California has myriad laws giving employees the ability to take various paid or unpaid leaves. Some cities impose even broader paid sick leave mandates. Now, starting January 1, 2017, larger employers with employees working in San Francisco will have to provide employees with paid parental leave to bond with a new child. On July 1, 2017, the ordinance expands to cover smaller employers.

San Francisco’s ordinance is the nation’s first mandate for private employers to provide fully paid parental leave. The law extends to employees who work only part of the time in San Francisco. It also provides new retaliation protections, potentially reaching beyond California law and protecting some paid family leave taken under state law.

Current Law

The federal Family and Medical Leave Act and the California Family Rights Act give employees the right to take up to 12 weeks of leave a year to care for certain family members: an employee’s spouse, parent, or child. They include protected leave for bonding with a new child. FMLA/CFRA is unpaid, but employees may use available sick, vacation, or other paid leave during that time in some instances. Some employers do not have enough employees for FMLA/CFRA to apply. Individual employees may not qualify for FMLA/CFRA in some situations.

California’s State Disability Insurance (SDI) program allows employees to receive benefits when an employee cannot work because of that individual’s non-work-related condition. Employee taxes alone fund SDI benefits. Since 2004, funded by an additional tax on employees, California’s Paid Family Leave (PFL) program has paid family leave benefits for up to six weeks a year. It covers an employee taking leave to bond with a new child within one year of birth or placement through adoption of foster case. PFL also covers leave to care for a seriously ill spouse, parent, child, or domestic partner.

Effective in 2014, PFL expanded to include leave for an employee’s grandparent, grandchild, sibling, or parent-in-law. According to the California Employment Development Department, approximately 90 percent of claims have involved leave for bonding with a new child. Data also show that lower-earning employees have used PFL benefits at lower rates.

An employee qualifying for PFL benefits does not necessarily qualify for family and medical leave. These leaves are separate matters. While some employees receiving PFL benefits may qualify for FMLA/CFRA leave at the same time, PFL benefits and FMLA/CFRA leave are not dependent upon each other.

In 2016, California’s PFL benefits provide a partial wage replacement of 55 percent of an employee’s average weekly wages paid in the highest-earning quarter of a qualifying “base period,” up to a current maximum weekly benefit of $1,129. The maximum adjusts every year based on California’s average weekly wage. In April, California’s Governor signed Assembly Bill 908 to increase PFL benefits. Effective January 1, 2018, subject to a weekly maximum benefit, California will increase wage replacement to 70 percent for employees who earn 33 percent or less of the state’s average weekly wage, and to 60 percent for all other employees.

San Francisco Mandates Employers Pay the Full Difference in Many Cases

On January 1, 2017, the new ordinance applies to employees with 50 or more employees – regardless of location. Starting on July 1, 2017, the ordinance expands to employers with 20 or more employees, again regardless of location. It expressly covers part-time and temporary employees, including individuals employed through the “services of a temporary services or staffing agency or similar entity.” The law exempts only public employers and employers with a collective bargaining agreement, where the agreement waives the ordinance in “clear and unambiguous terms” and was entered into before the ordinance’s effective date. The effective date is 30 days after enactment, even though the ordinance’s “operative date” is not until January 2017.

The new ordinance mandates that employers provide higher paid family leave benefits for employees who qualify for PFL benefits and take leave for baby bonding, within the first year of after a child’s birth or after the child’s placement through birth or adoption. It does not apply to other qualifying bases for PFL leave. San Francisco aims to have employers pay the difference (“supplemental compensation”) between an employee’s PFL benefits and the employee’s “normal gross weekly wage.” However, higher-earning employees still will not receive full compensation.

To be eligible for supplemental compensation, an employee must (1) have “commenced” employment at least 90 days before the start of leave; (2) perform at least eight hours of work per week for the employer within the geographic boundaries of the City and County of San Francisco; (3) work at least 40 percent of the employee’s weekly hours within The City’s geographic boundaries; and (4) qualify to receive PFL benefits from the state for bonding with a new child. San Francisco’s geographic boundaries do not include San Francisco International Airport, which is within San Mateo County.

If an employee’s normal gross weekly wage fluctuates, the amount generally will be based on an average of the employee’s weekly earnings in the pay periods during the three months before the start of leave. If an employee was on leave during that time, earlier pay periods can be considered, back as far as 26 weeks. Employees who have worked less 26 weeks will have their normal weekly wage based on an average of the entire employment period.

In many cases, San Francisco employers will have to pay an employee the full difference between an employee’s weekly PFL benefit and the employee’s normal gross weekly wage. For example, with the state’s current 55 percent PFL wage replacement rate, an employer would have to pay supplemental compensation of 45 percent of the employee’s normal weekly wages.

However, not all employees will receive their full normal compensation amount during leave. With employees who receive the maximum weekly PFL benefit amount, the supplemental compensation “shall not be calculated to reach 100% of the employee’s total normal gross weekly wage.” Instead, the supplemental compensation due from the employer will be determined by dividing the state’s weekly maximum benefit amount by the percentage rate of wage replacement that the PFL law provides. Thus, with the current maximum weekly benefit of $1,129 and a 55 percent rate of wage replacement, the maximum current supplemental compensation would be $924 per week. This number is determined as follows: $1,129 is 55 percent of $2,053 (1,129/.55=2,053), with 45 percent of $2,053 calculating to a maximum weekly supplemental compensation of $924. Different amounts may apply when the ordinance becomes effective in 2017.

When an employee has worked for more than one “covered” employer (meaning an employer subject to the ordinance because the employee worked for it a sufficient amount of the time in San Francisco), the supplemental compensation due will be split proportionately between the employers based on “the percentage of the Employee’s total gross weekly wages received from each employer.” Again, if an employee’s wages fluctuate, the average generally will be based on average weekly earnings over the last three months. If an employee has more than one employer, but not all of them are “covered,” the covered employee is responsible for supplemental compensation based only on its percentage of the employee’s total weekly wages. For any employee to receive supplemental compensation from an employer, the employee must provide the employer with (1) a copy of the employee’s PFL benefits computation from the state, and (2) information on wages received from all employers in 90 days before leave, on a form provided by the San Francisco Office of Labor Standards Enforcement (OLSE).

An employer may require an employee to use up to two weeks of accrued vacation or paid time off at the start of leave. If an employer terminates an employee during the leave period, it still must continue paying supplemental compensation until the end of the employee’s PFL leave. An employer also may require an employee to agree to reimburse an employer for the cost of supplemental compensation, if the employee voluntarily separates from employment within 90 days of the end of leave and the employer requests reimbursement in writing. The OLSE must prescribe a form agreement for such an arrangement.

New Employee Protections

The ordinance contains new employees protections against retaliation. These provisions may result in leave protection for PFL time that California law does not otherwise provide.

Although California provides paid family leave, that time is not protected leave in and of itself. No provision of state law protects an employee simply because he or she takes PFL. Rather, PFL only is protected leave if it simultaneously qualifies for another type of protected leave, such as FMLA or CFRA leave. The new San Francisco ordinance, however, creates several new employee protections. First, an employer who reduces an employee’s wage rate during leave or within 90 days of a request for leave faces to a rebuttable presumption that the reduction was for the purpose of reducing the employer’s supplemental compensation obligation. Second, termination of employment within 90 days of a leave request raises a rebuttable presumption that the employer acted to avoid paying supplemental compensation. In each situation, the employer must demonstrate through “clear and convincing evidence” (a higher burden than the usual preponderance of the evidence standard in a civil case) that it acted “solely” for a permissible reason.

Next, the ordinance contains a broad prohibition on an employer interfering with, restraining, or denying the exercise or attempt to exercise “any right protected” under it. The ordinance further declares it unlawful to “discharge, threaten to discharge, demote, suspend, or in any manner discriminate or take adverse action” against anyone for “exercising rights to Supplemental Compensation,” filing a complaint, informing “any person” about an employer’s alleged violation, cooperating with an investigation, or informing any person of his or her rights under the ordinance. This broad provision apparently protects the right not only to receive supplemental compensation, but to take the underlying protected leave as well. Thus, while state law does not protect taking PFL, doing so now may be protected under San Francisco’s ordinance as a matter of local law, as long as PFL leave is for parental leave and also qualifies under the ordinance. Again, under this provision, any adverse action within 90 days of protected activity raises a “rebuttable presumption” of unlawful retaliation. An employer then must overcome that presumption by “clear and convincing evidence” that it acted “solely for a reason other than retaliation.”

What to Do Now?

The new San Francisco ordinance is complicated, with potentially significant penalties for violation. For example, calculation of the applicable amounts is not necessarily straightforward. The numbers involved also will change depending on changes in state PFL benefits. Employers with employees working in San Francisco should review immediately which employees the new ordinance may cover, how to provide supplemental compensation benefits that will be required, how to make necessary determinations, and any needed changes in policies and practices. Other necessary steps include required recordkeeping and posting. Employers must keep records of supplemental compensation paid for at least three years, with the failure to do so resulting in the presumption that the employer violated the ordinance, “absent clear and convincing evidence otherwise.” Employers also must post a new required city poster concerning the ordinance “at any workplace or job site where any Covered Employee works,” which may mean outside of San Francisco, if the location is where employees work yet otherwise work enough time in San Francisco for the ordinance to apply. Employers should consult with counsel to take necessary compliance steps.