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Employment Law 
eAlert Newsletter
June 2016

MID-YEAR UPDATE:  
WAGES GO UP AND UP

FLSA INCREASES MINIMUM SALARY FOR "WHITE COLLAR" EXEMPT EMPLOYEES 
The U.S. Department of Labor ( " DOL") recently released its final rule updating regulations of the Fair Labor Standards Act ("FLSA"), the effect of which increases the minimum salary requirements for executive, administrative, and professional workers classified as "exempt." The final rule takes effect on  December 1, 2016 . Generally,  "exempt" employees do not receive overtime pay whereas "non-exempt" employees receive overtime pay.* However, a s explained below, the benefits of having an exempt employee may be offset by these changes.
Generally, under the FLSA, in order to qualify as exempt, employees must meet a three-part test: (1) salary level test (how much they are paid); (2) salary basis test (how they are paid); and (3) duties test (what type of work they perform).   The final rule focuses on the salary level component of this three-part exemption test with respect to the following "white collar" exempt employees :  executive (managers who have direct control over others and have the authority to fire and hire employees); administrative (employees who have broad discretion to independently manage the business operations of the employer); and, professional (licensed professionals such as lawyers and physicians).   In a nutshell, the effect of the final rule is to increase salary levels of these exempt "white collar" employees as follows:  
  • The minimum salary requirement increases from $455/week to $913/week ($47,476/year for a full-year worker).

  • The minimum compensation requirement for a highly compensated employee ("HCE") increases from $100,000/year to $134,004/year.  HCE are employees who "customarily and regularly" perform one of the exempt duties of an administrative, executive or professional employee, but who do not otherwise meet the duties test.

  • Salary and compensation levels automatically adjust every three years (beginning on January 1, 2020) to maintain the minimum level of salary at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region for salary (currently the South), and 90th percentile of full-time salaried workers nationally for HCEs.

  • Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
California employers should note that the FLSA salary level threshold now exceeds the California threshold.   As stated above, the final rule established a minimum salary level of $47,476 a year. Currently, California's minimum salary level is $41,600 a year (double California's minimum wage rate of $10 per hour). When federal law and state law are in conflict, e mployers must pay the higher level of wages.  

TAKEAWAY
 
Employers should take this opportunity to review their compensation plans for all exempt employees to determine if the new salary requirements are met.  While the final rule did not make any changes to the duties tests, we also recommend that you review exempt employees' duties to ensure that they fit within the exemption.  If the decision is made to reclassify employees from overtime exempt to overtime eligible, employers should create a comprehensive plan to establish hourly rates for the employees, establish timekeeping systems and policies for the affected employees, and communicate the changes to managers and employees prior to the December 1, 2016 effective date.
 
Employers are encouraged to seek legal advice to determine the status of their exempt employees.
____________________

* Under the FLSA, employers are required to pay non-exempt employees overtime for every hour they work in excess of 40 hours in a particular workweek.  Some state laws offer more generous overtime requirements.  For example, in California, employees receive overtime pay for all hours in excess of 40 hours in a workweek or all hours in excess of eight hours in a day. The FLSA and its Regulations exempt certain groups of employees from the overtime pay requirements.   Although not covered under the new Regulations, examples of other exempt groups are agricultural workers, outside salespersons, railroad workers, and truck drivers. 

CALIFORNIA'S CONTINUOUSLY INCREASING MINIMUM WAGE
California Governor Jerry Brown signed Senate Bill ("SB") 3, which increases California's minimum wage each year, topping out at $15/hour in 2022.
 
THE BREAKDOWN

The state minimum wage as it stands today is $10/hour. The new law increases the minimum wage for employers of 26 or more employees on the following schedule:  
  • January 1, 2017: $10.50/hour
  • January 1, 2018: $11.00/hour
  • January 1, 2019: $12.00/hour
  • January 1, 2020: $13.00/hour
  • January 1, 2021: $14.00/hour
  • January 1, 2022: $15.00/hour 
It is important to note that employers with 25 or fewer employees will not have to implement the wage increase until January 1, 2018 (a one-year implementation delay for small businesses). This means that employers with 25 or fewer employees will not be paying $15.00/hour until January 1, 2023. If you fall into this category, the minimum wage will increase on the following schedule:  
  • January 1, 2017: $10.00/hour
  • January 1, 2018: $10.50/hour
  • January 1, 2019: $11.00/hour
  • January 1, 2020: $12.00/hour
  • January 1, 2021: $13.00/hour
  • January 1, 2022: $14.00/hour
  • January 1, 2023: $15.00/hour 
Once the minimum wage reaches $15/hour for all businesses,  the Governor may continue wage increases each year up to 3.5% for inflation as measured by the national Consumer Price Index and if justified by the economic assessment formulas calculated by the California Department of Finance.
 
NOTICE REQUIREMENTS

In general, there are three required notices to employees in California which are affected by the increase in minimum wage:
 
(1)  Employers must post California's official Minimum Wage order (MW-2014) in a conspicuous place on the worksite that is frequented by employees. The current notice includes the increase for January 1, 2016 and is found here http://www.dir.ca.gov/IWC/MW-2014.pdf. However, a new notice will be required in 2017.

(2)  Employers must provide each employee with an itemized wage statement (in writing) at the time wages are paid (Labor Code Section 226). This statement must include all applicable hourly rates in effect during the pay period along with the corresponding number of hours the employee worked at each hourly rate.  In addition to the applicable hourly rates and corresponding number of hours, there are seven other items of information that must be included on itemized wage statements and employers should review their itemized wage statements for full compliance. 
(3)  Employers must provide nonexempt employees with a written wage notice pursuant to Labor Code Section 2810.5. This written notice must be provided at time of hire and again within 7 calendar days after a change is made to any information in the notice. Such changes include, but are not limited to:

a.     The employee's rate of pay
b.    Any overtime rates of pay; and
c.    Any allowances claimed as a part of the minimum wage

A  sample  notice  under  Labor  Code  Section  2810.15  can  be  found  here
 
TAKEAWAY

Employers must comply with all notice requirements listed above and should plan ahead on how to budget for the upcoming wage increases.     

WHISTLEBLOWER IMMUNITY FOR TRADE SECRET VIOLATIONS
The Defend Trade Secrets Act of 2016 ("DTSA") was signed into law by President Obama on May 11, 2016.  The DTSA, which amends the Economic Espionage Act, gives trade secret owners a federal cause of action for injunctive relief and monetary damages for the misappropriation of trade secrets.  The DTSA also provides protections to employees, including immunity to whistleblowing employees that disclose their employers' trade secrets to the government. A "trade secret" encompasses "all forms and types of" information, regardless of how stored, if (1) the owner has taken reasonable measures to keep such information secret; and (2) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by the public.

Under the DTSA, state law trade secret claims will not be preempted, so you may invoke rights and remedies under the California Uniform Trade Secrets Act ("CUTSA"), either in tandem or independent of federal claims.  The remedies available under DTSA are injunctive relief, damages, "exemplary damages," and attorneys' fees.  Additionally, the DTSA authorizes ex parte civil seizure, under extraordinary circumstances, to temporarily seize "property necessary to prevent the propagation or dissemination of the trade secret" pending a full hearing.

Employers should be aware that under the new law, an employee will not be held criminally or civilly liable under federal and/or state laws for disclosing a trade secret that:

(1)   is made in confidence, to a Federal, State, or local government official, directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or

(2)  is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. 

Further, an employee may disclose the trade secrets of an employer to his or her attorney and use the trade secret information in an anti-retaliation lawsuit for reporting a suspected violation of law, if the employee: (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order.

Employers must provide notice of this immunity for whistleblowers to the employee in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. This notice requirement may be satisfied via cross-referencing to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law. If an employer does not comply with this notice requirement, the employer forfeits the right to receive exemplary damages or attorneys' fees in an action against an employee to whom the notice was not provided.
 
Employers should be aware that the DTSA's definition of "employee" includes any individual performing work as a contractor or consultant for an employer.
 
TAKEAWAY

Employers who enter into non-disclosure and/or confidentiality agreements with their employees, contractors or consultants must provide notice of the whistleblower immunity to the employee. This notice should be put in writing, either directly into the employment contract/non-disclosure agreement or via cross-referencing to the employer's policy document. 

Our Employment Law Legal Team
Rynn & Janowsky, LLP's employment law legal team is available to assist clients in any employment related matters.  
Rynn & Janowsky, LLP | rj@rjlaw.com | http://www.rjlaw.com

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