples?
How about local Los Angeles restaurant legend Roscoe’s Chicken n Waffles having to file for bankruptcy after a jury award over 3 million to an employee in a discrimination case?
How about the Autozone case where a minimum wage ex-employee was awarded over $185 million in damages by a jury after being fired for cause?
In some cases, even if you’ve proven your case, if the jury sympathetically rules for even a small award to the employee, you will likely be stuck with those very big legal fees discussed above.
With the crackdown on labor laws and tightening regulations on businesses the laws are becoming increasingly more outrageous and unfortunately more expensive for you as the business owner.
Protect yourself with very good alternative dispute agreements that includes a requirement that each party pay its own attorney fees, update your policies regularly, and document everything.