In 2019, California enacted numerous labor and employment laws. Unless otherwise noted, each of the laws listed below is effective on Jan. 1, 2020. This Holland & Knight alert highlights selected and significant new laws, as well as California's rising minimum wages and exempt salary thresholds:

  • California's Minimum Wages and Exempt Salary Thresholds Increase in 2020
  • AB 5 – Codification and Expansion of Strict ABC Test for Independent Contractor Status
  • AB 9 – Statute of Limitations for Filing Complaint with the California Department of Fair Employment Extended from One to Three Years
  • SB 778 – Harassment-Prevention Training Compliance Deadline Extended for Small Employers and Nonsupervisory Employees to Jan. 1, 2021
  • AB 51 – Restrictions on Applicant/Employee Waiver of Rights, Forums and Procedures for Alleged Violations of the California Fair Employment and Housing Act, and Labor Code
  • SB 707 – Penalties for Failure to Timely Comply with Arbitration Fee Provisions in Arbitration Agreements
  • AB 25 – One-Year Exemption for Certain Applicant- and Employee-Related Data under the California Consumer Privacy Act of 2018
  • AB 673 – Employees May Now Recover Statutory Penalties for Employer's Late Payment Wages During Employment
  • AB 749 – Restrictions on "No-Rehire" and "No Future Employment" Clauses in Settlement Agreements
  • SB 142 – Expanded Lactation Accommodation Requirements
  • SB 188 – CROWN Act: Race Discrimination Protections Expanded to Traits Historically Associated with Race Such As Hair Textures and Protective Hairstyles
  • SB 229 – Expedited Procedural Requirements for the Administrative Enforcement of Unlawful Retaliation Citations
  • SB 688 – Labor Commissioner's Citation Authority Expanded to the Recovery of "Contract Wages"

California's Minimum Wages and Exempt Salary Thresholds Increase in 2020

SB 3, enacted in the 2015-2016 legislative session, sets forth a schedule for minimum wage increases through 2023.

Beginning Jan. 1, 2020, for employers with 26 employees or more, the minimum wage will increase from $12 per hour to $13 per hour, and the exempt annual salary threshold will increase from $49,920 to $54,080.

For employers with 25 employees or less, the minimum wage will increase from $11 per hour to $12, and the exempt annual salary threshold will increase from $45,760 to $49,920.

AB 5 – Codification and Expansion of Strict ABC Test for Independent Contractor Status

As discussed in a previous alert, AB 5 codifies the strict "ABC" test for employee versus independent contractor classification adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex), 4 Cal. 5th 903 (2018). Dynamex was limited to California Industrial Welfare Commission (IWC) Wage Order violations. But AB 5 expands the reach of the "ABC" test generally to Labor Code violations, as well as to California unemployment insurance and workers' compensation proceedings.

The codified test in the newly created Section 2750.3 of the Labor Code provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

A. the person 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 work and in fact

B. the person performs work that is outside the usual course of the hiring entity's business

C. the person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed

AB 5 includes seven categories of exemptions for 1) specific occupations, 2) certain contracts for "professional services," 3) certain real estate licensees and repossession agencies, 4) certain bona fide business-to-business contracting relationships, 5) certain relationships between contractors and individuals working under a subcontract in the construction industry, 6) certain relationships between referral agencies and service providers, and 7) certain relationships related to motor club services. AB 170, also passed signed into law this legislative session, created additional exemptions for a newspaper distributor working under contract with a newspaper publisher, and a newspaper carrier working under contract either with a newspaper publisher or newspaper distributor.

The "exemptions" are not true carve-outs – an individual whose work meets the exemption requirements is not automatically an independent contractor. Rather, an individual whose work meets the exemptions means that the ABC test does not apply, but the hiring party must still be able to demonstrate that contractor status is appropriate under Borello and/or by other statutory provisions as specified in the bill.

AB 5 specifically provides that it "does not constitute a change in, but is declaratory of, existing law, with regard to wage orders of the [IWC] and violations of the Labor Code related to wage orders." Thus, the strong indication is that the ABC test will apply retroactively, at least as to wage and hour claims. However, AB 5 also provides that the exemptions in categories 1 through 7 above will apply retroactively to existing claims and actions to the maximum extent permitted by law.

In addition to adding Section 2750.3 to the Labor Code, AB 5 also amends Section 3351 of the Labor Code, the workers' compensation definition of "employee." AB 5 provides that for purposes of workers' compensation, "employee" will include individuals who are employees under Section 2750.3 "[b]eginning on July 1, 2020," but that the subdivision "shall not apply retroactively."

AB 5 also amends Section 621 of the Unemployment Insurance Code to restate the ABC test as one of the definitions of "employee" for unemployment insurance purposes. However, there is no similar statement as to retroactivity and, given that the addition will not become effective until Jan. 1, 2020, it remains to be seen whether the ABC test will apply retroactively for unemployment insurance purposes.

AB 9 – Statute of Limitations for Filing Complaint with the California Department of Fair Employment Extended from One Year to Three Years

Under current law, a person claiming to be aggrieved by an unlawful practice under the California Fair Employment and Housing Act (FEHA) must generally file a verified complaint with the California Department of Fair Employment and Housing (DFEH) within one year from the date upon which the alleged unlawful conduct occurred. AB 9 extends this this timeframe to three years subject to specified exceptions.

SB 778 – Harassment-Prevention Training Compliance Deadline Extended for Smaller Employers and Nonsupervisory Employees to Jan. 1, 2021

The FEHA requires employers with 50 or more employees to provide sexual harassment prevention training to all supervisory employees within six months of their assumption of a supervisory position and once every two years.

SB 1343, which as passed in the 2017-2018 legislative session, extended training requirements to small employers and to nonsupervisory employees. More specifically, the bill required that by Jan. 1, 2020, employers with five or more employees provide at least two hours of sexual harassment prevention training to supervisory employees, and at least one hour of sexual harassment prevention training to nonsupervisory employees within six months of their assumption of a position.

SB 778 extends this compliance date to Jan. 1, 2021. The bill makes clear that an employer who has provided this training in 2019 is not required to provide it again until two years thereafter.

AB 51 – Restrictions on Applicant/Employee Waiver of Rights, Forums and Procedures for Alleged Violations of the California Fair Employment and Housing Act, and Labor Code

[UPDATE: On Dec. 30, 2019, a Temporary Restraining Order Issued to Prevent the Enforcement of AB 51 Pending Resolution of a Preliminary Injunction Motion to be Heard on Jan. 10, 2020]

AB 51, aimed at curbing mandatory employment arbitration agreements, adds Section 432.6 to the Labor Code. Section 432.6 prohibits employers from requiring applicants or employees from waiving any rights, forums or procedures for alleged violations of the FEHA or Labor Code, as a condition of employment, continued employment or the receipt of any employment-related benefit. AB 51 prohibits threatening, retaliating or discriminating against for refusal to consent to any such waiver.

AB 51 applies to agreements entered into or extended on or after Jan. 1, 2020, but does not apply to post-dispute settlement agreements or negotiated severance agreements.

By its express language, the bill is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.

Employers should note that on Dec. 6, 2019, the U.S. Chamber of Commerce, among other parties, filed a federal lawsuit in the U.S. District Court for the Eastern District of California seeking to invalidate AB 51 as preempted by the Federal Arbitration Act.

UPDATE: On Dec. 30, 2019, a U.S. District Court judge issued a Temporary Restraining Order to prevent the enforcement of AB 51 pending resolution of a preliminary injunction motion to be heard on Jan. 10, 2020. Employers should carefully monitor the outcome of this preliminary injunction motion which, if granted, would halt the enforcement of AB 51 pending the outcome of the federal lawsuit on the merits.

SB 707 – Strict Enforcement and Penalties for Failure to Timely Comply with Arbitration Fee Provisions in Arbitration Agreements

SB 707 is an arbitration agreement enforcement provision that creates strict penalties for failure to comply with the agreement, particular the timely payment of any arbitration fees and costs. Specifically, it provides that any drafting party to an arbitration agreement that fails to pay the fees needed to commence or continue arbitration, within 30 days after such fees are due, is held to have materially breached the agreement and, as such, is in default and waives its right to compel arbitration.

SB 707 further provides remedies to employees for such a material breach of the arbitration agreement. In particular, it enables the employee to remove the matter to court or move to compel arbitration. For instance, if the drafting party fails to pay the required arbitration fees to continue an arbitration that is currently in progress, the employee can move the matter to court; seek a court order compelling payment of the fees; continue the arbitration and permit the arbitrator to seek collection of their fees; or pay the costs and fees and seek them from the drafting party at the conclusion of the arbitration regardless of the outcome of the arbitration. SB 707 also provides for the tolling of the statute of limitations with regard to all claims brought in the arbitration.

SB 707 also imposes mandatory monetary sanctions on any drafting party found to be in default of an arbitration through such a failure to pay the arbitration fees and costs. Most notably, it also allows the court or arbitrator to impose evidentiary, terminating or contempt sanctions. Lastly, SB 707 requires private arbitration companies to collect and report aggregate demographic data of all arbitrators.

Accordingly, employers should pay careful attention to timely pay any arbitration fees and costs in order to preserve its right to arbitration and avoid any potential sanctions.

AB 25 – One-Year Exemption for Certain Applicant- and Employee-Related Data under the California Consumer Privacy Act of 2018

The California Consumer Privacy Act of 2018 (CCPA) relates to the collection, use and protection of consumer data. While the CCPA goes into effect on Jan. 1, 2020, AB 25 exempts certain applicant- and employee-related data collected by businesses covered under the CCPA until Jan. 1, 2021. Despite this one-year exemption, covered businesses must still provide certain disclosures to applicants and employees regarding the collection and sharing of personal information, and can be subject to private lawsuits in the event of certain data breaches.

AB 673 – Employees May Now Recover Statutory Penalties for Employer's Late Payment Wages During Employment

Under current law, Labor Code section 210 provides that only the Labor Commissioner may recover civil penalties for employer violations of the Labor Code Sections 201.3, 204, 204b, 204.1, 204.2, 205, 205.5, and 1197.5, which includes late payment of wages during employment. AB 673 amends Section 210 to allow employees to sue employers directly for statutory penalties under Section 210 for violations of the aforementioned Labor Code sections, as well as Section 204.11, at the following rates: 1) for any initial violation, $100 for each failure to pay each employee; 2) for each subsequent violation, or any willful or intentional violation, $200 for each failure to pay each employee, plus 25 percent of the amount unlawfully withheld.

AB 673 also specifies that an employee may only recover either statutory penalties under Labor Code Section 210, or civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA) for violations of the same violations. In other words, there will be no double recovery of penalties arising from the same Labor Code violation.

AB 749 – Restrictions on the Use of "No-Rehire" and "No Future Employment" Clauses in Settlement Agreements

A common type of term in settlement agreements arising from a dispute between an employee and an employer, especially when the employee is no longer employed by the employer, is one that specifies that the employee is not to apply for a position with the employer in the future, makes clear that the employee has no guarantee of future employment with the employer, or establishes that the employer does not have to consider any application for employment submitted by that employee. AB 749 sharply restricts, if not precludes, the use of these types of clauses.

AB 749 adds Section 1002.5 to the Code of Civil Procedure. The new Section 1002.5 provides that settlement agreements resolving employment disputes "shall not contain a provision prohibiting, preventing, or otherwise restricting a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim[.]" Any provision of a covered agreement entered into after Jan. 1, 2020, which violates Section 1002.5 is void as a matter of law and void as against public policy.

The section does not preclude the employer and employee from entering into an agreement that ends the employment relationship. Also, an employer may restrict future employment opportunities or rehire eligibility with the employer when the employer has made a good-faith determination that the aggrieved employee engaged in sexual harassment or sexual assault. Finally, nothing in the section requires an employer to employ or rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.

SB 142 – Expanded Lactation Accommodation Requirements

SB 142 amends Sections 1030, 1031 and 1033 of the California Labor Code and adds a new Section 1034. In general, these changes now require all employers to provide an employee a break to express breast milk for the employee's infant child each time they need to express milk. The breaks may run concurrently with any break already provided to the employee, but any such breaks that do not run concurrently with another break may be unpaid. To accommodate such breaks, employers must provide the employee with a clean and safe room or other location to express milk in private that is close to the employee's work area. The room or location must satisfy certain conditions, including 1) contain a surface to place a breast pump and personal items; 2) contain a place to sit; and 3) have access to electricity or another device that enables the use of an electric or battery-powered breast pump. The room cannot be a bathroom. In addition, employers must provide access to a sink with running water and a refrigerator suitable for storing milk (or, if a refrigerator cannot be provided, some other suitable cooling device) that is close to the employee's workspace. Multiple employers in the same building can provide a shared space within the building/worksite if an employer cannot provide a lactation location within the employer's own workspace.

Failure to comply with the new Labor Code requirements constitutes a violation of Labor Code Section 226.7, which requires the employer to pay the employee one additional hour of pay at the employee's regular rate of pay for each workday that an accommodating break period is not provided. In addition, an employee may file a complaint under Labor Code Section 98 for employer violations of the new Labor Code requirements. Employers are prohibited from discharging or in any way retaliating against an employee for exercising or attempting to exercise rights under the new Labor Code requirements. If the Labor Commissioner determines that a violation of the requirements has occurred, the Labor Commissioner may impose a penalty of $100 for each day an employee is denied reasonable break time or an adequate space to express milk.

Under new Labor Code Section 1034, employers must also develop and implement a policy regarding lactation accommodation that includes, in part, 1) a statement about the employee's right to request lactation accommodation and the process to make such a request, and 2) a statement about the employee's right to file a complaint with the Labor Commissioner for any violation of such right. The policy must be provided in the employee handbook or set of policies the employer provides to employees.

Employers with fewer than 50 employees may qualify for an exemption if it can demonstrate that complying with the requirement would impose an undue hardship, but the employer must still make reasonable efforts to provide employees with a room or other location to express milk in private.

SB 188 – CROWN Act: Race Discrimination Protections Expanded to Traits Historically Associated with Race Such As Hair Textures and Protective Hairstyles

SB 188, known as the CROWN Act, amends Section 212.1 of the California Education Code and Section 12926 of the California Government Code to expand the definition of "Race" to include traits historically associated with race, such as hair texture and "protective hairstyles." The term "protective hairstyles" is defined to include, but not be limited to, "braids, locks, and twists." As a result, workplace dress codes and grooming policies may not prohibit such "protective hairstyles," otherwise such dress codes/grooming policies will be found to discriminate on the basis of race.

SB 229 – Expedited Procedural Requirements For The Administrative Enforcement of Unlawful Retaliation Citations

SB 229, which amends Section 98.74 of the Labor Code, expands the administrative enforcement of the Labor Commissioner's citations for enforcement of the anti-retaliation provisions of the Labor Code. Specifically, if the Labor Commissioner investigates a retaliation complaint and determines that the employer violated the Labor Code, the Labor Commissioner may issue a citation to the person or employer who is responsible for the violation. SB 229 establishes expedited procedural requirements and deadlines for the Labor Commissioner to file such citations with the court for judicial enforcement and the collection of remedies. It also sets out the procedural requirements for anyone who wishes to appeal such a citation. Specifically, if the employer does not request an informal hearing with the Labor Commissioner within 30 days after service of the citation, the citation becomes final, and 10 days later, the Labor Commissioner is required to apply for an entry of judgment.

SB 688 – Labor Commissioner's Citation Authority Expanded to the Recovery of "Contract Wages"

SB 688 amends Section 1197.1 of the Labor Code in a couple of ways. First, it expands the Labor Commissioner's citation authority to include citations for recovery of "contract wages," which are wages, based on an agreement, in excess of the applicable minimum wage for regular, nonovertime hours. Accordingly, the Labor Commissioner can now hold employers liable for the failure to pay wages set by contract, regardless of whether all of the hours were actually paid at or above the minimum wage, and in essence now permits the Labor Commissioner to enforce breach of contract claims for wages. As such, employers should ensure that any agreement setting out an employee's wages is clearly communicated and, most importantly, that the employee accurately paid, pursuant to the agreement, for all of the hours worked.

SB 688 also amends the procedure involved in contesting the assessment of such a civil penalty. As it exists, California law requires an employer seeking to file a writ of mandate with the court to contest the Labor Commissioner's assessment of a civil penalty to post an "undertaking" in a specified amount, some or all of which may be forfeited to the affected employee if the employer does not pay the court's judgment, regarding any wages or damages owed, within 10 days of the entry of judgment. SB 688 now provides that the "undertaking" will instead be forfeited to the Labor Commissioner for appropriate distribution.