Dear Mary, My business partner and I can’t seem to agree, and he’s threatening to sue me. How much does going to court cost and how long does it take?

Reader, I have a better prospect for you to consider.

It’s not that I don’t enjoy litigation, but I can almost guarantee that you won’t enjoy it. The California court system has seen a rise in congestion over the past few years, and like everyone else, they’re doing more with less. With court resources being cut daily, the cost of litigation is increasing.

What if I told you that you could probably work out your issues with your partner without going to court? Save the $100,000 or more that litigating in public would cost your business and think about Alternative Dispute Resolution.

Alternative Dispute Resolution is usually quicker and cheaper than litigation. Alternative Dispute Resolution includes several different types of resolution, including contractually bound negotiation, mediation, arbitration and reference.

The first step in deciding how to resolve your issues is to look at any agreement you may have with your partner. If your partnership agreement requires arbitration, then the decision is made for you. If you don’t have an agreement that specifies how disputes are resolved, then assess your needs and resources to select a method that might actually preserve your relationship instead of destroy it.

Contracts, case law and common sense require the parties to formally consult with each other before initiating litigation or arbitration. Contractual terms that define the dispute resolution process may require the parties to substantiate their claim(s) in writing, or it might require a meeting to discuss the issues. As you can imagine, this kind of negotiation often turns into a conflict. If you could have resolved it, you probably would have.

Mediation looks like negotiation, but it involves an impartial third person who acts as a facilitator to help the parties reach resolution. There are two important requirements: 1) the mediator must be completely impartial, and 2) the mediator must facilitate, not make decisions.

In arbitration, parties attempt to resolve their dispute before an “arbitrator,” who hears and considers the evidence and then renders a final, and sometimes binding, decision. Arbitration is often more efficient than regular litigation.

The reference procedure is a mix between arbitration and litigation. The parties have the court appoint a referee to try some or all parts of a dispute. This kind of procedure is usually quick, but you can still appeal the decision.

To learn more about Alternative Dispute Resolution, call an attorney or visit the court’s self-help center.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I recently fired an employee and received a notice from EDD that he is claiming unemployment. I don’t know if they are entitled to unemployment or not. What do I do?

To be eligible for unemployment benefits, an individual must be: out of work due to no fault of their own; physically able to work; actively seeking work; and ready to accept work. A part-time or short-term employee may file an unemployment claim if they meet all of the eligibility requirements.

The Employment Development Department (EDD) will notify the very last employer when an individual files an unemployment claim. This is true regardless of the length of time the employee worked for you.

If you receive a notice of unemployment claim, you have only 10 days to respond, so plan on gathering the necessary information and responding immediately. The most important facts you can provide the EDD involve whether the employee voluntarily quit or was discharged for reasons other than lack of work. If they quit or were fired for misconduct, then they don’t qualify.

If you have information about whether the person is unable to work, hasn’t been looking for work, or has refused work, let EDD know that as well. Review the claim carefully and verify that all of the statements are accurate and complete. The claim should list a reason for separation and the last date worked—make sure that information is correct and properly reflects your records.

You may receive a Notice of Determination (or Ruling) from EDD, which provides a decision on the employee’s eligibility for unemployment benefits. I often see determinations based on the reason the employee’s job ended. Whether or not a person was fired for misconduct can be a gray area.

If the employee’s eligibility for unemployment benefits is unclear, EDD typically conducts separate telephone interviews with the employee and the employer. If the issue is the reason the employee’s job ended, EDD will investigate the reasons why the individual quit or was fired. The employer has the burden of proof that the employee was fired for work-related misconduct.

Another big issue that often results in a telephone interview is whether an individual has refused an offer of work. EDD will try to determine if the work was suitable and if the person had good cause for refusing the work, as well as whether the claimant is able to work. To be eligible for unemployment, an individual must be available for work and willing to accept work when offered. Sometimes, an employer may offer an employee an alternative position. An unreasonable refusal of such an offer can seriously undermine an unemployment claim.

Telephone interviews are usually brief. Make sure that the person representing the employer is familiar with the employee and their separation. EDD questions should be answered with responses that are as detailed as possible. Do not be surprised if you end up receiving a notice of hearing from EDD to delve into the issues further.

There are several things you can do as an employer to avoid conflicts: keep good employment records, give written warnings and evaluations, and conduct well-documented exit interviews and terminations. In addition to keeping good employment records, it’s equally important to keep those records secure and confidential.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, My store is growing, and I’m currently advertising a position for a sales clerk. A regular job interview isn’t going to show me whether someone is a good match. Can I use “working interviews” instead? That way, I can see if they work well and get some free labor while I’m at it. It would also be good training for them to see what the job involves and what the job requires.

A working interview involves bringing in a job candidate to work for a few hours or a few days without actually hiring them. The idea is that instead of a regular job interview, candidates would have to prove themselves in a hands-on setting.

It sounds like a great idea, but unfortunately, working interviews do not exempt you from your obligations as an employer. You can’t ask someone to perform work for you without paying them minimum wage for those hours.

You can test an applicant’s typing or math skills, and you can ask them how they would handle various workplace situations, but having them actually perform productive work is off limits, unless you plan on compensating them and following California labor laws.

Temporary employment agencies popularized working interviews, which started the practice by offering “temps” to employers under a trial or probationary arrangement to determine if the applicant would work out. Employers cycle through these “temps” until they find one they like, and then hire them. This practice can be legal, because during this period the temp agency is compensating the applicant as an employee.

There’s no such thing as a free trial period when it comes to employment. If you want to give applicants a chance to prove themselves, you should consider hiring applicants for a trial or probationary period.

With an introductory period, the employer hires the applicant for a limited period of time, typically 90 days. During that period, the employee must prove their abilities and show that they are a good fit for the business. Until the introductory period is up, they are not entitled to certain benefits and they may be terminated at any time.

Employees must be paid no less than minimum wage, they are eligible for workman’s compensation, and you must withhold payroll taxes. You should follow your typical employment rules and perform a background check, give them a copy of the employee handbook, and have them sign your confidentiality agreement.

A good way to be clear about the probationary period is to put it in clear terms in an offer letter. Explain how long the trial period will last and how much compensation and benefits the employee will receive. Emphasize that this offer is not a promise of future employment.

Probationary periods can also be extended. This often occurs when there’s a change in supervisors, or when an employee takes a leave of absence. It can also occur when an employee’s attendance or performance causes concern. Make sure your employee receives clear performance standards and understands their job duties. Document any performance that is less than satisfactory and give your employee an opportunity to correct the problem through regular performance reviews.

Keep in mind that California is an “at-will” state; generally speaking, you can terminate an employee at any time, with or without cause. An employee who completes a probationary period has no guarantee of ongoing employment.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, My business provides a somewhat dangerous service and I require everyone to sign a liability waiver before they participate. A friend recently told me that liability waivers aren’t worth the paper they’re written on. Is that true?

Liability waivers are signed releases in which people give up certain rights in exchange for the services provided by a business. The purpose is to limit or eliminate the liability of the business if someone gets hurt.

There are several problems with liability waivers. Consumers usually don’t think about what they’re giving up when they sign these kinds of forms. People either skip reading it because it’s long and full of obscure legalese, or they do read it and still don’t understand what they’re giving up.

The next time you park in a private garage, take a look at the back of your parking slip. California courts have held that these preprinted tickets with liability waivers on the back can give sufficient notice that the lot will not take responsibility for damage.

But what other option do you have if you want to participate? It’s not like you can park in the garage without “agreeing” to the waiver of liability.

The general rule in California is that releases and liability waivers can be enforced, as long as they are properly drafted and executed and are otherwise recognized as a valid agreement. That doesn’t necessarily mean that if you sign a waiver and are injured you completely give up your right to be compensated for injuries.

You may challenge a waiver of liability if it’s illegal in form or content. The content and form must be easy to read and it must be clear and explicit with regard to its scope and effect. A layperson should be able to understand it and also appreciate its significance.

Under California law, a release cannot extend to claims that a consumer doesn’t know about when they sign a release. The intent of this law is to prevent people from inadvertently waiving unknown claims merely by signing a general liability waiver. If you’re drafting a waiver, it should include a direct quote of this law, which is often called a “Section 1542 waiver.” I also recommend including a space for consumers to initial next to that language, indicating that they acknowledge the 1542 waiver.

Drafting a valid waiver is not an easy task. Courts have invalidated releases if the language is oversimplified, if a key word is in the title but not the text, and if the release is too lengthy or too general.

Like any other contract, waivers can be invalidated if they are obtained by fraud, deception, misrepresentation, duress, or undue influence. Fraudulently obtained releases can happen if the nature or contents of the document have been misrepresented, if the release was obtained without full disclosure of the relevant facts, or if the consumer was prevented from knowing about their claim.

Waivers can also be invalidated if you can prove that the other party was more than just negligent — what lawyers call “gross negligence” or “recklessness.” Gross negligence occurs when someone shows a completely willful disregard for safety and human life. For example, if the private parking garage from above has live electrical wires hanging from the ceiling.

Waivers do not prevent consumers from making products liability claims. Even if you’ve signed a waiver, you could still bring a claim against a manufacturer, distributor, or designer of a defective product.

The moral of the story is, if you’re a business, it doesn’t hurt to make your clients sign a liability waiver. If you’re a consumer, read what you sign! And if you’re injured and you’ve signed a liability waiver, contact an attorney for advice.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I have a “no pet” policy in my store, and recently someone came in with a dog and claimed it was a service animal. It didn’t have a special vest and she didn’t have any paperwork to show that it was a service animal. If someone says their dog is a service animal, do I have to let them in?

The Americans with Disabilities Act (ADA) and the California Civil Code prohibit businesses from discriminating against individuals with disabilities. The ADA also requires businesses to allow service animals into their premises in whatever areas customers are normally allowed.

But what’s the difference between “Fluffy” and a service animal? The ADA’s most recently revised regulations define a service animal as a dog that is individually trained to do work or perform tasks for an individual with a disability. The animal’s work or tasks must be directly related to the individual’s disability.

The ADA and California law both allow for psychiatric service animals, but animals that merely provide “comfort,” “therapy,” or who are “emotional support animals” are not service animals. Misrepresenting yourself as an owner or trainer of a trained service animal is a misdemeanor under the California Penal Code.

Many individuals who are blind or have low vision use dogs to guide them and help with orientation. Deaf and hard-of-hearing individuals use dogs to alert them to sounds. People who have epilepsy sometimes use dogs to warn them of an imminent seizure.

At the Veterans Home of California at Yountville, there is a transition center to care for recent combat veterans called the Pathway Home. Many of the warriors at the Pathway Home use service animals to assist them with activities of daily living as they re-enter civilian life.

Service animals must be harnessed, leashed or tethered, unless it would interfere with the animal’s service work, or if the individual’s disability prevents them from using such a device. If a person cannot use this kind of device, they must be able to control the animal through voice or signal commands, or other effective controls.

As a business, you may exclude a service animal for two reasons: 1) if the dog is out of control and the handler does not regain control of the animal; or 2) if the dog is not housebroken. If one of these factors applies and you exclude an animal, you must allow the individual to enter the business without the animal. The person with the service animal is liable for any damage that is done to your business because of the dog.

Often, service animals wear special collars or vests, and sometimes their owners carry identification papers. If you can’t tell that a dog is a service animal, you may ask if the animal is required because of a disability, and you may ask what task the animal has been trained to perform. You may not inquire about the individual’s disability, nor may you require proof of certification or medical documentation as a condition for entering your business.

If someone comes to your business with a service animal, the animal must be allowed to accompany the individual to all areas of your business where customers are normally allowed. You cannot segregate the individual with the service animal from other customers. You should train your staff appropriately about the inclusive service-animal admission laws.

Service animals are not pets, and you are required to allow the use of a service animal by a person with a disability. You don’t have to give up on your “no pets” policy; you just have to make an exception for service animals.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, We have a lottery pool at our business where once a week everyone chips in a dollar and someone goes out and buys tickets. The idea is that if we win, we would split the prize money equally between employees. Is this a legally binding arrangement?

A good friend of mine from law school always says: “Any time you go into business with friends or family, you will end up hating and/or suing each other.” This advice also applies to your scenario—As we’ve seen recently, $640 million can quickly make people lose their minds. The history of lottery winners is scattered with lawsuits and heartbreak.

The most common issue with office lottery pools is knowing who is in the pool. In the unlikely chance that the office pool wins “the big one,” everybody wants to be a part of the winning pool, including people who normally play but “forgot this week.” At that point, everyone ends up in court trying to prove that they should be big winners too.

Mike Kosko, a state IT worker in New York decided to skip a lottery pool entry last year because he “wasn’t feeling lucky.” Mike’s co-workers ended up winning a $319 million jackpot, although in that particular situation, no one has ended up in court … yet.

If you’re willing to spend hours imagining how you’re going to spend the money—and we’ve all done it—you might want to spend a little bit of time on creating a lottery pool agreement to define the rights and obligations of the pool’s participants. It’s not as entertaining as decorating your imaginary mansion on Mount Veeder, but it’s a pretty good idea and an effective safety net.

Your agreement should explain which lottery game you’re going to play, how much each participant will contribute, how many people are going to be in the pool, and how you’re going to pick your numbers. Probably the most critical part of the agreement will be how you will distribute the winnings, should that day come.

There are endless tales of people who have tried to run away with their coworker’s prize money. It’s best to write down the rules of your office pool beforehand, including an explanation of who is in the pool and how to join or leave the pool.

Make sure that office lottery pools are legal in your state and in your profession. For example, Utah prohibits the lottery and some federal employees are prohibited from participating in lotteries. Also check your workplace rules to make sure it’s okay to have a lottery pool. Office pools are generally legal in California, and the California State Lottery even maintains a tool on its website to facilitate pools, called “Jackpot Captain.”

There’s another issue here to keep in mind. If you’re an employer, and your employees have a lottery pool, you should be aware of employees who may have a gambling problem.

Be aware of employees who constantly talk about gambling, who frequently borrow money from coworkers or ask for pay advances, or who brag about winning money. It’s a good idea to have a policy in place that provides resources to employees who may need help.

If you’re worried about employees gambling at work, consider blocking Internet gambling sites with Internet filtering tools like SafeSquid at safesquid.com or GamBlock at gamblock.com.

For more information about office lottery pools in California, visit calottery.com.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I am about to hire someone from Canada. Do I need to file a Form I-9? As an employer, what do I need to know about complying with immigration and nondiscrimination laws?

As you can imagine, a broad range of immigration law issues arise when an employer wants to hire non-U.S. citizens. Regardless of the number of people you employ, employers must follow the Immigration Reform and Control Act of 1986 (IRCA).

Under the IRCA, it is unlawful to knowingly hire, recruit, or refer unauthorized aliens for employment in the United States. It is also unlawful to continue to employ an alien knowing that he or she has become an unauthorized alien. Employees hired after Nov. 6, 1986, must comply with Form I-9 employment verification requirements. However, remember from previous articles that discrimination against prospective or current employees on the basis of national origin or citizenship status is prohibited under several laws, including IRCA.

Form I-9 is an employer’s verification of an employee’s authorization to work. There are sections for the employer to fill out and sections for the employee to fill out and sign. Employees must complete the first section of the form on their first day of employment, and employers are required to make sure that section is filled out completely. The second section of the form must be completed within three business days, unless the person was hired for less than three days.

Whenever you need a Form I-9, print it from the United States Citizenship and Immigration Services (USCIS) website: uscis.gov/files/form/i-9.pdf. USCIS revises the form from time to time, and employers are liable for civil penalties if they use an incorrect form.

Be careful to avoid what’s known as “document abuse” when filling out a Form I-9. This occurs when an employer requests that an employee produce more documents than Form I-9 requires, or requests that employees produce a specific document, such as a green card. Rejecting documents that appear to be genuine or disparate treatment of different groups of applicants may also be considered document abuse.

Form I-9 is not filed with the government. Employers should retain it until the later of three years after the date of hire or one year after the person’s termination of employment. If you wish, you may complete, sign, scan, and store forms electronically, as long as the electronic system comports with the regulations. Be careful here: A couple of years ago, Abercrombie & Fitch settled a claim for more than $1 million because of technology-related deficiencies in their electronic Form I-9 verification system.

Keep in mind that you are also prohibited from continuing to employ an individual who is not authorized to work. When information arises that suggests an employee may not be authorized to work, you must immediately investigate that information and take prompt action to resolve the matter.

Penalties for failing to comply with IRCA regulations may include warnings, monetary penalties, and even criminal penalties if there is a pattern or practice of knowingly hiring or continuing to employ unauthorized workers.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, We have a friendly workplace, and my employees sometimes go out after work and engage in typical “water cooler” joke telling. How do I know what crosses the line? I’m not sure that I understand what constitutes sexual harassment. Am I liable if an employee harasses another employee? What can I do to prevent harassment?

Sexual harassment laws protect male and female employees, job applicants, and even independent contractors (under the Fair Employment and Housing Act, but not Title VII).

What constitutes sexual harassment? Under state and federal law, sexual harassment generally breaks down into two categories: “quid pro quo” and hostile environment harassment. Some conduct may qualify as both types.

Quid pro quo harassment occurs when an employment benefit (or absence of detriment) is conditioned on submitting to unwelcome sexual conduct. “Unwelcome” sexual conduct is conduct that the employee did not ask for or incite and that is undesirable or offensive to the employee. For example, if an employee had to go on a date with a supervisor in order to get promoted or not be terminated.

Hostile environmental harassment occurs when the work environment is made hostile or abusive by sexual conduct. To prove such harassment, an employee must show that they were subject to unwelcome verbal or physical conduct of a sexual nature, and the conduct was severe or pervasive enough to create an abusive working environment.

The conduct would have to offend, humiliate, distress or intrude on the employee to the point where it affects the employee’s ability to perform their job as usual, or otherwise interferes and undermines their sense of well-being.

The behavior that is most commonly involved with hostile environment cases includes unwanted sexual advances or propositions, verbal conduct, physical conduct and visual harassment.

Verbal behavior can include slurs, derogatory remarks, or comments about a person’s body, appearance or sexual activity. Physical behavior can include an actual attack or physically obstructing movement. Visual harassment can include ogling, provocative gestures, or even displaying an offensive cartoon.

The standard for determining whether conduct substantiates an abusive environment is whether a reasonable person in the same position would find it abusive. In evaluating abusive conduct, courts consider the conduct’s frequency and severity, whether it was threatening, humiliating, or merely offensive, and whether it unreasonably interfered with the employee’s work performance.

As an employer, you can be liable for failing to take all reasonable steps to prevent workplace discrimination and harassment. If harassment occurs, you have a duty to take remedial action, not only against the harasser, but to deter potential harassment from other employees.

Workplace sexual harassment prevention starts with employers establishing, communicating, and enforcing strict policies prohibiting harassment. You should adopt written policies and procedure for making complaints. If an employee communicates a potential harassment, take it seriously and address the situation immediately.

Employers may be liable for harassment by co-workers if they knew or should have known that harassment was taking place and failed to take immediate and appropriate corrective action. Corrective action may involve expressing strong disapproval of the conduct, appropriate disciplinary sanctions, and training employees about their rights and how to exercise them.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I am a member of a nonprofit that organizes a raffle every year. We sell tickets to people for $1 each, and they can win donated prizes. We make a good amount of money from the raffle that supports our group throughout the year.

Recently, someone made a comment that it might not be legal for us to be running a raffle. Is it? What if we call it an “opportunity drawing”?

Calling a raffle an opportunity drawing is like calling a lion a zebra and getting upset when your zebra eats your giraffe. If the sponsoring organization requires someone to purchase a ticket in order to win a prize, then we’re talking about a raffle. The good news is that complying with California’s nonprofit raffle requirements is not that difficult.

Generally, it is illegal for charities in California to sell the right to participate in a raffle, unless no purchase is actually necessary. However, the exception to the general rule prohibiting raffles is that certain qualified tax-exempt organizations may be allowed to have raffles if they follow the attorney general’s guidelines.

Charities and certain nonprofits may have raffles to raise funds for beneficial or charitable purposes in the state, provided at least

90 percent of the gross receipts from the raffle goes directly to beneficial or charitable purposes in California. The raffle must also be conducted under the supervision of someone who is 18 or older.

Your nonprofit must register with the attorney general’s Registry of Charitable Trusts before you conduct the raffle, and the organization must file financial disclosure reports on each raffle event. You can get the forms for registration and reporting on the attorney general’s website: oag.ca.gov. You can also look up previous raffles and find out how much money was collected, or on what date a charity will be holding a raffle.

There are other rules and regulations that you should know. You may not use a gaming machine (like a slot machine) to run the raffle. Also, you may not operate or conduct the raffle online, but you may advertise the raffle online. Your organization’s members may participate in the raffle.

“Young” nonprofit groups may be disqualified from conducting a raffle. The general rule is that a nonprofit must be doing business in California for at least one year before conducting the raffle.

If you are unsure whether your group qualifies as an eligible organization, take a look at your exemption letter that you received from the Franchise Tax Board when you organized. If you can’t find that letter, ask the tax board for a copy.

Please be aware that 50/50 raffles are illegal in California. As I stated above, 90 percent of the gross ticket-sale revenue must be used for charitable purposes. In a 50/50 raffle, half of the revenue is awarded as a prize. The rules do not preclude using funds from sources other than raffle-ticket proceeds to pay for the costs of the raffle, but you need to be careful. If you end up causing a loss to a nonprofit corporation, your board of directors could be personally liable for breaching their fiduciary duty.

Raffles must be registered with the attorney general before they take place, and must be filed before Sept. 1 (and at least 60 days before the raffle). If your organization is a nonprofit religious organization, a school, or a hospital, you are not required to register and report, although you still have to follow the other rules.

What are the consequences of not following the rules? Gambling is illegal in California and unless you meet the applicable criteria, a raffle is considered gambling. Failure to comply with the penal code is a misdemeanor and violations are typically passed along to the district attorney’s office.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I’m hiring my first team of employees and I’m not sure how to set up vacation leave and sick leave. I read about “Paid Time Off” and it sounds like it might be a better fit. Can you explain the difference? Which is a better system for my business?

Let’s start with sick leave. Sick leave is not required by law (with rare exception) and you are free to establish your own conditions whereby an employee can accrue and use sick leave. That may include eligibility for leave, the number of hours an employee may accrue each month, the minimum increment by which employees may use sick leave, how it’s calculated, any restrictions on use, and when a doctor’s verification is necessary.

Paid vacation leave is also not required by law (again, with rare exception). However, if provided, it constitutes earned wages and it may not be forfeited (unlike sick leave). For example, you may not have a “use it or lose it” policy in which your employees forfeit their accrued vacation leave if they don’t use it within a certain amount of time. However, you may cap or limit the number of vacation hours employees accrue and prohibit your employees from earning more until they use them up.

Sick leave is for when an employee or their family member is actually sick, but vacation leave can be used for any purpose. If you end up using a paid vacation policy, be very clear about waiting periods, the number of hours accrued per year, whether or not you’re going to allow cash-outs of unused vacation time, and whether or not you’re going to require vacations be approved in advance.

Some examples of the issues that arise in drafting a comprehensive, written leave policy include whether employees accrue vacation while on unpaid leaves of absence, and whether an employee who is injured on vacation and cannot return to work can use sick time during the paid leave. You may think these situations are unlikely, but you should address all of the possible scenarios to avoid ambiguity and conflicts with your new team.

Keep in mind that since accrued vacation hours constitute earned wages, any unused vacation hours must be cashed out if the employee leaves or is terminated.

Paid time off (or “personal days off”) may be used instead of creating vacation, holiday and sick leave policies. With paid time off, an employer grants their employees a certain number of paid days off, which can be used for any purpose. These paid days off are the legal equivalent of paid vacation leave, meaning that those days cannot be forfeited and must be paid upon termination, unlike traditional sick leave.

Be careful about letting employees use sick leave for personal business; you must treat this leave like vacation leave and pay it out if the employee is terminated. It can be a little messy, unlike paid time off, where time off is treated like vacation leave regardless of the situation.

You could benefit from using a paid time off policy if you really don’t want to have to track vacation leave separately from sick leave. Remember that you can change or eliminate your paid time off policy at any time, although you may not take away paid time off that has already accrued.

For example, if you set up a policy that allows employees to earn 15 days of paid time off per year, and then you decided to reduce that amount to 10 days, you couldn’t take away an employee’s earned paid time off. And if that employee quit or was terminated, you would still have to pay the full amount of unused accrued paid time off.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.