Small Business Legal Advice
Navigating the roiling tide of California business law is challenging, so Amanda Benson-Tilch, host of The Ask Amanda Show, invited attorney and partner Brian Koegle of Poole Shaffery & Koegle into the studio. His clear, concise explanations provide a roadmap for small business owners who are in the dark about regulations that could put them in jeopardy and cost them a lot of money. He shares his expertise in hiring practices, proper termination, and the definition topics from how to hire, proper termination, and the definition of independent contractor.
Learn the Business Laws that Apply to You
Whether you’re a California employer, such as a Santa Clarita small business owner, or you run a corporation, your legal obligations are not that difficult once you know them. The challenge is to identify which laws apply to you and effectively manage the problems and issues that arise. Many proprietors know how to run a successful business but have little knowledge about their legal compliance.
If you find yourself turning to “Google lawyers” for business laws in California, you could be getting outdated advice stemming from the last decade.
When it comes to employment decisions, business owners operate from a place of scarcity – they are reactive, not proactive. But by spending just a few hours a year learning the laws that apply to your business, you can eliminate or reduce your liability risks. Being proactive can also help a small business owner recruit and retain the best possible talent.
Oftentimes company leadership is hyper-focused on increasing profitability, customer retention and other concerns, while placing less attention on the big picture. Entrepreneurs and executives should incorporate the services of a labor law specialist in their quarterly agenda because that review would go a long way toward protecting their company.
Poole Shaffery & Koegle offers their clients the use of their conference room to host their quarterly or annual meetings. If there are multiple business owners, it enables them to centralize and spend an hour or more with attorneys who pose questions such as:
- Did you file your statement of information with the California Secretary of State?
- Did you update your meeting minutes?
- When was the last time you reviewed your bylaws?
- How do you feel about your employment policies and procedures?
A huge area where California employers fall short is when they don’t know their policies and procedures – or they fail to uphold them. Senior staff members need to practice what’s in the company’s handbook, or they can get into trouble with an employee who points out their infractions.
When Brian provides help for California business owners, his number one tip for hiring procedures is to hire slowly and fire quickly. Unfortunately, the reverse is often the case – small businesses hire quickly because they feel desperate and take anyone with a pulse. But that increases the chance that a person joins the team and doesn’t fit your company’s culture. They may lack dedication or discipline in their craft or even become a cancer in the workplace.
“Surgery to carve out that cancer … to cure that problem is very painful, very time-consuming, and many times very expensive for a California business owner,” Brian said.
The best advice for business owners in Santa Clarita and in other parts of the state is: hire slowly. There should be multiple rounds of interviews where the candidate meets individuals who can point out red flags or warning signs.
Document Every Step of the Way
Make sure that you are documenting everything so there can’t be a claim later accusing you of discriminating against a candidate you didn’t choose to hire.
In California, if you advertise for a position – you put an ad on Indeed or you advertise on SCV Jobs, for instance – you’re required to keep a copy of the ad for 4 years or you are out of compliance with the regulations of California.
You are also supposed to keep resumes and any applications you’ve solicited for 3 years. If there’s a claim of discriminatory hiring practices – you picked this type of person because they look a certain way or they fall within a particular category of individual – you want to be able to refer to your documentation to demonstrate compliance.
“Fundamentally, these tiny little things – even if you’re just sending an email to a business partner or a hiring director – just 3 minutes out of your day can go a long way to protect you on a claim of discriminatory hiring practices,” Brian said.
There’s a checklist of items that every employer is mandated to have at the point of hiring an employee.
You’re required to have a Labor Code 2810.5 notice for every non-exempt employee that works for you. It’s a simple form provided by the Division of Labor Standards Enforcement which lays out:
- Who the employer is
- When the payday periods are
- How much the employee gets paid
- Other fundamentals of the hiring process.
If you don’t have that form in your employee file for every nonexempt employee, it’s a $500 penalty. According to Brian, approximately 50% of employers in the state of California are not adhering to this practice.
Look at Multiple Candidates
Don’t interview just one candidate. Part of the “hire fast” routine is hiring the first candidate you find. Cast a wider net to make sure you’re not just looking for someone who looks like you or talks like you or thinks like you.
Santa Clarita entrepreneur Rachel Cosgrove of Results Fitness talked about teambuilding in Santa Clarita on the Ask Amanda Show last season. She underscores the need to bring in new hires with skills that your senior staff members don’t already have.
Amanda advises business owners to hire around their core values and to run job candidates by their whole team. When you get buy-in from your existing staff, employees feel invested in the business which is a great tool to retain the best talent.
Brian has a “New Hire Checklist” which he offers with no cost or obligation to anyone who emails him.
The rule in California until 2018 had generally been that the degree of control a business owner had over the person’s work would determine whether they were an independent contractor or an employee. The more control the business owner exercised, the more likely it was an employment relationship. The less control, the more independent, then the more likely it was a contractor relationship.
The problem was that it was a very subjective test and there were inconsistent rulings from judges. A case made its way to the California Supreme Court which created a standard called the ABC Test which uses 3 elements to determine whether a worker is an employee or an independent contractor.
The ABC Test
“A” is basically the control of the work that’s being done: “Is the control centralized at the employer or is the control being centralized at the contractor?”
Part C asks: “Is this an independent customary business outside of whatever business it is that you’re operating?” Positions such as lawyers, accountants, and marketing professionals are still traditionally going to be viewed as independent contractors.
The “B” portion of the test is where employers tend to get it wrong. In California, fewer than 8% of people who are designated “independent contractors” truly satisfy Part B of the test, which asks: “Is the work that’s being done separate and distinct from the purpose or directives of your business?”
For instance, if you’re a widget maker and the work has anything to do with widgets – whether it’s manufacturing the widgets, finalizing in quality assurance, or selling the widgets, administering the backroom bookkeeping of the business, or packaging or distribution – it is deemed employment. They are not independent contractors.
If a business owner has a huge order and needs more staff to handle just one project, it’s called a “temporary employee.” Whether it’s 30 days or 90 days, he or she is an employee.
Misclassifying an Independent Contractor
Currently, there are three primary ways that employers are getting nabbed on their misclassification. The California Employment Development Department, or EDD, is doing their own audits, which is a huge crackdown on independent contractors. They look at a business’ tax returns and determine how many 1099s they’re sending out and at what level, and they choose some companies for an automatic audit.
“If you get one of those letters from the EDD you need to be afraid, because if they’re sending you an audit request, they already have enough information to probably nab you from this classification and the penalties can be significant,” Brian said.
A small business with 13 independent, high dollar contractors sought help from Brian because an audit confirmed a misclassification. The penalty was $781,000. Brian’s firm engaged in an aggressive appeal process that brought the penalty down to about $65,000.
Over the last two years, a number of industries have lobbied to get specific carve-outs for their industries, such as hair and nail salons. On the flip side, Uber and Lyft and Uber Eats had to go to the ballot box in November of 2020. It passed and it’s still being subject to challenge at the court level.
Discipline and Termination Rules
Wrongful termination is now the number one area of litigation in the state of California, including harassment, discrimination, retaliation, and general public policy terminations. To prevent these suits, Brian’s advice, again, is to hire slow and fire fast. The longer an employee stays on, the more likely there is an opportunity for something to go wrong.
“All of a sudden somebody makes a stray comment about them, all of a sudden they may have a stress-based claim,” he said. “All of a sudden they’re out on a workers comp leave so they now have a protected category.”
When someone is hired before age 40 and terminated after 40, they can claim age discrimination because in California it’s an “age 40 threshold.”
Is There a Probation Period?
There has never been such a thing as probationary period in California because it’s an at-will state.
“An employee is on probation on day one and day 10,847,” Brian explained. “You may terminate them at any time, with or without notice, with or without cause, so long as the reason behind the termination decision doesn’t violate California’s public policy.”
Documentation and Termination
“Everything, everything in my world comes around to documentation,” he said. “Understand if it’s not documented it didn’t exist.”
In California, although the presumption is in favor of the employer, if it comes down to the employee’s word versus yours and you don’t have documentation, you will lose.
Sometimes documentation regarding termination involves getting the employee to sign off.
“I prefer to see an opportunity for the employee to cure their bad behavior especially if it’s something that can be cured – attendance, punctuality, something along those lines,” Brian said. “Have a discussion about where their performance is failing so that they have an opportunity to get things right. It’s not a legal mandate; it’s just the right thing to do.”
But it doesn’t have to be a formal writeup. Brian offered a sample conversation:
“It could be something as simple as sitting down and saying, ‘Listen, you’ve been late 7 times in the last 30 days. If there’s something going on you can let us know. We’re going to work with you, but you need to understand that attendance is a key part of your role and if you’re not physically present on time you’re in violation of our policies. So, this is now a scenario where I’ve got to warn you that if it becomes a repeated issue, you will be subject to discipline, maybe even including termination.’”
At this point you document the conversation with an email to your business partner or the worker’s supervisor.
Brian advises California employers to offer employees a small severance package, whether you fire them, or they leave your company. It’s a cheap insurance policy because in return, the employee signs off that they’re not going to bring a claim against you, so you avoid wrongful termination suits.
Don’t rely on non-disclosure agreements, however, as NDAs rarely hold up in California.
Meet the Experts
Brian Koegle – Labor Law
An attorney and partner at Poole Shaffery & Koegle, Brian specializes in labor with a focus on employment law. He provides counsel to employers across various industries regarding hiring practices, employment contracts, wage and hour issues, compensation, discipline, and termination matters.
He represents employers in mediation, arbitration, litigation, and various administrative hearings, defending a wide range of employment discrimination and fair employment practice cases. He also assists employers in the design, drafting, modification and implementation of personnel policies, procedures and employee handbooks and conducts personnel policy audits.
Brian guides employers with respect to all aspects of wage and hour compliance, including overtime calculations, meal and rest period requirements, and statutory penalties arising from non-compliant policies and procedures. He also counsels employers on leaves of absence, including family and medical leaves, alcohol and drug rehabilitation leaves, and leaves involving pregnancy-related disabilities. He is a frequent writer and speaker on a variety of labor and employment-related matters.
Brian also counsels business owners with regard to business and commercial disputes, including protection of trade secrets and proprietary information, and has first chair trial experience litigating business and employment matters.
He is a member of the Labor and Employment Sections of the California State Bar and the Los Angeles County Bar Association and serves as an Associate Fellow in the Litigation Counsel of America (LCA). He has been recognized by SuperLawyers/Los Angeles Magazine each year between 2010 and 2017 (2010-15 as Rising Star, and 2016-17 as SuperLawyer).
Poole Shaffery & Koegle is located in Santa Clarita with offices throughout Southern California. There are resources available on the website, Pooleshaffery.com. Brian loves helping small business owners in California who don’t know the rules of the road when it comes to employment and labor law. Reach out to Brian by emailing Bkoegle@pooleshaffery.com or call him at 661-290-2991.
Amanda Benson-Tilch – Small Business Consulting
While you may notice her first by her wit and second by her infectious sense of humor, the next thing you’ll learn about Amanda Benson-Tilch is: She’s a problem-solver. Owner and Growth Strategist of Ask Amanda Consulting, she offers the skills, tools, and network it takes to get the job done — no matter the task.
Working with each client differently, she helps identify blocks, present solutions, implement them, and execute. And if she can’t execute, she’ll connect you to someone who can. She’s helped past clients improve their branding, operations, customer service, marketing, company culture, and more. She’s organized a company-wide rebranding and restructuring after it was bought out. And she’s helped local small businesses increase their growth without increasing the headache. From consulting to full-scale project management, Amanda steps in to help your business level up with ease.
In addition to her work with Ask Amanda, she’s also the Director of Business Development for Thomas Realty Co., a property management company in Burbank, where she oversees the growth of select tenants. Currently, she’s serving as the Managing Director of both Burbank Fitness Club and Burbank Center Apartments. Over the last year, she helped completely rebrand, renovate, and rebuild the gym, and she recently started the same process with their luxury apartments.
About The Ask Amanda Show
On any given day, small business owners and entrepreneurs spend most of their time putting out fires, solving problems and asking themselves questions like: “How do I brand this? How do I reach more people online? Why can’t I break through my revenue ceiling and reach the next level of business?” They often feel like an island – holding it all together without support, clarity, or feedback they need to finally achieve their vision. That’s exactly why Amanda Benson-Tilch created The Ask Amanda Show. As a small business consultant, not only does she have the answers to the questions you keep asking, but she’s also created a podcast community that reminds you: You’re not alone in this journey.
Tune in once a month to get access to small business experts, nuggets of inspiration and answers to those burning questions preventing you from growth. Enjoy powerful guest interviews as Santa Clarita small business experts share their stories and provide actionable steps to help you grow your business. Whether you’re a business owner, aspiring entrepreneur, or someone looking to get more involved in your community, this is your show!