Executive Summary: California's passage of the Healthy Workplaces, Healthy Families Act of 2014 (otherwise known as California's paid sick leave law) had left open a number of questions regarding compliance with the law. As a result, the California Legislature issued urgency legislation to clean up some of the more confusing or onerous provisions of the new law, which took effect immediately when the California governor signed the legislation into law on July 13, 2015. Clients are strongly advised to examine the recent amendments to ensure that their paid leave policies comply with the state's paid sick leave law.
The passage of the Healthy Workplaces, Healthy Families Act of 2014 left many California employers scratching their heads when it came to creating or restructuring their current leave policies for their employees. The law was simple enough—with limited exceptions, mandatory paid sick leave for a minimum of at least three days or 24 hours for all workers. Of course, the implementation of such a broad-sweeping workplace benefit offered to an estimated 6.5 million workers in the state was bound to encounter a number of hiccups.
Thankfully, concerns over compliance and implementation were alleviated in part when, after extensive legislative sessions, the state passed urgency amendments (A.B. 304) on July 13, 2015, to clarify some of the more confusing and onerous aspects of the paid sick leave law. As urgency legislation, the amendment goes into effect immediately. Although employers in California are strongly advised to review the amendments, we highlight some of more significant changes below:
Alternative Accrual Method and Grandfather Clause for Policies Implemented Prior to January 1, 2015
One of the more onerous provisions of the original law was the fact that many employers already maintained sick leave or paid time off policies that based leave accrual on other methods (such as on a pay period basis), which now conflicted with the paid sick leave law that based accrual on the number of hours worked.
The amendments now permit employers to use a different accrual method so long as (1) the accrual is on a regular basis and employees have at least 24 hours of accrued sick time or other paid time off by the 120th day of employment each calendar year or other 12-month basis, or (2) the method provides at least 24 hours of sick time or paid time off for use by the employee's 120th day of employment. In the case of an existing policy in place prior to January 1, 2015, that policy may now comply with the law if leave is accrued on a regular basis; the employee accrued no less than one day or eight hours of paid leave within three months of employment each calendar year or 12-month period; and the employee was eligible to earn at least three days or 24 hours of paid leave within nine months of employment.
Calculation of Paid Sick Leave
Confusion also arose over how sick leave pay was to be calculated for employees with different or fluctuating pay rates, as well as how pay was to be implemented for exempt employees. The amendments now do away with the original payment provisions, and allow employers to use three methods of calculation:
- For non-exempt employees, pay may be calculated 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 actually works overtime in that workweek;
- Alternatively, non-exempt employees' pay may be calculated by dividing the employee's total wages, not including overtime premium pay, by the employee's total hours worked in the full pay periods of the prior 90 days of employment;
- For exempt employees, paid sick time shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.
Reporting of "Unlimited" Sick Leave on Paystubs
An open question remained as to how the paid sick leave law interacted with nonaccrual, or "unlimited," paid time off policies, especially with respect to the reporting of available leave on employees' paystubs. The amendments clarify that when an employer maintains an "unlimited" sick leave or paid time off policy, it should indicate "unlimited" on the relevant document.
Sick Leave Reinstatement
Headaches occurred regarding how to address reinstatement of paid sick leave for discharged employees who had received a payout of unused sick leave or paid time off at termination. The amendments now clarify that employers are not required to reinstate paid leave balances for discharged employees if the employee was already paid for that time.
Lingering Questions Remain
Despite several fixes to the paid sick leave law made by the amendments, questions still remain.
Can an employer now include probationary periods by using the alternative accrual methods?
Although the original law required paid sick days to begin accruing immediately on the first day of employment, the inclusion of alternative accrual methods potentially calls into question whether immediate accrual is still required, or whether employers may now include probationary or introductory periods in their sick leave policies, in addition to the 90-day waiting period currently allowed. This is due to language within the amendments that only requires the alternative method to accrue "on a regular basis so that an employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period." The grandfather provision has similar, albeit more flexible, language. This may potentially provide employers who have short-term workforces with some flexibility with respect to the accrual of paid leave.
What happens when the paid sick leave law conflicts with other laws?
Paid Sick Leave and Exempt Employees
Questions also remain as to the paid sick leave law and its potential conflicts with various federal and California state leave of absence laws that generally allow employers to request medical certification in order to justify the use of leave under those laws, as well as federal and California state wage and hour laws governing exempt employees. For example, while the amendments now say that an exempt employee's paid sick time shall be calculated in the same manner as the employer calculates wages for other forms of paid leave, does that permit employers to use the same substitution of leave principles allowed under the Fair Labor Standards Act and California law?
Requiring Medical Certification
And while regulations under the Family and Medical Leave Act (FMLA) and California Family Rights Act (CFRA) permit employers to request doctors' notes in order to justify the use of leave under those laws, would an employee's use of paid sick leave under state law prevent the employer from requesting these notes? The ability for employers to require doctors' notes to validate the need for leave has been a source of confusion given the law's silence on this issue. Despite this silence, the California Labor Commissioner has taken the position that a doctor's note cannot be required to use paid sick leave, notwithstanding other leave laws that do have such requirements. The question that inexorably arises is what happens when an employee requests the use of paid sick leave in the context of paying for some portion of leave under the FMLA/CFRA.