This is our year-end assessment of the most important developments for California employers. All of the new laws are effective on Jan. 1, 2017, unless otherwise noted.
The California legislature once again had a busy session. Of the 898 bills Gov. Brown signed into law, there are few that significantly impact most California employers. However, there are important new regulations under federal law and new city ordinances that affect many California employers, as well as a California Supreme Court decision to watch for.
Expansion of the Equal Pay Act
Last year, California substantially expanded the state Equal Pay Act by creating the Fair Pay Act. It was designed to assure pay equity across gender lines for employees performing substantially similar work. This groundbreaking law has now been amended in two significant ways: AB 1676 prohibits employers from justifying a wage disparity between the sexes by relying on prior salary; and SB 1063 expands the protection beyond gender, to include wage disparities involving race and ethnicity. A more complete analysis of this law will be the subject of a DWT advisory to be issued soon.
Minimum Wage and Minimum Salary Increase
Although many California cities now have ordinances providing for a higher minimum wage than state law requires (and many of these minimums will increase in 2017), California’s state-wide minimum hourly wage was set to hold steady at $10.00 for several years. Now, SB 3 establishes incremental minimum wage increases over the next three years. Beginning Jan. 1, 2017, employers with 26 or more employees must pay non-exempt employees a minimum wage of $10.50 per hour, with the rate reaching $15.00 per hour in 2022. Smaller businesses are not required to begin the scheduled increases until 2018.
A significant impact of this change involves the minimum salary required to be paid to exempt employees. The California requirement has long been, and remains, two times the minimum hourly wage based on a 40 hour workweek (regardless of how many hours the exempt employee actually works). Thus, for larger employers, beginning Jan. 1, 2017, the California minimum salary for exempt employees is $840 per week, or $43,680 per year. By 2022, the amount will increase to $62,400 per year.
Due to the federal salary threshold for exempt employees will be higher than the California minimum salary for the next few years, most employers will need to adhere to the federal minimum. Effective Dec. 1, 2016, under the federal Fair Labor Standards Act, the minimum salary required for exempt status will jump to $47,476. This minimum will set the floor for employers covered under the FLSA until the California minimum again exceeds it.
Another wrinkle is this: federal law includes the option of allowing up to 10% of the salary ($4,747.60 of the minimum salary) to come from bonuses or incentive pay as long as these payments are not discretionary and are paid quarterly or more frequently. Since California has no comparable provision for bonuses and incentive pay, the most a California employer can allocate to these sources in 2017 to satisfy the federal threshold will be $3,796, because the California minimum salary requirement will be $43,680 in 2017.
Notice to Employees of Rights Concerning Domestic Violence/Stalking
Existing law prohibits an employer with 25 or more employees from discharging, discriminating, or retaliating against an employee who is a victim of domestic violence, sexual assault, or stalking because he or she takes time off from work to address the situation. AB 2337 requires that employers provide written notice of these rights to new employees upon hire, and to current employees upon request. The law obligates the Labor Commissioner, by July 1, 2017, to develop and post on its website a form notice that employers can use to satisfy this requirement. The employer’s obligation commences at the time the Labor Commissioner posts the form, but no later than July 1, 2017.
Expansion of Protection against Use of Prior Convictions
California has long prohibited consideration of arrests that do not lead to conviction (except for health facility employers, who are entitled to consider arrests for certain crimes), and of certain marijuana-related convictions. AB 1843 adds a prohibition against inquiring about, or using as a factor in determining any condition of employment, an arrest, detention, or conviction that occurred while the applicant or employee was under the jurisdiction of a juvenile court. There remains an exception for health facilities, which have a right to inquire about certain juvenile offenses unless the record has been sealed by a juvenile court.
Remedy for Unlawful Verification of Right to Work
SB 1001 prohibits an employer, in the course of verifying authorization to work, from: (1) requesting more or different documents than are required under federal law; (2) refusing to honor documents that on their face appear reasonably genuine; (3) refusing to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization; and (4) attempting to re-investigate or re-verify an employee’s authorization using an unfair immigration-related practice.
Restriction on Choice of Law in Employment-Related Agreements
SB 1241 prohibits employers from requiring employees who primarily reside and work in California to agree to a provision in either an employment agreement or a separation or settlement agreement that would mandate resolving a claim (a) in a forum outside of California or (b) according to the laws of a state other than California if such a requirement would deny the employee a substantive protection of California law. Any contractual provision that is inconsistent with this law is voidable by the employee, and the employee is entitled to recover attorney’s fees incurred to enforce his or her rights. This new law applies only to contracts entered into, modified, or extended on or after Jan. 1, 2017, and does not apply to contracts where the employee is individually represented by legal counsel during negotiations. This law is likely to have the greatest impact on employers headquartered outside of California, who may wish to have disputes resolved in and according to the law of the state where the home office is located.
Mandatory Retirement Savings
SB 1234, the “California Secure Choice Retirement Savings Trust Act,” will require employers with five or more employees that do not offer specified retirement plans to sponsor a state-administered retirement plan. Covered employers will be required to automatically enroll employees into a state-sponsored program administered by the newly created California Secure Choice Retirement Savings Investment Board. The 7-person board is to be appointed immediately. The program will be established only if and when the board finds that the system will be self-sustaining, qualifies for favorable federal tax treatment, and is not considered an employment benefit plan under the federal Employee Retirement Income Security Act (ERISA). Before that determination is made, nothing is required of employers. After that determination is made, the Employment Development Department (EDD) will administer the program, including informing employers of their obligations and making forms available to employees to opt in or to opt out.
Sick Leave Ordinances
In addition to the California state-wide sick leave law that became effective on Jan. 1, 2015 (with accrual beginning on July 1, 2015), the following California cities now have sick leave ordinances applicable to some or all of the employees working within their boundaries: Berkeley, Emeryville, Oakland, Long Beach, the City of Los Angeles, the County of Los Angeles, San Diego, San Francisco, and Santa Monica. Often the ordinances are passed in conjunction with a higher local minimum wage. No two ordinances are exactly the same and San Francisco’s was recently revised. Employers with employees in some or all of those cities or counties must comply with both state law and the applicable city/county ordinance.
Less impactful but still noteworthy are these new laws:
Labor Commissioner Proceedings. AB 2899 requires an employer contesting a Labor Commissioner citation for paying less than minimum wage to post a bond in an amount totaling the allegedly unpaid wages and liquidated damages. The proceeds of the bond, sufficient to cover the amount owed, will be forfeited to the employee if the employer fails to pay the amount determined to be owed within 10 days from the conclusion of the proceedings.
Wage Statements. Under AB 2535, exempt employees are expressly excluded from the requirement to include on itemized wage statements total hours worked.
Overtime Pay/Meal & Rest Periods for Agricultural Workers. AB 1066 eliminates the exemption from wage and hour, and meal and rest break requirements for agricultural workers. It phases in overtime compensation requirements for these workers over a four-year schedule that varies with the employer’s size.
Gender-Neutral Bathrooms. Effective March 1, 2017, AB 1732 requires all single-user restrooms in any business establishment, place of accommodation, or government agency in California to be branded as all gender, and bars any single-user bathroom to be designated as male or female only.
It is noteworthy that Governor Brown vetoed SB 654, which would have required employers with 20 or more employees to provide employees meeting certain tenure requirements with 6 weeks of unpaid parental leave. Currently, this requirement pertains only to employers having 50 or more employees (and the amount of mandated leave is 12 weeks). In his veto message, Gov. Brown cited the potentially significant cost to small businesses, but stated that he was open to revisiting a revised version of the bill in the future.
Case to Watch
The California Supreme Court will soon decide a case that is as important to understanding the state rest break requirement as was the Brinker case to understanding meal periods: Augustus v. ABM Security Services Inc. The primary issue in the Augustus case is whether or not an employee can be “on call” during a rest break, or whether the possibility of being interrupted negates the break. The Court recently heard oral argument, so a decision is expected soon.