The City of Los Angeles recently enacted an Ordinance imposing an increased minimum wage and mandatory paid sick leave, which takes effect July 1, 2016, and is more onerous than corresponding state laws. The effective date is deferred by one year for employers with 25 or fewer employees.

Los Angeles Minimum Wage Ordinance (“MWO”)

Starting July 1, 2016,any employer, regardless of its principal place of business, who has an employee that works at least two hours in a week within the geographic boundaries of the City of Los Angeles is covered by the MWO and must pay at least $10.50 per hour, which is above the state minimum wage of $10 per hour. The ordinance also establishes a schedule of increases over the next six years (see chart below). Small employers with 25 or fewer employees will have until July 1, 2017, to comply with the current increase and each subsequent increase will be deferred for a year as well.

Wage Schedule Chart

Click here to view chart.

Additional Employer Obligations

In addition to paying the increased minimum wage, the MWO requires covered employers to:

  1. Provide employees with the employer’s name, address and telephone number in writing at the time of hiring.
  2. Keep payroll records for four years (one year longer than the state requirement).
  3. In the event that the City’s Bureau of Contract Administration (BCA) issues a Notice of Determination to an employer finding a violation of MWO, post the Notice in a clearly visible place.
  4. Refrain from retaliation against any employee who exercises his or rights under MWO. Retaliation includes discharging, reducing compensation or discriminating against an employee in any way. MWO applies a rebuttable presumption that any adverse action taken against an employee within 90 days of the exercise of rights is retaliatory, so employers are advised when considering employee discipline to analyze whether an employee has exercised rights under MWO in the prior 90 days and whether there is sufficient evidence to rebut the presumption.

Employees’ Rights Under Los Angeles Wage Enforcement Division Ordinance

To enforce MWO, the City enacted the Wage Enforcement Division Ordinance (“WEO”). Under WEO,employees have the right to file a complaint with the Office of Wage Standards, to inform any person about an employer’s alleged noncompliance with the ordinances, to assist another employee in asserting rights, or even to mistakenly but in good faith allege a violation of MWO or WEO. The City is required to keep the name and other identifying information of the employee or person reporting the violation confidential unless authorized by the complainant. If an employer takes any adverse action against an employee within 90 days of the employee’s exercise of protected rights, the action may be construed as retaliation.

Liability for Violations

An employer who violates the minimum wage requirement is liable to the employee for payments of back wages and a penalty of $100 for each day that the violation continues to occur. An employee who is retaliated against will be entitled to reinstatement, back wages and the penalty fine. Additionally, the BCA has set specific administrative fines for any employer who violates any provisions of WEO, which can reach $1,000 per employee.

Paid Sick Leave Obligations Under New Ordinance: Another Bitter Pill to Swallow

As we have reported previously, California’s Healthy Families, Healthy Workplaces Act took effect, requiring all employers with employees in California to provide paid sick leave to their employees.

California cities such as San Francisco, Oakland and Emeryville have also enacted sick leave laws. Not to be outdone , the City’s MWO contains new paid sick leave requirements, which take effect on July 1, 2016, for employers with 26 or more employees and on July 1, 2017, for employers with 25 or fewer employees (based on the average number of employees employed in the previous calendar year). The new Ordinance applies toall employees who have worked within the City of Los Angeles for the same employer for 30 or more days within a year, regardless of the location of the employer. Like the state law, there are no exceptions for small businesses or non-profit organizations. Unlike the state law, but in line with the other cities, there are no waivers for employees covered by collective bargaining agreements.

Application

Employees who work for Employers with 26 or more Employees, begin accruing sick leave on their first day of employment (or July 1, 2016, whichever is later). Employees who work for employers with 25 or fewer, do not begin accruing sick leave until July 1, 2017, or their first day of employment, whichever is later. The number of employees is calculated based on the average number of employees employed in the previous calendar year. Employers may either (1) provide employees the required 48 hours (six days) of paid sick leave at the start of employment for the year or 12-month period or (2) accrue for employees one hour of sick leave for every 30 hours worked. Although the Ordinance provides that accrual commences immediately upon hire, the employer may limit employees from using their accrued or frontloaded sick leave days until after their 90th day of employment, unless the employer permits a shorter waiting time. Los Angeles’ 48 hours/six days of paid sick leave per year is double the state law requirement of 24 hours/three days and applies even if employees mostly work elsewhere in the State and only two hours per week within the City limits.

There is no “use it or lose it” allowed for frontload policies as there exists under State law. In Los Angeles, accrued, unused sick leave carries over year to year, although employers may cap accrual at 72 hours/nine days, which is higher than the minimum State cap of 48 hours/six days. Consistent with State law, employers do not have to pay out unused sick leave when an employee separates from the employer, but accrued sick leave is reinstated if the employee is rehired within a year.

Unlike the State law which requires paid sick leave to be used in increments of at least two hours, there are no such requirements in Los Angeles. There are also no regulations on paid sick leave notices and tracking in Los Angeles. Therefore state requirements remain applicable in both cases: leave must be allowed in increments of at least two hours, and the applicable policy must be posted and a written notice distributed to employees.

Employers With Paid Time Off Policies

The ordinance does not require the employers to change their policies if their current PTO already provides employees with 48 hours or more of paid sick, vacation or personal time. No additional sick leave or changes are necessary if the policy complies with the new ordinance. Keep in mind however that in California, accrued unused vacation or PTO must be paid as wages upon termination, but unused sick leave is not required to be paid.

Basis for Sick Leave

Employers must provide paid sick leave upon an oral or written request. Under state law Employees are allowed to use sick leave for themselves, their extended family members, or for domestic violence and staking incidents. The Los Angeles ordinance extends use of paid sick leave for “any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”

The Los Angeles ordinance permits employers to request “reasonable documentation” for sick leave, while the state law does not expressly allow this. However, as there are no guidelines regarding “reasonable documentation,” employers may be accused of interfering with employee’s benefits if a doctor’s note is required as a condition for paid sick leave. Employers should be careful when requesting documentation for paid sick leave. Due to the broad range of permitted uses of sick leave days and the fact that California employers are prohibited from inquiring into the specific nature of an employee’s “serious health condition” (2 CCR 11087 (a)(2)), employers might well be better off refraining from inquiries into the use of paid sick leave time. Perhaps Don’t Ask Don’t Tell is the best policy.

Damages

Employers who fail to comply with sick leave requirements are responsible for all sick leave benefits unlawfully withheld, and an additional penalty of up to $120 per day after the violation occurred. Damages are tripled if an employer retaliates against an employee. Employers also face additional fines of up to $500 for failing to post the required notice and for other violations.

Takeaway

Employers must comply with both the state and the local laws, whichever are more favorable to employees. Assuming, however, employers already comply with the California paid sick leave law, they will need to continue to do so, making sure that the more favorable requirements of the L.A. Ordinance are satisfied. This includes providing the increased minimum amount of six days/48 hours of mandated leave to their L.A. employees.

Under state law, if an employer uses an accrual policy, unused accrued leave must be rolled-over to the next year, but if an employer frontloads under the state law, accrued unused leave is not carried over. Under the L.A. Ordinance, up to 72 hours of accrued unused leave will carryover, and because the L.A. Ordinance is more favorable, it preempts state law.

Employers of Los Angeles union member employees must now provide the minimum sick leave allotment of at least six days/48 hours in accordance with the L.A. Ordinance, regardless of the terms of any applicable CBA to the contrary. The state sick leave law excludes union members.

The most challenging aspect, however, may be for employers to determine which of their employees actually spends 30 days a year working in Los Angeles. For some companies, that could prove a daunting task when their workforce includes consultants, advisors or sales people who may or may not call on clients or customers in Los Angeles on a consistent basis. The safest practice would be to provide at least the minimum six /48 hours to any employee who could potentially spend 30 days working within the city.

While the challenges are significant, there are options and some flexibility. Careful consideration must be given before finalization of any changes.