As 2019 draws to a close, employers in California have a busy new year ahead of them with expanded legal obligations, including significant new legislation regarding independent contractor status and mandatory arbitration agreements. We have set forth below a brief summary of some of the key new laws impacting California employers in 2020.
AB 5: Codifies the ABC Test for Independent Contractor Status
In 2018, the California Supreme Court held that the “ABC Test” should be used to determine worker classification status for claims brought by independent contractors seeking protections under the California Wage Orders. Dynamex Operations West, Inc. v. Super. Ct., 4 Cal. 5th 903 (2018). Under the ABC Test, a worker is deemed to be an employee unless the hiring entity proves that: (a) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (b) the worker performs work that is outside the usual course of the hiring entity’s business; and (c) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed. AB 5, which adds Section 2750.3 to the California Labor Code, codifies and expands the scope of the ABC Test. Under AB 5, the ABC Test will now be applied to determine not only worker classification claims under the Wage Orders, but also claims under the California Labor Code (including claims for unreimbursed expenses under Labor Code section 2802, paid sick leave, and waiting time penalties under section 203), as well as coverage and protections under the California Unemployment Insurance Code (including State Disability Insurance and Paid Family Leave) and the Workers’ Compensation statutes. AB 5 also grants enforcement power to the State and cities to seek injunctive relief, and existing law imposes significant penalties for the intentional misclassification of a worker. There are numerous carveouts for various occupations and professions, including licensed professionals (doctors, lawyers, engineers, accountants, etc.), licensed insurance agents, real estate agents, securities broker-dealers and investment advisors, certain professional services workers with their own business (marketing, human resources, travel agents and licensed manicurists, barbers or cosmetologists, etc.), licensed subcontractors in the construction industry, certain referral agencies, and others. For these “carved-out” professions and occupations, courts will continue to utilize the Borello test that existed prior to the Dynamex ABC Test to determine worker classification issues. Employers should carefully review all independent contractor relationships in California to ensure compliance with this new law.
AB 51: Prohibition of Most Mandatory Arbitration Agreements
As of January 1, 2020, employers cannot require applicants or employees in California to agree, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to arbitrate claims involving violations of the California Fair Employment and Housing Act (FEHA) or the California Labor Code. The law also provides that an employer shall not threaten, retaliate, discriminate, or terminate any applicant or employee because of their refusal to sign an arbitration agreement or their right to file a civil action or to notify or file a complaint with any court, state agency or other governmental entity. The statute will not invalidate existing arbitration agreements that are otherwise enforceable under the Federal Arbitration Act (“FAA”), but it will apply to any contracts for employment entered into, modified or extended on or after January 1, 2020 that require arbitration. The statute does not apply to post-dispute settlement agreements or negotiated severance agreements, or to arbitration agreements that are entered into voluntarily and not as a condition of employment. However, an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment. The new law also does not apply to a person registered with a self-regulatory organization as defined by the Securities Exchange Act of 1934 or applicable regulations. The statute provides for, in addition to any other available remedies, injunctive relief and reasonable attorneys’ fees to a prevailing plaintiff who enforces his or her rights under the statute. Violation of the law is a criminal misdemeanor and also an unlawful employment practice under the FEHA. This law is currently being challenged in federal court by various employer groups asserting that this state law is preempted by the FAA. However, because a violation of the new law is deemed a crime under California state law until a federal court rules otherwise, employers should review their existing arbitration policies and agreements to determine whether any changes need to be made with respect to new employees hired in 2020.
SB 707: Arbitration Fees and Costs
Employers who do have valid arbitration agreements with their employees must pay the required fees and costs to initiate arbitration within 30 days following the due date or the employer will be in material breach and default of the arbitration agreement, and will waive its right to compel the employee to proceed to arbitration. If the employer fails to pay the required fees, the employee may either (i) withdraw the claim from arbitration and proceed in court, or (ii) proceed to compel arbitration, in which case the employer shall pay the reasonable attorney’s fees and costs related to the arbitration. Employers should flag this requirement when requesting arbitration of employment disputes and ensure compliance to avoid waiving their right to compel arbitration.
SB 142: Lactation Accommodation
California law already requires employers to provide employees with break time and a place at work to express milk, but this new law expands those protections by amending Labor Code sections 1030, 1031 and 1033 and by adding section 1034. As of January 1, 2020 employers will now be required to provide a reasonable amount of break time to accommodate an employee who wants to express breast milk for her child “each time the employee has need to express milk.” It further requires an employer to provide an employee with the use of a room or other location in close proximity to the employee’s work area, other than a bathroom, that meets certain criteria specified in the law for the employee to express milk, in private and free from intrusion, including the requirement that the room or location be safe, clean, and free of hazardous materials, contains a surface to place a breast pump and personal items, contains a place to sit, and has access to electricity or alternative devices, including, but not limited to, extension cords or charging stations, needed to operate an electric or battery-powered breast pump. The employer must also now provide access to a sink with running water and a refrigerator suitable for storing milk in close proximity to the employee’s workspace, or another cooling device suitable for storing milk, such as an employer-provided cooler, along with certain other requirements. In addition, the law requires employers to develop and implement a policy regarding lactation accommodation that includes certain elements specified in the law, including the employee’s right to request lactation accommodation and to file a complaint with the Labor Commissioner for any violation. Employers are also now required to distribute their lactation policy to new employees upon hiring and when an employee makes an inquiry about or requests parental leave. Employers should develop or expand their existing policies regarding lactation accommodation to comply with these new policy and distribution requirements, and should also review the physical locations at their worksites to ensure compliance with this new law and make any necessary changes.
SB 83: Paid Family Leave
Paid Family Leave (“PFL”) currently provides benefits for up to six (6) weeks through California’s state disability insurance program to care for a seriously ill family member or to bond with a child within one year of the birth, adoption or foster care placement of the child. Beginning July 1, 2020, the law will extend PFL benefits from six (6) weeks to eight (8) weeks.
SB 188: FEHA’s Definition of Race
The California Fair Employment and Housing Act (“FEHA”) currently prohibits discrimination in employment practices, such as hiring, promotion and termination, based on certain protected characteristics, including race. This new law expands the definition of “race” under the FEHA to provide that race “is inclusive of traits historically associated with race, including, but not limited to, hair texture and protective hairstyles.” It also provides a definition of “protective hairstyles,” which includes, but is not limited to, “such hairstyles as braids, locks, and twists.” Employers should review and update their relevant policies as necessary to ensure compliance with California’s employment discrimination laws.
AB 9: FEHA Statute of Limitations
The statute of limitations for filing charges of discrimination, harassment or retaliation with the California Department of Fair Employment and Housing (“DFEH”) for any claims under the FEHA is currently 1 year from the date of the alleged unlawful practice. Effective January 1, 2020 this new law expands the statute of limitations from 1 year to 3 years. The new law also defines the filing of a complaint to mean the filing of an intake form with the DFEH, which often occurs well prior to the actual filing of the formal complaint. Due to this expanded filing period employers may be required to defend significantly older claims than in the past and should consider reviewing and updating their record retention policies.
SB 778: Sexual Harassment Training
This amendment to existing law actually provides some relief to employers. Under a law passed in 2018, employers with 5 or more employees are required to provide supervisory employees in California with 2 hours of sexual harassment prevention training, and nonsupervisory employees in California with 1 hour of sexual harassment prevention training. The training must be classroom or other effective interactive training that meets certain specified requirements as set forth in the statute and applicable regulations. The original deadline for providing this training to California employees was January 1, 2020. The new law extends the prior deadline and requires the training to be completed by January 1, 2021. The same training must also be provided once every 2 years thereafter. Accordingly, employers with 5 or more employees should provide the required training to all California supervisory and nonsupervisory employees in 2020 to meet the new deadline. The training must also be completed within 6 months of hiring any supervisory or nonsupervisory employee, and within 6 months of promoting any nonsupervisory employee to a supervisory position. Shorter time frames for completing the training are required for seasonal and temporary employees, or any employee hired to work for less than 6 months.
AB 673: Permits Employees to Recover Civil Penalties for Unpaid Wages
Certain types of civil penalties for unpaid wages were previously only available through an action by the Labor Commissioner. AB 673 permits employees to recover these civil penalties directly for such unpaid wages. Employees are entitled to recover $100 for each initial violation for failure to pay each employee, and $200 for each subsequent violation or any willful or intentional violation for failure to pay each employee, plus 25 percent of the amount unlawfully withheld. AB 673 limits an employee’s recovery to either (a) statutory penalties, or (b) civil penalties under the Private Attorney’s General Act (but not both) for the same violation.
SB 688: Expands Labor Commissioner’s Authority to Pursue Wage Claims
Under existing law, the Labor Commissioner may issue citations to employers who fail to pay wages that are less than the state minimum wage to recover restitution of those amounts owed, in addition to civil penalties, liquidated damages payable to the employee, and any other applicable penalties. Under SB 688, the Labor Commissioner may now issue citations to employers that pay wages to employees that are less than the wage set by contract or agreement between the employer and employee, even if the agreed wage amount is in excess of the state minimum wage, to recover restitution of wages of the amounts.
This article highlights key new laws with broad impact, but employers should be aware that there are other new laws that also may impact them in 2020. We recommend that California employers consult with employment counsel to ensure compliance, as many of these new laws expand the scope of risk for employers and require changes to existing workplace policies and practices.