Why it matters

California continues its focus on employment-related legislation. Touted as the toughest law of its kind in the nation, Senate Bill 358 expands California’s Fair Pay Act, moving the burden to employers to prove that an employee’s higher rate of pay is based on factors other than gender (such as seniority or a merit system) and providing employees with the ability to sue if they are paid less than coworkers of a different gender performing “substantially similar” work. In addition, employers must maintain records of wages and wage rates, job classification, and related terms and conditions of employment for a three-year period. The new law becomes effective January 1, 2016. A second law involving the waiver of meal periods in the healthcare industry was passed in reaction to a decision from the state’s appellate court earlier this year in Gerard v. Orange Coast Memorial Medical Center. Analyzing the interplay between California Wage Order 5 and Labor Code Section 512, the court created panic by disallowing the common practice of waivers of second meal periods for employees in the healthcare industry, and made its decision retroactive. Senate Bill 327 reversed this decision and reaffirms the validity of waivers of a second meal period during a healthcare worker’s 12-hour shift. The bill amends the California Labor Code to reflect that position, taking immediate effect. Finally, employers dodged a bullet when Governor Brown elected not to sign Assembly Bill 465, which would have prohibited employers from requiring employees to agree to mandatory arbitration. In a veto statement, the Governor stated that he wished to avoid “years of costly litigation” challenging the measure and that “[i]f abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.”

Detailed discussion

The California Legislature continues to focus on employment legislation, recently sending three bills to Governor Jerry Brown for his signature.

The first, Senate Bill 358, expands California’s existing prohibition on unequal pay between the genders. The state’s Fair Pay Act, originally enacted in 1949, provided that an employer may not pay an employee at a rate less than that paid to employees of the opposite sex in the same establishment for equal work performed on equal jobs. The new law lessens the burden on employees by requiring them to prove only that they received lower wages for “substantially similar” work and by eliminating the “same establishment” requirement.

In addition, the bill identifies the limited circumstances where an employer can show that wage disparity is based on a legitimate factor other than sex. Only a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex (such as geographic location, education, experience, or training) will suffice. These defenses “shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.” The burden to establish a bona fide factor other than sex is placed on the employer.

SB 358 also added a prohibition regarding retaliation and bans employers from interfering with workers’ ability to discuss and share information about their wages.

Recordkeeping requirements are included in the legislation, with employers mandated to maintain records of the wages and wage rates, job classification, and other terms and conditions of employment for a three-year period.

The new provision of the Fair Pay Act will take effect on January 1, 2016.

A second new law was passed in response to a decision from a California appellate court earlier this year. In Gerard v. Orange Coast Memorial Medical Center, the court had held that workers in the healthcare industry could not waive their statutory right to a second meal period when they worked more than 12 hours per day.

While state labor law requires that employees who work more than 10 hours in a workday must receive two 30-minute meal periods, Section 11(D) of California Wage Order 5 expressly permits employees in the healthcare industry to waive the second meal period if the workday is not longer than 12 hours and the first meal period was not waived. A trio of former hospital employees filed a putative class action claiming that this Wage Order was in conflict with Labor Code Sections 512(a) and 516.

A trial court sided with the hospital but the appellate panel reversed, holding that the more permissive Wage Order was partially invalid and was trumped by the Labor Code. The court made its decision retroactive, basically upending years of reliance on the Wage Order.

While the Gerard case is currently pending before the California Supreme Court, the Legislature stepped in, passing Senate Bill 327 to affirm the validity of such meal period waivers in the healthcare industry. The new law took immediate effect upon Governor Brown’s signature on October 6.

Finally, employers can breathe a sigh of relief after the Governor vetoed a measure that would have barred the use of mandatory arbitration agreements in the employment context. Assembly Bill 465 had provided that any arbitration agreement entered into, revised, extended, or renewed on or after January 1, 2016, must include a statement that the agreement is not mandatory and that signing it is not a condition of employment.

The State Legislature passed the bill by narrow margins (22 to 15 in the Senate and 45 to 30 in the Assembly), but Governor Brown vetoed the controversial measure when it arrived on his desk. “While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed in this bill for a number of reasons,” according to the veto statement. “If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.”

The Governor also noted that blanket bans on mandatory arbitration have been “consistently” struck down in other states as violating the Federal Arbitration Act (FAA) and that the U.S. Supreme Court is currently considering two cases arising from California courts involving preemption of state arbitration policies under the FAA. “Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases,” Governor Brown said.

To read SB 358, click here.

To read SB 327, click here.

To read AB 465, click here.

To read the veto statement, click here.