Area 51. The Loch Ness Monster. Atlantis. Bigfoot. All myths, fairy tales and urban lore. Stories that, for most of us, amount to no more than chuckles and eye rolling. A belief in any of these, however, is unlikely to result in you getting sued.1
Zany myths invariably inhabit that equally zany world of employment law. They abound among even the most well intended employers. Myths such as “reporting payments on a 1099 makes the individual an independent contractor.” Or, “I don’t have to pay an employee overtime unless I authorized it.” But the absolutely most pervasive myth in employment law is the belief that size matters.
Myth debunking has never been so, well, Freudian. But, when it comes to employment law obligations, size simply doesn’t matter—much. “It’s twue. It’s twue.”2 Yet for some reason, innumerable California employers believe they’re subject to some special treatment or exception from legal obligations because they’re “small employers.”3 They tend to find out the hard way that their lack of size results in a lack of ability to satisfy an adverse judgment.
One-hit wonder: The bulk of employment law obligations apply to almost all employers. A single employee is all your business needs to be saddled with the vast majority of California’s legal obligations governing the employment relationship. These include unemployment insurance, workers’ compensation and tax withholding. Add to these California’s wage and hour obligations (overtime, time cards, rest and meal periods), and you can see that being a “small employer” is no salvation. In addition, California’s Fair Employment and Housing Act applies, prohibiting unlawful harassment (sexual, racial, gender-based, religious and so forth).
You must also comply with the Immigration Reform and Control Act’s (IRCA) obligation to “I-9” your employees (verify their identity and authorization to work in the United States) as well as Cal-OSHA regulations. You’re also covered by leave laws, including jury duty, witness leave, leave of absence for crime victims, emergency rescue personnel, volunteer firefighters and the military. And, you must let employees take time off if their children misbehave and their school requests the parent’s attendance.
Repeat performance: When your company doubles in size to two employees, your obligations increase almost unnoticeably. To the mountain of obligations already burying your organization, Cal-COBRA now applies to require continued benefit obligations in the event you offer health insurance benefits to your workforce.
Four players: When your organization doubles in size to four employees, it becomes covered by the IRCA anti-discrimination provisions. Now, you may no longer discriminate against individuals on the basis of their citizenship or national origin.
Five-card stud: At five employees, you become covered by the anti-discrimination and pregnancy disability provisions of California’s Fair Employment & Housing Act. This means you may not unlawfully discriminate on the basis of any “protected category,” must engage in the interactive process relating to disability accommodation, provide reasonable accommodation for disabled applicants and employees, and provide up to four months’ leave for employees disabled due to pregnancy. While most businesses with only five employees don’t self-identify as “large,” they’re covered by more than 90 percent of employment laws.
Meaningless sizes—15 and 20: When a company reaches 15 employees, it becomes covered by the anti-discrimination provisions of Title VII of the Civil Rights Act of 1964 (or, more simply, most federal anti-discrimination laws). However, those laws impose no greater obligation than do the California laws that applied for companies with five employees. At 20 employees, employers who offer health benefits are obligated to offer COBRA benefits. However, if your organization offered health benefits when it was smaller, it had similar obligations under Cal-COBRA.
Oh, to be 25 again! The benchmark of 25 employees provides a number of interesting (but not particularly onerous) obligations. Employers with 25 or more employees become covered by “lesser known” leave laws in California. These are leave for victims of domestic violence, school activity leave, accommodation of drug and alcohol rehabilitation and leave for school disciplinary matters.
The big 5-0: At 50 employees, businesses become covered by state and federal family and medical leave obligations. Known respectively as FMLA4 and CFRA, these laws obligate such employers to provide up to 12 weeks’ unpaid leave for certain serious health conditions, or for the birth, adoption or foster placement of a child. The other obligation is to conduct harassment prevention training for all supervisors at least once every two years. But since all employers with one or more employees have the obligation to take reasonable steps necessary for the prevention of unlawful harassment, thinking you’re compliant without training your employees before you reach the 50 threshold may be a fallacy of epic proportion.
Seventy-five and 100: These sizes result in what are known as “WARN” obligations (under California’s WARN Act and the Federal WARN Act, respectively). They operate to require advance notice of certain events resulting in the loss of employment, such as mass layoffs and plant closures.
While your size may not matter much, your status as an employer will. Despite a low employee count, the label of “employer” or “business” carries with it a target for employment-related lawsuits (from both your employees and the government). A belief in fairy tales cannot protect you from failing to recognize, and comply with, those laws that affect your small business.
1Institutionalized, however, is a wholly different subject.
2The incomparable Lili Von Schtupp, “Blazing Saddles,” Paramount Pictures, 1974.
3Resulting in the most Freudian role-reversal of all time!
4Does it surprise anyone that the acronym for this law—widely considered the most difficult employment law to administer—is a four-letter “F” word?
EDITOR’S NOTE: This column originally appeared in the Nov. 2007 issue.
