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© 2009-2020 Dana H. Shultz, Attorney at Law

Employee Right to Wage Claim Hearing Trumps Arbitration Clause

Photo of the justices of the California Supreme Court

A recent court decision held that an employee in California has the right to file a wage claim and to have a hearing on that claim before the Labor Commissioner, even if the employee has signed an arbitration agreement.

In California, employees who are not paid what they are owed can file wage claims (see Wage Claims – Nasty but [Sometimes] Necessary). Because the employee need not retain legal counsel, and because the Labor Commissioner may help the employee, a wage-claim hearing provides to the employee benefits and leverage that are not available in other venues, such as litigation or arbitration.

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The “Independent Contractor” Trap Becomes More Dangerous

Earlier this year, I wrote Avoiding the “Independent Contractor” Trap about the dangers that companies face if they misclassify employees as independent contractors. The Wall Street Journal recently reported (Employers and Workers Clash in Court Over ‘Contractor’ Label) that those dangers have increased.

According to the WSJ article, the Internal Revenue Service will audit 6,000 randomly-selected U.S. companies in its first attempt since 1984 to quantify the extent of employee misclassification. The IRS is not taking this step merely to help the individuals involved receive the pay and benefits to which they are entitled – state and federal governments stand to gain billions of dollars every year from withholding taxes, unemployment insurance and workers’ compensation if workers are classified properly.

Even greater than the risk of a government audit is the risk that a disgruntled “independent contractor” will file a wage claim (see Wage Claims – Nasty but [Sometimes] Necessary).

Avoiding the “Independent Contractor” Trap lists factors that can help you determine how to classify workers properly.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Should I pay employees or vendors first?

I answer questions on Avvo pretty regularly. From time to time, I will reproduce (perhaps with modest editing) some of the questions and answers here on my blog.

Question: If an employer has cash flow problems, who should be paid first: employees or vendors?

Answer: I see this situation as requiring analysis from both the business and the legal perspectives.

Business: I believe that employees are more important, and are less able to do without the money to which they are entitled, than (most) vendors, so I would pay employees first.

Legal: While either employees or vendors could bring suit against the employer, employees also would have the ability to file, at no cost, a wage claim with the Division of Labor Standards Enforcement. In my opinion, DLSE investigation of a wage claim is worse than a lawsuit, so for this reason, too, I would pay employees first.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Wage Claims – Nasty but (Sometimes) Necessary

Banner for California Department of Industrial Relations, which handles wage claimsRecently I have seen an increase in the number of current or former employees filing wage claims against their employers here in California. There often is a good reason for the filing. In my experience, employees typically do not spend time and effort on filing wage claims unless they have some basis for concluding they have been underpaid, such as:

  • Unpaid wages, including commissions or bonuses.
  • Accrued but unused vacation time not paid at the time of termination.
  • Unauthorized deductions from paychecks.

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