The first quarter of 2016 brought sweeping new legislation that affects all California employers in significant ways.  Failure to understand and implement practices that follow the California employment laws can lead to significant liability that can be potentially crippling for many business owners.  This newsletter briefly summarizes some of the most significant recent changes to California employment law.  We encourage our readers to review the new legislation carefully and make changes to their business practices where necessary. 

FAMILY LEAVE LAW

San Francisco Becomes First City In the U.S. Requiring Employers to Provide 6 Weeks Leave at Full Pay for New Parents

In a historic move, the City of San Francisco Board of Supervisors and City Council unanimously approved an ordinance requiring companies doing business in San Francisco employers to provide fully paid parental leave for six weeks following a birth or adoption in a worker’s family.  The State of California manages an employee-funded state insurance program that allows workers to get 55 percent of their pay for up to six weeks after a child is born or is adopted. Companies doing business in San Francisco must now make up the other 45 percent of the pay for a person on parental leave.

The Ordinance applies to new mothers and fathers who have worked for the employer for at least 180 days, work at least 8 hours a week, spend at least 40 percent of their work week within the City of San Francisco, and are eligible to receive paid family leave under California’s paid family leave program.  Businesses with 50 or more employees must comply by January 2017.  Businesses with 35 to 49 workers must comply by July 2017. Businesses with 20 to 34 workers have until January 2018 to comply.  The legislation does not apply to federal, state, or municipal employees.

California’s Paid Sick Leave Law Clarified and Updated (AB 304)

As all California employers know, or should know by now, California passed the Healthy Workplaces, Healthy Families Act of 2014 which took effect on July 1, 2015 and requires all employers to provide all employees (exempt, non-exempt, part-time, full-time, temporary and seasonal) with paid sick leave at the minimum rate of 1 hour of paid sick leave for every 30 hours worked.  The original legislation left several unanswered questions which led Governor Brown to pass urgency legislation to clarify the Act’s requirements.  Please see our previous California Law Note on the sick leave law.

The recent amendments clarify that Paid Time Off (PTO) plans that existed prior to January 1, 2015 could be grandfathered so long as they allow paid time off for the same conditions for the same purposes as the sick leave law.  The pre-existing plans must satisfy the accrual, carry over and use requirements and provide no less than 24 hours of paid sick leave for each year of employment.  

The amendments also provide for alternate accrual methods.  If a different accrual method is used other than the 1 hour sick leave for every 30 hours worked requirement, the accrual of sick leave must be provided on a regular basis and provide at least 24 hours of sick leave each calendar year or each twelve months.  Alternatively, employers can satisfy accrual requirements if 24 hours of sick leave is made available to the employee to use by completion of his or her 120th calendar day of employment.  This method makes it unnecessary for employers to track hours so long as they provide the minimum paid sick leave by the end of the fourth month of employment.

The amendments also clarify that to be eligible for paid sick leave, the employee must work for the same employer for 30 or more days in California. The prior version of the law did not state whether the days worked needed to be for the same employer.

The amendments further clarify front loaded policies of providing the full amount of paid sick leave can be provided at the beginning of each calendar year, year of employment, or twelve-month period.

The amendments also simplified how paid sick time should be calculated.  For exempt employees, paid sick time is to be calculated in the same manner as the employer calculates wages for other forms of paid leave time.  For non-exempt employees, the employer may choose between two options: (1) the employer may calculate paid sick leave in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, regardless of whether the employee works overtime in that workweek; or (2) the employer may calculate paid sick leave by dividing the employee’s total wages, not including overtime pay, by the employee’s total hours worked in the full pay periods of the prior ninety days of employment.

Job-Protected Leave for Child-Care or School Related Emergencies or Activities (SB 579)

Labor Code Section 230.8 was recently expanded to add the reasons for which an employee may take job-protected leave under the Family School Partnership Act.  The Act applies to employers with 25 or more employees and authorizes employees to use up to 40 hours of unpaid but job-protected leave (limited to 8 hours in any calendar month) to participate in school or child-care related activities or emergencies.

A school or child-care provider emergency is defined as meaning: (a) the school or child-care provider has requested the child be picked up, (b) behavioral or discipline problems; (c) closure or unexpected unavailability of the school or child-care provider, excluding planned holidays, or (d) a natural disaster, including but not limited to, fire, earthquake, or flood.  The definition of “parent” was amended to include stepparents, foster parents, or an employee who stands in loco parentis to a child.

U.S. Dept. of Labor Issues Proposed Rule Requiring Federal Contractors to Provide Paid Sick Leave

This past February, the Department of Labor issued a proposed rule, implementing President Obama’s Executive Order 17306, which would require all federal contractors to provide up to seven days or more of paid sick leave annually, including paid sick leave allowing for family care.  The paid sick leave rule would apply to both exempt and non-exempt employees. 

Executive order 17306 applies to new contracts and replacements for expiring contracts with the Federal Government that result from solicitations issued on or after January 1, 2017 or that are awarded outside the solicitation process on or after January 1, 2017.  Executive Order 13706 applies to four major categories of contractual agreements:

  1. procurement contracts for construction covered by the Davis-Bacon Act (DBA);
  2. service contracts covered by the McNamara-O’Hara Service Contract Act (SCA);
  3. concessions contracts, including any concessions contracts excluded from the SCA by the Department’s regulations at 29 CFR 4.133(b); and
  4. contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Under the proposed rule, employees must accrue no less than one hour of paid sick leave for every 30 hours worked. The proposal also creates an option for contractors to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue the leave based on hours worked. All covered contractors would be required to inform employees in writing of the amount of paid sick leave they have accrued no less than monthly and at other times.

Under the proposed rule, contractors may limit the amount of paid sick leave employees may accrue to 56 hours each year and must permit employees to carry over accrued, unused paid sick leave from one year to the next. The Department also proposes to allow contractors to limit the amount of paid sick leave employees have accrued to 56 hours at any point in time.  Under the proposal, contractors will be required to reinstate employees’ accrued, unused paid sick leave if the employees are rehired by the same contractor or a successor contractor within 12 months after a job separation. Contractors will not be required to pay employees for accrued, unused paid sick leave at the time of a job separation (“cash-out”).

The rule sets forth an enforcement mechanism whereby complaints can be lodged with the Wage and Hour Division of the Department of Labor, and administrative proceedings can begin.

The Department is currently receiving public comment on the proposed rule and is expected to issue a final rule in the coming months.

 WAGE AND HOUR LAW

California Lawmakers Approve Raising Minimum Wage To $15.00/Hour by 2022 (SB 3)

California lawmakers recently approved a measure to increase the State’s minimum wage from its current rate of $10.00/hour, to $10.50/hour on Jan. 1, 2017, then to $11.00/hour on Jan. 1., 2018 and then a successive $1.00/hour increase each year on Jan. 1 until it reaches $15.00/hour on Jan. 1, 2022.  This makes California the highest minimum-wage state in the country.

For employers with 25 or fewer employees, the minimum-wage increases would start a year later ($10.50 per hour in January 2018) and increase to $15 per hour by January 2023. 

This new state law does not impact local municipalities’ minimum-wage rates.  Employers must therefore ensure they comply with both local municipality minimum-wage laws and the state’s minimum-wage laws by paying their workers at least the higher rate.  Below is a sampling of some of the California municipalities that have set higher minimum wages than California for employees working within their city boundaries.

Click here to view table

Failure to comply with minimum wage laws carries significant risks including exposure to unpaid wages, liquidated damages, penalties, interest, attorney’s fees and costs.  We encourage employers to audit their pay practices and to ensure all workers are being paid at least the proper minimum wage.

Labor Code Amended to Make Owners, Officers, Directors, and Managing Agents Personally Liable for Wage and Hour Violations (SB 588)

On January 1, 2016, the California Fair Day’s Pay Act went into effect.  This law was enacted to address the chronic problem faced by employees who succeed on wage claims but remain unable to collect on those claims.  This law enables the Labor Commissioner to use any remedies available to a judgment creditor, and to act as a levying officer when enforcing a judgment pursuant to a writ of execution.  The Labor Commissioner, for example, will be permitted to issue liens on credits, money, or property belonging to an employer.  Further, if the employee incurred attorney’s fees, those fees can be included in the lien.  Should a final judgment for unpaid wages remain unsatisfied for 30 days after the time to appeal the judgment has expired, and there is no appeal pending, the employer must obtain a surety bond that covers the value of the judgment or otherwise must cease business operations in California.

In addition, SB 588 prevents an employer from closing down its business and re-opening under a new name in order to avoid their debts to workers.  Under SB 588, any new business that is “similar in operation and ownership” to the guilty employer is also liable for the wages owed.  SB 588 specifically states that a new business will be considered the “same employer” for purposes of liability if (1) the employees of the successor employer are engaged in “substantially the same work in substantially the same working conditions under substantially the same supervisors,” or (2) the new entity has “substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers.”

Significantly, SB 588 also amends Labor Code Section 588.1, making owners, directors, officers, and managing agents of the employer personally liable for any willful failure to pay wages (including minimum wage and overtime), failure to issue accurate wage statements, failure to provide cooldown, rest, or meal periods, or failure indemnify business expenses.  This liability is significant because most of these violations carry with them the specter of being made liable for plaintiffs’ attorney’s fees and costs, depending on the violation at issue.

We strongly advise our readers to seek counsel and audit their employment practices to avoid potential significant corporate and personal liability for these common wage and hour violations.

Labor Commissioner Granted Expanded Powers to Enforce Local Overtime and Minimum Wage Laws As Well as Business Expense Reimbursement Violations (AB 970)

Under AB 970, which went into effect January 1, 2016, the Labor Commissioner now has the power to enforce local laws and ordinances involving payment of wages, such as minimum wage and overtime laws.  The law also authorizes the Labor Commissioner to issue citations and penalties against employers who fail to indemnify employees for expenses they incur in employment.

Employers Given Limited Opportunity to Cure Certain Wage Statement Violations To Avoid PAGA Liability (AB 1506)

California’s Private Attorney General Act of 2004 (PAGA) authorizes employees to file civil actions against employers for Labor Code violations to recover civil penalties otherwise assessed by the Labor and Workforce Development Agency.  Liability under PAGA is significant because it authorizes an aggrieved employee to collect penalties on his or her own behalf as well as on behalf of all current and former employees.  PAGA also authorizes recovery of attorney’s fees and costs. 

Governor Brown passed this urgency legislation (AB 1506) in response to concerns over class actions being filed based on certain technical violations (e.g., an employer’s name being misspelled) for wage statements.  The new law now allows an employer 33 days to cure any alleged violation of wage statement requirements that concern “the inclusive dates of the period for which the employee is paid” or “the name and address of the legal entity that is the employer.”  To cure the violation and avoid liability under PAGA, the employer must issue fully compliant wage statements to employees for the entire statutory period (three years).  Each employer is granted only one opportunity to cure in a twelve-month period.

New Rest Period Requirements for Piece Rate Workers (AB 1513)

California law requires that employers authorize and permit their employees to take rest periods based on the total hours worked in a day. Employers must authorize and permit 10 minutes’ net rest time for every four hours worked or major fractions of an hour. If the workday is less than three and one-half hours, then no rest period is required. Even though no work is performed during the rest period, employers must consider rest periods as compensable time worked.

Recently, the legislature placed substantial new requirements on employers with employees who are compensated on a piece-rate basis for any work within a pay period.

With respect to rest periods, Labor Code Section 226.2 now requires that employers compensate piece-rate employees for rest periods separately from any other piece-rate compensation. Section 226.2 further requires that rest period time be paid at the higher of either the minimum wage or a special premium rate, which is an average hourly rate that is determined by applying a formula set forth in the statute. Specifically, an employer must divide the total compensation earned by the employee in the workweek, excluding compensation for rest or recovery periods and premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods, to determine the rate that must be paid for rest period time.

Labor Code Section 226.2 also requires that the itemized wage statements that employees receive must separately state the total hours of “compensable” rest periods, the rate of compensation, and the gross wages paid for those periods during the pay period.

DISCRIMINATION AND HARRASSMENT LAW

New FEHA Regulations Require Employers to Distribute Written Discrimination, Harassment, Retaliation Prevention Policies

According to new FEHA regulations, beginning April 1, 2016, California employers with at least 5 employees must distribute written policies setting forth procedures for prevention of discrimination, harassment, and retaliation.  The policies must be in writing, have a method of ensuring receipt of the policy by employees, set forth internal complaint procedures for addressing claims of discrimination or harassment, advise employees that they will not be subject to any type of retaliation for raising complaints, and be provided in a second language if at least 10 percent of the workforce speaks a different language.

Please see our recent California Law Note for further detail on this important change in the law.

California Enacts “Fair Pay Act” Targeting Gender-Based Wage Gap (SB 358)

The California legislature revised existing law and enacted one of the most aggressive and progressive laws in the country designed to target gender-based wage differentials.  Prior to the Fair Pay Act, employers were prohibited only from paying opposite sex employees differently when they did equal work at the same establishment.

The Fair Pay Act eliminates the “same establishment” requirement and revises the “equal work” requirement to prohibit instead paying less for “substantially similar work, when viewed as a composite of skill, effort and responsibility” performed under similar working conditions.  The Act places specific requirements on employers to show affirmatively that any wage differential is not unlawful but is instead based entirely and reasonably upon a seniority system, a merit system, a system which measures earnings by quantity or quality of production. 

Importantly, employers defending a wage differential must be able to show affirmatively that the wage differential is not derived from a sex-based differential and is consistent with a “business necessity,” such as a difference in education, training or experience that is job-related to the position in question.  The law specifies that “business necessity” means “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purposes it is supposed to serve.” 

In addition to showing at least one of the factors set forth above, employers must also satisfy two additional criteria: (a) that each factor relied on is applied reasonably; and (b) the one or more factors relied on accounts for the entire wage difference.  The law clarifies that the burden of proof is placed entirely on the employer to demonstrate all of the factors supporting the wage disparity.  Further, employers cannot prohibit employees from disclosing their wages, discussing the wages of others, or asking about another employee’s wages.

The Act prohibits employers from terminating, discriminating, or retaliating against an employee who exercises his/her rights under the Act or assists others in exercising their rights.  Employees can seek enforcement through the Labor Commissioner or through a civil action for reinstatement and reimbursement of lost wages.  The Act sets forth a one-year statute of limitations for retaliation claims. 

To minimize the risks of claims or litigation under this Act, employers should audit employee job duties, responsibilities, and pay across the company; review all pay and compensation-related policies and procedures to ensure that the criteria for base compensation, bonuses, and raises are as objective as possible; and review all policies related to confidentiality, discussion, and discipline associated with disclosure of pay information. Employers should provide internal training on how to cross-reference employee compensation across the company and maintain written documentation that relates to pay decisions.

E-Verify Program Misuse Targeted (AB 622)

A new law prohibits employers from using E-Verify to check the employment authorization status of an existing employee or an applicant who has not yet been offered employment or in a manner or at a time not required by federal law or by an applicable memorandum of understanding.  The new law, codified in new Labor Code Section 2814, does not change employers’ rights to utilize E-Verify, in accordance with federal law, to check the employment authorization status of a person who has been offered employment.

To the extent the employer receives any notification issued by the SSA or the DHS containing information specific to the employee’s E-Verify case or any tentative no-confirmation notice--which indicates the information entered in E-Verify did not match federal records--the employer will be required to provide the notification to the affected person as soon as practicable. Finally, in addition to other remedies available, an employer who violates this new law may be liable for a civil penalty not to exceed $10,000 for each violation, and each unlawful use of the E-Verify system on an employee or applicant constitutes a separate violation.

A Request for Accommodation Constitutes a Protected Activity For Retaliation Purposes under the Fair Employment and Housing Act (FEHA) (AB 987)

This law clarifies existing law that a request for an accommodation (for example, for a disability or medical condition or for a religious reason) is itself a protected activity that could create liability for retaliation under the FEHA if the employer engages in discrimination or an adverse employment action against the employee making the request. 

Prior to this law, the FEHA prohibited retaliation against employees who protest or oppose unlawful employment practices, but the FEHA was silent on the issue of whether a request for an accommodation itself was a protected activity that could impose liability for retaliation under the FEHA for employers.  Several California appellate court decisions held that an accommodation request did not constitute a protected activity for purposes of retaliation under the FEHA.  Therefore, the legislature enacted this law in response to these court decisions.

This law is significant in that every request for an accommodation is now potentially grounds for a retaliation claim.  Employers should train their supervisors and managers appropriately to address requests for accommodation promptly and appropriately or to seek legal counsel when requests for accommodation are made.