and when they qualify for small employer status under these laws. The California Division of Labor Standards Enforcement (DLSE) has not provided any guidance on how it will interpret and enforce the changes to the overtime rules under AB 1066. However, DLSE did issue FAQs on the legislation that increased the minimum wage described above, which uses the same 26/25 employee cutoff. In its FAQs, DLSE noted the following: • While the minimum wage statute does not specify what timeframe to use when calculating the number of employees, a court or DLSE will likely focus on the pay period(s) in which the violation occurred. • All employees are counted, including exempt employees, regardless of hours worked or location. • The employer must make a reasonable and good faith determination of the size of their workforce recognizing that in the case of an ambiguity courts generally take the position most favorable to workers and that an erroneous decision to pay the lower wage could result in costly penalties and back pay awards. • Employers in a joint employer relationship need to aggregate and count the
employees of all employees under the joint employer’s control. • Workers provided by a staffing agency or labor contractor should be counted. • If the number of employees fluctuates over 26 during any pay period, employees should be paid the higher wage for that pay period. In addition, the FAQ stated that because employers are required by Labor Code section 2810.5 to provide workers a “Notice to Employee” upon hire and in advance of changes in the terms of their compensation, the employer must notify all affected employees in writing and wait until the next pay period before switching to a different minimum wage rate. The Labor Commissioner’s SB 3 guidance, which is available at https://www.dir.ca.gov/ dlse/SB3_FAQ.htm, would very likely be applied to analyze the changes introduced by AB 1066. Employers should review the FAQ when determining whether your company is a “large” employer for purposes of the new overtime requirements. The “Integrated Enterprise” Test Some employers have an interest in multiple companies. Are those employees
aggregated for purposes of determining the minimum wage or overtime thresholds? In determining whether an employer with several companies is considered a “single employer” under California law, the employer will be scrutinized under the “integrated enterprise” or “single employer test.” Under this test, if two or more entities effectively operate as a single employer, they are generally treated as a single employer. To make this determination, California courts look to a variety of factors, including: • Are the operations interrelated, such as by payroll, banking, HR functions, and the use of shared employees. • Is there common management who have control over the day-to-day operations and employment matters? • Is there centralized control of labor relations, such as the power to hire and fire, and control work schedules? • Is there common ownership or financial control? While no single factor above is conclusive, the common ownership and control of labor operations are the most critical factors. Conclusion • Employers who are “large” at all times are subject to the higher minimum wage and stricter overtime threshold, while “small” employers are not. • A “small” employer is considered a “large” employer during any pay period when its direct hire employees plus FLC- provided employees total 26 or more in the aggregate. • In any pay period where an FLC has a total of 26 or more direct hires, the FLC is considered a “large” employer for minimum wage and overtime purposes, regardless of where the FLC’s direct hire employees are working. • Even if the “small” employer’s direct hire employees plus the FLC-provided employees total 25 or fewer, if the FLC is itself is a “large” employer, the FLC- provided labor will be entitled to the higher minimum wage and overtime standards. • Consider whether employees of commonly-owned or controlled companies should be aggregated under the “single employer” theory. • Once your company reaches “large” employer status, the most prudent course of action is to consider your company a “large” employer at all times, even if the number of employees reduces to a level that would qualify the company as a “small” employer.
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