1. Startup Legal 101: Employment Law
Issues
May 31, 2011
Palo Alto, CA
Brian K. Nagatani
(bnagatani@hixsonnagatani.com)

2. Overview
 When will you be covered by California’s
employment laws?
 Appropriate compensation of early hires
 Appropriate classification of contractors and
consultants
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3. Employment Law Coverage
 Wage and hour laws: all employers
• Minimum wage
• Overtime
• Meal and rest periods
 Fair Employment & Housing Act: 5 or more
employees
• Harassment
• Discrimination
• Retaliation
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4. Employment Law Coverage
 Leaves of Absence
• FMLA/CFRA: 50 employees within 75 mile radius
• Pregnancy disability leave: 5 or more employees
• Other disability leaves: 5 or more employees
• Other forms of leave: various coverage thresholds
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5. Wage and Hour Laws
 Common Mistakes:
• Classifying employees as contractors/consultants
• Classifying all employees as exempt
• Compensating employees only with stock options
• Deferred compensation
 Potential Exposure:
• Class action liability
• Four year statute of limitations
• Plaintiffs’ attorneys’ fees
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6. Wage and Hour Laws
 Recommendations:
• Regardless of employer size, ensure that employees are
appropriately classified for overtime purposes
• Observe all minimum wage, overtime, and meal and rest
period requirements for non-exempt employees
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7. Exemption Test
 2 Requirements (Must Satisfy Both)
• Salary Test
• Duties Test
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8. “Salary” Requirement
 Federal: $23,660/year
 California: $33,280/year
• Must Equal or Exceed Monthly Salary for Full-Time
Employment at Two Times the California Minimum Wage
 Generally No Deduction for Missing Time During
the Week (Some Exceptions)
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9. Key Duties Tests
 Executive
 Administrative
 Professional
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10. The Executive Exemption
 California “Duties” Requirements
• Primarily Engaged in Management of the
Enterprise or Recognized Department or
Subdivision
• Supervises At Least 2 Full Time Employees (or
Equivalent)
• Authority to Hire or Fire (or Strong
Recommendation Authority)
• Discretion and Independent Judgment
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11. The Administrative Exemption
 California “Duties” Requirements
• “Back-Office” Duties
o Not “Production” Work
• Discretion and Independent Judgment
o Distinction: Exercise of Skill
• Work Involves Either:
o Assisting Owner/Executive
o Highly Specialized Technical Tasks, or
o Special Projects
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12. The Professional Exemption
 Can Cover Employees Performing “Production”
Work (Unlike Administrative Exemption)
 Exempt Professionals Include:
• Formally Licensed Professionals (Law,
Medicine, Dentistry, Pharmacy, Optometry,
Architecture, Engineering, Teaching, or
Accounting)
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13. Computer Professionals:
Special Exemption
 Duties Test: Same as For Computer Workers
Under the General Professional Exemption
• Excludes entry-level employees, and those who do not
primarily exercise independent judgment and discretion.
 What it Adds: Exception to the Rule that Hourly-
Paid Employees Are Non-Exempt
• Minimum Pay Rate: $27.63/Hour
 California Computer Professionals:
• $37.94/hour, or
• $79,050/year
• Caution: the California rate may increase each year!
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14. Other Commonly Used Exemptions
 Outside Sales
 Certain Commissioned Employees
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15. Important Classification Issues:
Employee Versus Contractor
 Common Mistake: Retaining a Worker as
a “Contractor,” But Treating the Worker
More Like an Employee.
 One Misclassification Results in
Simultaneous Violation of Numerous
Laws
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16. Why It’s Important
Tax ERISA
Breach
Violation Violation
Of Contract
Unemployment
ADA ONE Violation
Violation MISCLASSIFICATION
Workers
FMLA Comp
Violation FLSA Violation
Violation
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17. The Main Test: “Right to Control”
 The worker is a contractor only if he/she
retains the “right to control the manner and
means by which the product is
accomplished” Community for Creative
Non-Violence v. Reid, 490 U.S. 730 (1989)
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18. Key Factors
 Amount of Supervision
 Discretion Over When/How Long to Work
 Location of Work
 Right to Discharge/Quit
 Duration of Relationship
• Is the Contractor a Former Employee?
o How Similar is the Work?
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19. Key Factors
 Right to Assign Additional Project
 Method of Payment
 Skill Required
• How Different than Skills Possessed by
Employees?
 Intent of the Parties
• Is There a Signed Contractor Agreement?
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20. Key Factors
 Is Work Part of Company’s Regular
Business?
• Do Employees Perform Same Type of Work?
 Does the Worker Own/Come From a
Separate Business?
• Does Worker Perform Work for More than
One Company?
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21. Key Factors
 Is Worker Subject to Risk of Profit or
Loss?
• Are the Workers’ Expenses Reimbursed?
• Who Pays for Assistance?
• Source of Instrumentalities/Tools?
 What Support Does the Company Provide?
• E-mail?
• Voice Mail?
• Business Cards?
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22. Conclusion
 Thank You!
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