The Employment Landscape is Messy: How Restaurants Can Ensure Compliance with Limited Resources

Let’s start with an uncontroversial premise: California’s complex, ever-changing gauntlet of employment laws is difficult for any company to navigate. Yet you may still be wondering why, aside from the headache, does it matter for my restaurant?  

If you’re fortunate enough not to have been on the receiving end of a civil or administrative complaint from an employee or a government employment agency, you may not realize just how deep the downside risk can be in employment disputes or just how high the stakes are for non-compliance. Best case?  Either a quick, nuisance-value settlement (typically up to $15,000), or years-long litigation that will cost you at least $100,000 (and often much more) – which you will never get back even if you win – to prove you’re right.

The public health crisis and swift economic downturn caused by COVID-19, of course, have compounded the complexity of operating a restaurant and complying with the myriad and evolving federal, state, and local guidelines and orders designed to mitigate the health risks of the COVID-19 pandemic.  

All restaurant businesses face these risks, even those with a dedicated human resources staff. However, the risks are further amplified for many small and independent restaurants that are navigating the employment law web alone without the benefit of experienced human resources professionals.  So how should restaurant owners, particularly those with limited resources, approach compliance?

Why Compliance Matters

Let’s start with some basic principles for why an employment strategy is a necessary step in your business’s operations:

1. Good intentions rarely count.  Well-intentioned companies often think they’re following the law until they’re hit with a lawsuit that exposes a problem.  Unfortunately, “I tried to do the right thing” won’t get you very far.
2. The punishment doesn’t always fit the crime.  That five minutes of off-the-clock time your employees spend closing the restaurant at the end of the shift doesn’t result in just five additional minutes of pay; it results in penalties for minimum wage violations, overtime pay, inaccurate wage statements, waiting time penalties, interest, attorneys’ fees, and costs.  The consequences of non-compliance are disproportionate with the costs of compliance.
3. Common sense won’t lead you to the right answer.  California employment law isn’t intuitive.  What seems reasonable isn’t always (and, in fact, is rarely) the correct answer.
4. Following federal law can lead to devastating consequences.  For example, federal law requires employers to pay weekly overtime, but not daily overtime.  Many unsuspecting employers adhere to federal law only to find out that by doing so they’ve violated California’s overtime law, which requires both daily and weekly overtime.
5. Relying on hand-me-downs and stock forms from national franchisors, internet searches, and vendors can be equally devastating.  Often the upsell from franchisors and service providers includes seemingly convenient, useful, and “free” extras like employee handbooks, wage and hour policies, and employment forms, but these one-size-fits-all documents are often tailored to federal law and don’t account for changes in California law.
6. California employment law changes at warp speed.  The article you read from last year may be outdated.  What was lawful on December 31 may not be on January 1.  Sacramento routinely implements dozens of new employment laws every year that change employers’ obligations and render current practices outdated and illegal.  It’s difficult to keep abreast of the changes, and you have a restaurant to run.

Six Common Issues That Create Risk

So what are the common pitfalls – the most common issues that trip up companies without a dedicated human resources department?  Here are six areas that often create risks for restaurants and others in the food and hospitality industry:

1. Onboarding New Employees: You may know employers are required to verify new employees’ identity and employment authorization, but federal law imposes strict requirements for doing so, and documenting compliance can be tricky.  On top of that, California law requires employers to issue employees a Wage Theft Protection Act notice, restricts the type of information employers can seek and consider during the hiring process (for example, information about criminal and financial history), and requires employers to comply with a host of other laws.  Employers often are surprised to learn their hiring and onboarding practices can result in lawsuits by applicants and unfavorable audits by government agencies.
2. Wage and Hour Practices: Basic wage and hour laws, such as meal and rest periods, may seem straightforward, but they’re often the cause of litigation.  Employers routinely fail to comply with the timing requirements for meal periods, which is just as costly as not providing a meal period at all.  Restaurants face other unique challenges, such as dealing with customer tips, policing tip pooling between employees, crediting meals toward minimum wage obligations, and complying with California’s reporting time pay law when customer traffic is lighter than anticipated.  Wage and hour claims are particularly risky because they almost certainly are not covered by any of your insurance policies and they are often the subject of class actions and representative actions under PAGA, which resulted in nearly $90 million in penalties in 2019 alone.
3. Managing Leave and Employees’ Medical Conditions:  The labyrinth of federal and state leave laws can feel like three-dimensional chess.  Understanding how various federal and state leave laws such as the FMLA, the ADA, Pregnancy Disability Leave, the California Family Rights Act, the FEHA, and State Disability Insurance overlap, intersect, and impose independent obligations can be difficult, and these situations often require empathy, quick decisions, and compliance with these and other legal requirements.  This complex web of leave laws has become more dense for employers with fewer than 500 employees as a result of the new emergency paid sick leave and expanded Family and Medical Leave Act leave created by the Families First Coronavirus Response Act (or FFCRA).
4. Employee Discipline:  It’s a truism that 10 percent of your employees occupy 90 percent of your time.  While most employees in California are at-will, meaning employers may terminate their employment at any time without notice for any or no reason (as long as it’s not for an illegal reason), disciplinary issues and terminations often result in litigation.
5. Records Management: California law imposes numerous recordkeeping requirements on employers.  For example, employers are required to keep employees’ time records for three years.  However, applicable statutes of limitations in California can expose employers to wage and hour claims for four years, so it’s best to hang on to employees’ time records for a fourth year in case of a lawsuit.  Aside from time records, employers are required to keep numerous other categories of documents, including Form I-9, which employers must keep for three years after an employee’s date of hire, or one year after the date employment ends.
6. Workplace Safety:  Many companies for the first time have learned of the requirement to implement an Injury and Illness Prevention Plan (or IIPP) to protect employees from workplace injuries.  As restaurants begin to reopen, employers should supplement their IIPP with a written COVID-19 prevention plan that complies with federal, state, and local orders and public health guidelines.  As part of such a plan, every company should perform a site-specific risk assessment, implement a written COVID-19 prevention plan, train employees on how to limit the spread of COVID-19, establish individual control measures and screenings, conduct enhanced cleaning and disinfection, establish physical distancing guidelines, and designate a representative responsible for implementing and enforcing the COVID-19 prevention plan.  These measures will go a long way toward protecting employees and customers and mitigating the risks of a costly lawsuit.

So What Can You Do?

In the employment law arena, an ounce of prevention truly is worth a pound of cure.  What should you do to put yourself in the best position?

Start with a good employee handbook.  A good, thorough employee handbook tailored to your business serves two important purposes: first, it clearly communicates your company’s policies to your employees, providing them advance notice of what they can expect from you; second, and equally important, it educates you and your supervisors regarding your obligations to employees and serves as a useful resource when thorny issues arise.

Be engaged.  Talk to the members of the team, get to know them, and ask what you can do to help.  In the process, you’ll understand your team better, develop strong relationships, achieve more buy-in from employees, gain a clearer idea of and improve team morale, and gather ideas about how things can be improved.  It’s not a coincidence that doctors with poor bedside manner are more likely to be sued for malpractice.

Evaluate employee discipline protocols.  Properly handling employee discipline can go a long way to reducing risks for several reasons.  First, communicating expectations and holding employees accountable reduces surprises.  Seemingly out-of-the-blue terminations lead to lawsuits.  Second, holding employees accountable, while uncomfortable, is the right thing to do.  It gives employees a fair chance to recalibrate their performance to meet your expectations.  Third, if there is a lawsuit, documenting employees’ performance issues goes a long way to defeating baseless claims.  The cardinal rules in the employee discipline realm are treat employees equally, communicate expectations, hold employees accountable, and document, document, document.

Establish a relationship with a trusted employment attorney you can rely upon to work through difficult, novel, and risky employment issues.  Staying compliant requires navigating a tangled and ever-changing web of issues and laws, and an experienced employment attorney can help you through the legal landmines.

The stakes are high and the odds are not in employers’ favor when walking the compliance tightrope.  California has created a largely risk-free litigation environment for employees in employment litigation.  Take the above steps to learn where your business may have employment blind spots and how, proactively, you can set up your business for (compliance) success.