On Tuesday, April 5, 2016, the San Francisco Board of Supervisors unanimously approved legislation that would require private employers in the city to provide partial compensation to employees taking leave to bond with a newborn child under the California Paid Family Leave (“PFL”) program. In practice, when combined with existing partial wage replacement from the PFL program, employees who earn up to a maximum of $106,000 annually will receive complete wage replacement during a covered parental leave as a result of the legislation. If the ordinance is signed into law, San Francisco will become the first municipality in the United States to enact such a program.

Before becoming law, the proposed legislation will need to be approved in a second vote by the Board of Supervisors and signed by Mayor Edwin Lee. At this point, these procedures are considered formalities, and the proposed ordinance is widely expected to take effect in its present form.

Under existing state law, employees in California who contribute to the California SDI fund are entitled to six weeks of partial pay (55%) each year while taking leave to care for a seriously ill family member or new child under the state’s PFL program. When such leave is taken to care for a newborn child, newly adopted child, or new foster child, the new San Francisco ordinance would require employers to make up the difference by providing employees with the remaining 45% of the employee’s normal gross weekly wage for up to six weeks. Once the wage replacement rate paid under the California PFL program increases, as it is expected to do in 2018, the San Francisco ordinance would require employers to pay the remainder of an employee’s gross weekly wage based on the new state rate.

When Will the Legislation Take Effect, and Who Will It Cover?

If signed into law in its present form, the legislation will take effect in three phases. Starting on January 1, 2017, San Francisco employers with 50 or more employees will be required to pay employees at least 45% of their regular gross weekly wage during the six-week leave period. On July 1, 2017, the legislation will expand to include San Francisco employers with 35 or more employees. Finally, on January 1, 2018, it will apply to employers with 20 or more employees.Employers will only be required to provide the 45% wage replacement to employees who (1) have worked for the employer for at least 180 days; (2) work at least eight hours per week; (3) spend at least 40% of their total weekly hours within the city limits of San Francisco; and (4) are otherwise eligible to receive paid family leave under the PFL program for the purpose of bonding with a new child. In addition, the legislation establishes a maximum cap on wage replacement. The maximum weekly benefit is defined by reference the maximum benefit available under the state PFL law. Thus, under existing regulations, San Francisco employers would be required to pay a maximum of $924 per week (which equals 45 percent of an annual salary of $106,740).

Employers will only be required to provide the 45% wage replacement to employees who (1) have worked for the employer for at least 180 days; (2) work at least eight hours per week; (3) spend at least 40% of their total weekly hours within the city limits of San Francisco; and (4) are otherwise eligible to receive paid family leave under the PFL program for the purpose of bonding with a new child. In addition, the legislation establishes a maximum cap on wage replacement. The maximum weekly benefit is defined by reference the maximum benefit available under the state PFL law. Thus, under existing regulations, San Francisco employers would be required to pay a maximum of $924 per week (which equals 45 percent of an annual salary of $106,740).

San Francisco Employers Will Be Required to Cover a Smaller Portion of Employees’ Wages When Benefits Paid Under the California PFL Law Increase in 2018.

Based on state legislation signed by Governor Jerry Brown this week (A.B. 908), starting on January 1, 2018, the wage replacement rate paid under the California PFL program will increase from 55% to 60% for employees who earn more than 33% of the California average weekly wage. The rate will increase to 70% for employees who make up to 33% of the average weekly wage in California. Once the higher PFL rates take effect, the net payment obligation of San Francisco employers will fall by a corresponding amount. Thus, starting January 1, 2018, San Francisco employers’ wage replacement obligation will decline from 45% to either 30% or 40% of each covered employee’s weekly wages, depending on the size of the relevant employee’s weekly earnings relative to the state average.

Employees Who Quit Within 90 Days of Returning from Leave Are Required to Reimburse the Employer for the Supplemental Income They Received During Their Leave.

As a precondition to receiving supplemental wage replacement during their leave, covered employees under the San Francisco legislation will be required to sign a form agreeing to reimburse the full amount of supplemental compensation paid by their employer if (1) they voluntarily quit within 90 days of the end of their leave period; and (2) the employer requests the reimbursement in writing.

Employers May Require Employees to Exhaust Some Paid Vacation to Satisfy Their Wage-Replacement Obligations.

If the San Francisco legislation takes effect in its current form, employers, if they wish, may require the employee to exhaust up to a maximum of two weeks of unused, accrued vacation time to help satisfy the employer’s obligation to provide supplemental wage replacement during the leave.

Penalties for Non-Compliance.

An employee alleging non-compliance with the ordinance may file a complaint with the San Francisco Office of Labor Standards Enforcement (“OLSE”). In addition, in its current form, the ordinance authorizes “the City” or “any person or entity acting on behalf of the public as provided for under applicable State law” to bring a civil action in a court of competent jurisdiction for the non-payment of replacement wages and corresponding civil penalties.