Dan
Welcome to Sound Business Insights. I’m Dan Watkins.
Neil
This episode is Sound Business Insights, greatest Hits Volume one.
Dan
This podcast is not intended to provide legal advice.
Neil as Narrator
Welcome back to Sound Business Insights with Dan Watkins. My name is Neil James. This episode’s going to be a compilation of some of the most interesting tidbits that Dan has shared over the many episodes of Sound Business Insights. And to begin this episode, we thought it would be important to answer one of the first questions that a business professional might ask, why do I need a business attorney?
(To Best Of)
Neil
In a few words, why do you think any business person needs an experienced business lawyer?
Dan
People who have their own businesses are forming or purchasing their own businesses should seek a business lawyer as a counselor, sort of like an advisor and an older experienced lawyer like we have at the Watkins firm. We’ve seen it all. We’ve seen every type of company, every type of business, and we’ve been there through the good times and the bad times.
Dan
And so we have a lot of insight above and beyond just forming your entity, like some kind of form you find on the internet. We give you real world business advice that is tied to the law. Your business attorney really should be one of your most valued and trusted business advisors.
Neil
You’ve always said, Dan, that a business attorney is the part of a core team. Can you tell me a little bit about your philosophy on that?
Dan
Sure. After 35 years of doing this and after thousands of different companies, a lawyer tends to know more about how to run a business, and most people would expect we go to college for seven years, but we learned our whole career from other people’s mistakes and other people’s successes. And so the three core things that I’ve come away with is if you’re going to have a business, you should have an experienced business attorney, you should have a banker source of finances, and you should have a C P A. Most people are kind of clueless about what A CPA does not for taxes, for advising you on how to be profitable.
Neil
Dan isn’t a business attorney like a coach.
Dan
Definitely we coach a lot of our clients. We learn from our clients. It’s like almost being on a team. We may be the coach calling the plays, but we have three components every businessman should have. You should have a business lawyer, you should have a good CPA, not just for taxes, but for business advice. And you should have a good banker or financial entity that you can relate to talk to, speak to somebody who will give you advice on what kind of financing you can get. And then you put all those together and everybody talks to each other and all of a sudden you’re operating like a Fortune 500 company. You have the insights, you have the same business acumen.
You can do things with your company that you may have overlooked just by having regular meetings, maybe every quarter, twice a year, just having these people in place. Pay your dues, get them all set up, put the fiduciary responsibility on the professionals. One thing businessmen and women should know is when you go hire a lawyer and say, here form my company and look at my agreements, the lawyer’s reaction is, oh, great, I’m getting paid to do something. But they’re also looking at this like a doctor patient situation. Only you in business, I have a fiduciary responsibility. I need the care because how they do reflects on how I do. And that’s my same with the CPA. Not so much with the banker. They just want your business. They don’t have a fiduciary responsibility, but you and your CPA and you and your lawyer, there’s this feeling of I have to advise them correctly and make sure they understand what I’m giving them and make sure they have the best information so they can make the best decisions. That’s our motivation.
Neil as Narrator
One of the most common clients of the Watkins firm is an employer. Being an employer in California is a real challenge, and here are a few of Dan’s thoughts across several podcasts about what it’s like to be an employer and what they need to know.
Neil
So speaking of protecting yourself, one of the largest groups of people that needs protection or California employers, how do we help? How does the Watkins firm help California employers?
Dan
I’ve talked about this before, but California employers got to be the toughest people on the planet, especially in the country because doing business in California is hard on employers. In the last five years, they passed more laws that change things for employers than they have in the last 20. The laws changed so dramatically, especially AB five, to make it so much more difficult and so much more expensive to be a California employer that every single person thinking about hiring somebody should have a lawyer who can help them, should have a law firm that can provide HR services without having to pay three, four, $500 to a lawyer.
We have that. If you can’t afford your own in-house HR person, we have HR people here that are trained that can answer your questions and set you up and make sure you’re in compliance with all the regulations, all the training, training for your executives, training for your regular employees that you can have signed off. It doesn’t take that much money to do, but if you don’t do it right by the right entities or people, then you could find yourself in trouble in the form of a employment lawsuit.
Neil
And speaking of trouble, that’s another way we help is if they’re accused of retaliation or any of the myriad of things that an employee can accuse an employer of, we’re there to help them.
Dan
Yeah, we have litigators. I’m one of ’em. We have litigators in our office that have been doing this for 25 years, 35 years, sorry, I forgot how old I was.
And we have a page on our website called War Stories, and we have one cases there. We don’t have all of our cases we won. We have one cases where our employer clients have been sued wrongfully. It seemed hard to believe, but very true. Sometimes a plaintiff’s lawyer will just insist on going to trial and you have nothing else you can do. You can’t pay ’em five, 10, $60 million. You have to go to trial and you have to win. And so we’ve devised a unique way of winning these cases. If any of my clients ever get an employment claim against them, they know to contact me right away. And most of the time, because of all these cases we’ve won, people who sue our clients, the minute they find out we’re the defense counsel, we end up getting the ridiculously low settlement offers because we know how to go to trial and win.
Neil
Dan, what’s it like to be an employer in California? I
Dan
t’s the hardest state in the country to be an employer. There’s a lot of regulations and you’ve got to get it right or there’s going to be someone out there ready to take your employee’s case on a contingency and sue you.
Neil
Can you talk to us a little bit about how you partner with our clients to protect them as an employer and to protect the processes that they have?
Dan
We have, of course, very knowledgeable attorneys, but we also have a higher percentage of support staff, paralegals, administrators, in-house, HR people so that when our clients have a basic question about employment practices and they don’t want to spend the high attorney rate, they can contact one of our administrators or one of our paralegals and ask a question, costs them a lot less money. And everybody here has been working on these cases for years and years, so the knowledge might not be at the fingertips of the employer, but we answer that same question every week and the employee handbook and policies and procedures, I think these are two things that many young employers especially or new employers, tend to overlook the value of.
Neil
Can you talk a little bit about how important those two documents are (employee handbook and policies and procedures) and how they work together?
Dan
We update ours, our own, every year the law changes. We want to be on top of it. As a law firm, we do the same thing for our clients. We want to make sure they’re on top of everything so that number one, the employer can say that everybody at the firm was given notice in advance of the practices of the company. That way you don’t have to completely rely on, well, I told you and didn’t you get the email? It’s right there in the manual and they’ve signed it and it’s in their employment file. So those kinds of professional things are important. When somebody starts arguing, you said this and he said that, and then you can say, yeah, but we have an agreement and it covers that.
Neil
Dan, I know you’ve been in trial a lot. Has that ever helped you win a case for a client?
Dan
Every time. Every time I have a client that has a good employment manual, I use it When I defend them, I use it a to show the issue at issue is covered in the agreement, but also to show the jury or the judge that this is a very professional, straightforward company that has a professional employment manual and they are serious about compliance. The ones who have trouble are the companies that appear totality of the evidence that they’re not serious about compliance.
Neil
And when you ask, is this your signature right here? That’s kind of hard to answer, isn’t it?
Dan
Now they already know it’s their signature and you just confirm it and then you move right to the paragraphs that are important and then you describe if they voluntarily signed it and then you just let the document speak for itself.
Neil
Dan, basically, for an employer in California, it’s a minefield out there.
Dan
That’s true. I feel bad for employers, including me. There are so many requirements in California. I don’t think there’s a state that’s tougher to be an owner of a business hiring people. So many lawyers out there suing us, so many laws and government agencies checking on us. It just makes it really expensive. But let’s get to the problems we have to solve them policies and procedures, everyone knows when you have a company you’ve had employees, you have to put those little brochures up in the break room, but it’s more than that. You have to comply with all of the state regulated policies and procedures, but you also have to have your own policies and procedures to run an organization so that you’re not deemed to have been discriminatory violative of any wage and hour laws in violation of any OSHA standards, all kinds of things.
Neil
You should have policies and procedures in place, and then you back that up with the employee handbook. What does the employee handbook do for you?
Dan
(The) Employee handbook provides evidence that you’ve given notice to your employees that A, your in compliance with the law. B, what to do in certain circumstances and see how to conduct themselves so that they’re not offending or causing liability or damage to other employees or customers is the employee handbook where you discuss what you expect from an employee and how you’re going to measure that. It’s not required by law, but it’s really highly recommended because your employee handbook will have items in it that make you not completely protected, but provide evidence that someone and some employee will makes a false claim against you that you had a policy of discriminating or you had a policy of hate or you had a policy of not paying or you had a policy of not recording your time. You’ll say right here, you were told in your employee handbook and you signed it that you would do these things and you can’t say that I told you not to because it’s in writing.
Neil as Narrator
There have been a few times we’ve been blessed to have Katya Adams, our office administrator for the Watkins firm, who also provides HR consulting for our employer clients. Here’s one of her visits where she discusses how an employer might and might not structure pay for their workers.
Neil
So another of the common questions that we get comes down to a discussion about pay. There are basically two categories, hourly or exempt. Can you tell us a little bit about what the exempt category is for and then how you feel about salary versus hourly?
Katya Adams
Sure. That is a topic, that’s probably the top three of everybody that I talk to. It’s very difficult for our clients to determine who is hourly and who is salary, and basically it just comes down to the law and you can’t contract around the law, so you have to determine a salaried person would be someone that’s a professional, a licensed professional, maybe an outside salesperson or what they call an executive administrative exemption. And that is somebody that may not be a licensed professional, but they’re a higher level manager. They make individual decisions, they’re supervising other people.
So that’s one component of it. Another component of it is the minimum pay. There is a minimum white collar exemption salary amount. Then there’s a national one, and then there’s a California one. So be careful when you’re looking that you’re looking at the appropriate state level, minimum white collar exemption. So then it comes down to, okay, well I’ve got this person and I guess they could kind of really be on the exempt, but maybe they spend about 40% of their time supervising. If you’re not sure, just err on the side of caution. This is California. The judges will side with the employees. Don’t put yourself at that risk and liability, and if you’re in doubt, it’s probably best to pay them on an hourly basis.
Neil
Some might argue that the question of wanting people to be on a salaries, it would avoid the issue of overtime is that in fact the case.
Katya Adams
It is not the case. You cannot get around overtime. You can still pay your hourly people a salary. That’s perfectly allowed. And a lot of companies do that as I think as a recruiting and retention tool. But if it is determined that your employee is someone that doesn’t meet the exempt and they have to qualify for overtime, you still have to track their time every day. You have to not only make sure that they’re not getting overtime, but you also have to make sure that they’re taking the applicable rest breaks. Are they taking their meal break by the fifth hour? A couple ways to skirt around that. They’re pretty tight. If you’ve got an employee that works six hours or less in a day, they can sign a meal waiver. But other than that, it’s pretty difficult to do unless you can prove that there’s nobody there to replace that person.
So if you’re working in a regular retail store office, something like that, you need to have ample coverage. So these people take meal breaks, but yeah, you can’t get around not paying overtime. There is one way that a lot of our clients ask about, and that is the modified workweek schedule. So I’m sure you’ve heard, Hey, this person works four 10 hour days in order to have Fridays off.
Neil
Yes.
Katya Adams
Well, how do you compensate for that? Because 10 hours in a day is overtime, and that is a question I get a lot. Well, when do I pay overtime? Is it on a daily or a weekly basis? And the answer is, well, it’s both. So if they work 10 hours in a day and then 40 something hours in a week, you have to pay both on the daily and the weekly level, which you can do as an employer, as you can create one of these modified schedules.
And that entails getting your entire company together and putting some proposed schedules to a vote. So you can say, my company is going to offer that you can work four 10 hour days and have Fridays off, or you can work four nine hour days and have a four hour Friday, whatever slew menu item you want of these different proposed schedules. If all of your employees say, I agree, it’s great, let’s go. You then take that, put it into a formal letter and you submit it to the Department of Industrial Relations and then they keep it on file so that if any of your employees tries to come back and say, well, they didn’t pay me overtime, you can say, well, wait a minute. You signed off on this modified schedule that allowed for a more flexible work schedule, but you can’t get the overtime in the process,
Neil
And that’s the reason why they need you. So as an advisor, I don’t think most employers would understand that if we wanted to go to four tens, there’s a formal process I have to go through, otherwise I’m going to be owing two hours of overtime every day. Right?
Katya Adams
That’s right.
Neil as Narrator
Recent important court decisions at the state and federal level have changed the ability of employers to use arbitration agreements here in California. Here’s a recent piece on that topic.
Neil
So the decision is Chamber of Commerce versus Bonta. Can you tell me in a nutshell, Dan, what are the elements of the decision and how does that change the game?
Dan
The decision came about because there was an arbitration provision. Well, the statute was drafted and there was an appeal of the statute, and then it went to the court of Appeals, and then it went to the Supreme Court, and then they said, yeah, you can’t have arbitration provisions. But then before it could go back and be published as an opinion, the United States Supreme Court ruled. Then our Supreme Court came back and said, no, no, we’re going to change our tune and we’re going to rule that the whole statute’s wrong.
Now, let’s look at something inside the statute. The statute talks about arbitration and it says if you put an arbitration provision in a employee’s agreement and they sign it or you even present it to them, or you even drafted in there, you committed a misdemeanor, you can go to jail. So you got penalty of prison hanging over someone just trying to hire somebody to drive a truck, right?
So it got scary there, but they had other things in there. It said if you violate any rights in the way you drafted your contract, it could be a crime. And so while that wasn’t there in the opinions, it was all about the arbitration act, the opinion from the state Supreme Court seems to say that all of it is gone when it comes to Prop 51. So based on where we stand today, five years ago, several years ago, we had to go back and tell employers, you need to draft contracts in this way if you’re going to have a contract.
Neil
What about this opinion changes what our employers need to know, and is it time to review and go back with them and take a look at arbitration agreements and if they’re the appropriate thing for their application?
Dan
Normally, I’d say why mess with an unsettled area of law, right?
Neil
Yes.
Dan
I mean, why draft an agreement when you know the legislature’s going to come back and say, oh, we got a new one for you. However, arbitration clauses have a one weapon that is great for us employers, they kill class actions, plaintiff’s suits, right? You sign an arbitration clause, all of a sudden, all these greedy class action lawyers who want to say, you misprinted the pay stubs and we want to sue you in a class action. Sorry, you got to go to arbitration. And arbitrations are usually just one onesies. So you can sue your employer in arbitration for the $500 you didn’t get that year, or you can just make a claim to give me my money because the pay stubs are off.
Or you can not sign the arbitration clause and don’t get the job right. So right now, yes, you want that arbitration provision in your employment contracts right now, that’s the law. That’s the law of the United States Supreme Court.
Neil as Narrator
The Watkins firm defends employers against employee related disputes and lawsuits. Here are Dan’s thoughts on a few of the more common disputes employers face.
Neil
What do you think the risk of disputes are for employers today versus even 10 years ago?
Dan
Twofold. There’s a whole industry. It’s doubled. There are class actions. PAGA wasn’t even heard of 20 years ago, and now every seminar you hear about is on PAGA defense. Sexual harassment used to be the big game in town, and now you got to check your paycheck stubs to make sure that they’re not spelled wrong or there’s a missed decibel point, or you’re going to get a class action lawsuit of filed against you in a multiple of ways.
Neil
So what are the most common types of disputes that we see our employers getting into?
Dan
Well, obviously we have wage in hour disputes. Those are big. They’re everywhere. They’re big in California. They’re big nationally. In fact, the United States Supreme Court yesterday just ruled in favor of the employee again.
Neil
What are some of the others that are heavy hitters these days?
Dan
Well, wage and hour and overtime are similar, but PAGA, a private attorney general claim against the employer is a really heating up. There are law firms that just do that, and they send out constant communications to every area of employee you can imagine. And if anyone’s thinking about leaving your employment, they’re going to be tempted to get a little severance, pay involuntary, and then misclassification of independent contractors. California keeps changing the law, and the courts keep changing their interpretation of the California law.
Neil
Yes, they do.
Dan
So really hard to stay on top of that.
Neil
Sexual harassment is always a scary thing because you can get sued for sexual harassment and lose, even though no one was actually harassed because you didn’t investigate it.
Dan
Right. That’s a separate cause of action, failing to investigate it according to the law, even if your investigation finds out that it was a false claim, which seems terrible, but it’s true. And then discrimination claims are always there. Retaliation again for somebody making a false claim, if you retaliate against them for lying about you and suing and lying about you, you’re still liable for retaliating against a liar. Again, terrible but true. And then general wrongful termination, how people are terminated and whether or not you comply, you can get stuck with 60 days of pay that you inadvertently didn’t know about.
Neil
So Dan, we’ve had a broad conversation about the types of perils that employers face. If you had to sum it all up, if one of our employers feels like they’re getting into some troubled water, what’s your best piece of advice?
Dan
Well, same thing I tell everyone who owns a business. You should have a banker. You should have an accountant, a CPA, not just for taxes, just for day-to-day profitability. And you should have a relationship with a lawyer and you can pick up the phone and say, I’m worried about this.
You don’t have to go in for a formal visit. You don’t have to pay a big retainer. You can pick up the phone and say, I’m worried about this employee. And they’ll send some emails back and forth and you’ll immediately know whether you need to go ready to fight or just do this and you’ll be fine.
Neil
Take action.
Dan
Correct. Just, we’ll know off the top of our head. We do this every day. Different clients same issue. Call us – We’ll tell you that mole is not cancer. (laughter)
You can learn more about the Watkins firm at https://watkinsfirm.com or call our office at (858) 535-1511.