Can the Policies of a Company Trump State Law? Know Your Rights

Company Policy vs. State Law: An Overview

When you’re an employee at a company, you are bound by two things: (1) your agreement with the company, which contains company policies that define the terms of your employment and (2) the applicable state and federal laws that govern employment. When it comes to a question concerning your rights, which one holds more weight—the company policy or the applicable law?
In simplest terms, it is important to understand that the law is the highest authority; therefore, any company policy that conflicts with state or federal law can be considered null-and-void. Federal law is the strongest and must be followed across all states. State law will differ from federal law, making it equally important to be mindful of these differences as well . On the other hand, company policy can be stricter than state law, but they cannot undermine the private employee’s rights. Therefore, if a company policy allows for an employee to have 10 days of sick leave, but the law provides an employee with only five days, then the law takes precedence. However, if the law states that there must be three days of sick leave and the company policy only allows for two, then the company policy overrides the law.
The key to understanding how company policy works is to know that they cannot violate the law, but they can also provide additional rights for the employee. In other words, you are entitled to those rights provided by the law AND those provided by the company.

The Hierarchy of Company Policy and State Law

When it comes to workplace rights, state law always takes precedence over company policy. This means that even if your employee handbook, for example, says "you can’t take time off on a Friday," or "you can’t partake of alcohol until you complete work," it doesn’t matter. When the law says you can, the law prevails. This basic tenet of the law provides a critical measure of protection to employees who encounter frustrating and damaging company policies.
So what do I mean when I say that in a scenario your employee handbook will not prevail over state law? Let’s take an example. Beneficial effects of state law could include, say, the California Family Rights Act (CFRA), which provides up to 12 weeks of protected leave for employees to care for a newborn child. If your company policy states that any employee that works less than 40 hours per week is not eligible to take leave under the CFRA, as a part-time employee, you’re allowed to take protected leave under the CFRA despite what your company policy states.
State law and company policy can also work together for the benefit of the employee. Take, for example, the various Labor Code requirements that California employers must comply with, such as providing numerous required paid breaks, and obligated to track employee breaks. Some company policies go above and beyond this by providing extra breaks or slightly lengthier breaks. These policies protect employees and serve as a great supplement to their legal rights under California state law, despite the fact that they are not required by law.

Limitations Noted on Company Policy

In most scenarios, your company’s policies and rules cannot override state laws. For example, if there is a company policy that requires employees to work more than 40 hours per week without overtime pay, an employee could not be fired or disciplined for refusing to work the extra hours under California law. Such company policy directly violates California Labor Code Section 510(a). Despite the company policy, California law would apply and require any overtime hours be paid overtime wages.
The same is true for employee overtime/bonus policies. A company could not legally terminate you for refusing to work more than your set hours, under California Labor Code Sections 510 & 201-204. Even if a company puts in writing a policy that "Employees are required to work overtime when needed," such written company policy cannot override California labor laws, which prohibit mandatory overtime without overtime wages.
Another example of a company policy/rule that cannot be legally enforced are company meal and break policies/rules. In California, employees are entitled to meal breaks (California Labor Code 512(a)), rest breaks (California Labor Code 226.7), as well as off-the-clock pay (California Labor Code 221). If an employer has a company policy/rule that states "Employees are required to work through lunch breaks," labor laws would apply and employees would still have a right to 30-minute unpaid meal breaks.
A statement in a company handbook that "Exempt employees are required to work 9 hours per day" could not override California Labor Code repealed Section 510, which states that if an employee works 10 hours, they must be paid overtime.
These are just some examples of how company policies/rules do not override state laws like overtime, meal/breaks, and off-the-clock pay. There are many other examples, including, but not limited to, paystubs, paid sick leave, anti-retaliation, anti-discrimination and harassment, and more.

Where State Law Trumps Company Policies

State laws can override company policies in a variety of situations. For example, state labor laws require employers to provide at least seven paid or non-paid sick days at minimum wage to their employees. State laws also require employers to abide by certain discrimination laws related to sexual orientation. If your employer has a policy prohibiting workers from taking time off for religious purposes, but there is a state law that requires employers to accommodate their employees for religious purposes, the religious accommodation policy may be declared illegal.
In an example of what can happen when company policies are in conflict with state law, consider the case where a Starbucks store in Thousand Oaks, California, was found breaking California state law by requiring a barista to pay for a drink and a food item out of her own pocket in exchange for working through her break. Although Starbucks’ company policy was clearly written (and publicly posted on its website), it could not override the state law.
In Garcia v. Starbucks, the United States District Court for the Central District of California found that Starbucks could not require its employees to reimburse the company of the cost of a free beverage and a food item in exchange for an employee working through a break or refuse to provide free food or drink to its employees. In applying the California state labor code, the court found that all employees in California are entitled to receive a 10-minute paid break for every 4 hours of work, a 30-minute unpaid meal period for every 5-hour work period, and lunches if an employee works more than 10 hours a day. These laws cannot be overridden by company policies or by informal store managers.
One very important thing to note in California is that employers can only change company policy to benefit the employees. In YB by YB v. Los Angeles Unified School District, the court found that while the law (in this case, a state law) does not restrict school districts from offering additional benefits to its employees, the benefits offered must be consistent with the existing collective bargaining agreement. Special education teachers filed a class action lawsuit against the Los Angeles Unified School District for not providing additional compensation for their extra work. The court held that the special education teachers could not receive additional compensation because the teachers’ collective bargaining agreement provided no greater right to additional compensation for extra duties.
Religious accommodation laws are another way that state law can prevail over company policy. One example of this is Section 2 of California’s Assembly Bill No. 1964, which amended the California Fair Employment and Housing Act to require employers to provide religious accommodation without costs or burdens to the employee. Prior to the new law, California law did not protect an employee who refused to work on his or her normally scheduled days off for religious reasons.
The courts have also found that if an employee is acting within the scope of employment while participating in a certified worker’s compensation state program, that employee is entitled to compensation under the state compensation program and can no longer sue the employer under other state laws (see Valeriana v. Teamsters, Local 853).
State laws specifically deny any employer to enter into contracts in which a dispute will be resolved through binding arbitration if it prevents employees from seeking remedies provided under state law. For example, employees of Cinnabon and Carvel filed a class action lawsuit against Cinnabon Franchisor LLC in California, alleging that the company violated California labor laws by not paying its employees overtime and overtime wages. The company’s Offer of Settlement required all disputes to be resolved by a confidential arbitration and required all workers to sign an arbitration agreement. In an attempt to be released of all liability, the settlement also required workers to release all claims they had against Cinnabon. The court found the quieting process to be a contract in violation of California Labor Code Section 2855 and held the mandatory arbitration provision to be unenforceable.

Risks of Non-Compliance

For employers who fail to comply with state law, the consequences can be severe. Substantively changing a right or benefit that is established under state law is often a violation. Compensation paid under a good faith policy that is later determined by an administrative agency or court to be in violation of federal or state law could be found to be unpaid overtime and/or unpaid wages. Failure to pay these amounts subjects the employer to possible overtime and wage claims , including applicable liquidated damages and interest. An employer may also be subject to administrative fines and penalties for violations of labor and employment laws. Potential litigation and investigation costs may include attorneys’ fees, costs to respond to administrative inquiries, and, in some cases, even penalties in excess of the previously accrued overtime and wage claim.
Non-compliance can also result in damage to the company’s reputation in its industry and could lead to a loss of business and/or customers. For example, the California Insurance Commissioner does not approve policies from businesses that are in substantial violation of laws regulating the business operation.

How to Remain in Compliance

It is important that any HR policies you implement are in compliance with both state and federal law. Your policies are only as good as they are up to date. In California, the Fair Employment and Housing Council provides a lengthy, detailed, and complex set of policy guidelines for employers. This is a publicly-available compliance resource that you can access online to ensure you know what guidance is available and can follow it. It is highly recommended that you review your company policies regularly for compliance with changing laws and regulations and update them every two to three years without fail. A best practice relating to policy formulation is to keep a tickler system in place to alert you for when it is time to review your policies (every three years is a good external marker and benchmark).
Similarly, ensure that your training and development program for management and human resources staff is current and updated at least every three years and enroll those managers and HR professionals in the classes that you take. Moreover, be sure to have an attorney review your policies and any updates you implement before you roll them out to the company. Have the attorney review your training programs, and include the attorney in your rollout of training to ensure any particular distinctions or caveats related to California law are adequately handled.
These steps will go a long way toward ensuring compliance with California laws and regulations.

Rights of Employees and Steps Forward

Employees of private companies often times learn the hard way that company policy can supersede state laws. This is especially true when it comes to issues such as leaves of absences, work attendance, pay days, paid sick leave, meal and rest periods, work breaks, religious accommodations, pregnancy accommodations, non-discrimination protections, and workers’ compensation. If you believe your rights have been violated, what are your options?
First, there is no such thing as blanket immunity for any company’s policies. Considerations should be given to whether the policies were intended to avoid liability or if they were enacted in ignorance of applicable laws. Under California law, employees who are subject of a company policy that violates an express law are entitled to sue the employer for all damages allowed under those laws, which can include payment of lost wages and other compensatory damages, as well as additional damages like penalties and damages for emotional distress.
Given the proliferation of unpaid intern and volunteer programs at this time, it is important to consider what the interns and volunteers know about the policies in place with respect to unpaid internships and volunteer work. If they are not aware that they are not being paid, or are unaware of their status as volunteers or interns, the company may be liable for any unpaid wages, overtime and penalties just as it would be if an unpaid intern was a salaried employee. Moreover, in some cases, the interns or volunteers might have a discrimination claim, such as if the company has a policy against hiring "older workers" that is directed at unpaid interns or volunteers.
For unpaid intern and volunteer claims, employees are entitled to payment of unpaid wages and overtime, and are also entitled to the total amount for which the unpaid intern or volunteer was liable, and penalties that can be significantly high under California law. In some cases, unpaid interns or volunteers have recovered damages for emotional distress as well. These claims are often made (and won) by interns who were classified as "trainees" in order to circumvent the new federal and state laws prohibiting unpaid interns and trainees. Given the complexity of these laws, the company must be careful to avoid claims by its unpaid interns, trainees, and volunteers.
If you think you have been subject to an illegal policy, seek help from a qualified attorney. Be sure to take all documents and evidence that will be helpful in helping your attorney review the merits of your claim, including:
Leave: attendance, scheduling conflict, doctor appointments, religious observances, etc.
Wages: wage statements, paychecks, pay stubs, disputed compensation, etc.
Work breaks: lunch break, paid break, religious observance, handicap accommodation, etc.
Medical treatment: job related incidents, neck/back/spine injuries, hospital admissions, home care, treatment programs
Rest periods: smoking, meals, medications, cigarette breaks, etc.
If the employer has violated your rights, you have recourse under federal and state law. A qualified attorney can advise you of your rights and if they have been violated. If so, they can help you understand the legal process.

Conclusion: Learning Balance between Policy and Law

Ultimately, a company policy cannot supersede state law. Therefore, employee rights established by state law will apply even when there is a conflicting company policy. The interplay between company policies, the governing law, and your rights as an employee can be complex, especially in situations where there is a disparity between the two. If you are faced with this situation, it could be useful to have a conversation with a professional who has experience with this particular legal issue.
Something worth noting is that although you do not have to abide by a policy that does not comply with the law, many company policies are created with good intentions. Your best option when faced with a situation like this is to be understanding about the policy and politely point out that there is a relevant law that should be considered.
For example, if a company’s sick day policy states that employees can only take one paid sick day per month, but their state law allows for at least one per week , the sick day policy should be altered to reflect the law.
Occasionally, an employer may offer a single leave package with benefits more favorable than the law requires. In this case, an employee could choose to take this enhanced package or could elect not to take the package and to pursue the leave alternative under state law (assuming the eligibility criteria are met.)
We have established that company policy cannot supersede state law, but the two can work together. If your company policy is more restrictive than state law, the latter inevitably prevails. If your company policy is less favorable than state law, you can choose to take the better option outlined by your state’s laws.
While companies are legally obligated to comply with state labor laws, they can create policies that are even more beneficial to their employees than the law requires. If there is a conflict when an employee uses his or her sick time or other leave, the company policy will be ignored and the more favorable state statute will be followed.