In early October, California Governor Jerry Brown signed a
variety of important employment and labor-related statutes.
Although Gov. Brown vetoed several additional anti-employer
measures, this year marks a turning point for employers with
workforces in California. We anticipate that the 2012 legislative
session will yield additional proposals that will impose new and
probably onerous obligations on employers. The following are the
most significant of the measures signed by Governor Brown in
2011.
"Wage Theft Prevention Act of 2011" Creates New
W age Disclosure Requirements and New Penalties for
Underpayment of Wages (AB 469)
The "Wage Theft Prevention Act of 2011," AB 469, creates
new, detailed disclosure requirements that must be provided to all
new non-exempt employees commencing January 1, 2012. This statute
also creates document retention requirements and imposes several
new penalties for violations of wage laws.
Newly added Labor Code Section 2810.5 requires employers to provide
written notice upon hire to each non-exempt employee of the
employee's rates of pay (including overtime compensation
rates), the basis for the pay (hour, shift, day, week, salary,
etc.), any allowances claimed as part of the employee's wages
(including meal or lodging allowances), the regular payday
designated by the employer, the employer's name (including dba
names), the physical address of the employer's main office or
principal place of business, and a mailing address, if different.
The Labor Commissioner will be providing a template for employers
to follow. Section 2810.5 also requires employers to notify
non-exempt employees of any changes to that information within
seven days of change, unless the information is reflected in
written wage statements required by Labor Code Section 226 or in
some other writing required by law within the seven-day time
period. This provision is similar to one enacted in New York in
2009. The notice requirement does not apply to employees who are
exempt for overtime purposes or to employees who are covered by a
collective bargaining agreement that provides a regular hourly rate
of pay not less than 130 percent of the state minimum wage.
The new law also amends the Labor Code 1197.1 to specify that
employers who violate the minimum wage law are liable for
restitution of wages paid to the affected employee, in addition to
civil penalties. It also makes it a misdemeanor to willfully
violate wage statutes or orders or to willfully fail to pay a court
judgment or final order of the Labor Commission for wages
due.
In addition to these penalties, the Wage Theft Prevention Act
extends the period of time in which the DLSE may commence a
collection action for a statutory penalty or fee to three years. If
the Labor Commissioner requires a convicted employer to maintain a
bond, the new law extends the time required for the bond to two
years, and it permits the Labor Commissioner to require an employer
to provide an accounting of assets if the employer does not timely
post the bond. Failure to provide the accounting may result in a
penalty of up to $10,000. The new law also authorizes employees to
recover attorneys' fees and costs they incur to enforce a
judgment for unpaid wages.
Finally, the Wage Theft Prevention Act amends Labor Code Section
1174 to increase the amount of time employers must maintain payroll
records from two to three years. It also specifies that employers
may not prohibit employees from maintaining a personal record of
hours worked or piece-rate units earned.
Limitations of the Use of Pre-Employment Consumer Credit Reports (AB 22)
Assembly Bill 22, which becomes effective January 1, 2012,
amends Civil Code Section 1785.20.5 and adds Labor Code Section
1024.5 to restrict the use of pre-employment credit reports.
Under the provisions of the new law, pre-employment consumer credit
reports are prohibited and can be obtained and used in hiring
only if the prospective employee holds one of eight
categories of positions:
- A managerial position (defined as a position that qualifies for the executive exemption from overtime);
- A position involving access to confidential and proprietary information, including trade secret information;
- A position involving regular access to $10,000 in cash or more belonging to the company or a client of the company;
- A position in which the employee would be a named signatory on the company's bank or credit account or would be authorized to transfer money on behalf of the employer or to enter into financial contracts for the employer;
- A position involving regular access to a single person's bank or credit card information, Social Security numbers, and date of birth (other than routine solicitation and processing of credit card applications);
- A position for which the law requires such information;
- A position as a sworn police officer or other law enforcement officer; or
- A position in the state Department of Justice.
Positions that are exempt under the administrative or
professional exemptions will not fall within the "managerial
position" exemption to enable the employer to obtain and
consider a credit report on an applicant (unless the position would
also qualify under the executive exemption). A person employed in
an executive/managerial capacity is one whose duties and
responsibilities involve managing the business, who customarily and
regularly directs the work of at least two other full-time
employees (or the equivalent), who customarily and regularly
exercises discretion and independent judgment, and who has
authority to make employment decisions or whose opinion in such
matters holds particular weight. Employees must also meet a minimum
monthly salary requirement of no less than twice California's
minimum wage for full-time employment to fall within the executive
exemption. See Cal. Tit. 8, § 11040.
The new law specifically exempts national banks, federal branches,
and agencies of foreign banks and their subsidiaries, as well as
member banks of the Federal Reserve System, banks insured by the
Federal Deposit Insurance Corporation (and their subsidiaries), and
savings associations insured by the Federal Deposit Insurance
Corporation (and their subsidiaries) from its prohibition on
pre-employment credit reports. See 15 U.S.C.
§ 6805.
Practically speaking, the exemptions in the statute will limit its
effect. Nevertheless, employers will be required to abandon the use
of pre-employment credit checks for positions that do not meet one
of the eight exceptions.
New Liability and Penalties for Willful Misclassification of Employees as Independent Contractors (SB 459)
SB 459 creates civil penalties for "willful
misclassification" of employees as independent contractors.
This statute responds to widely published claims that employers
routinely misclassify workers as independent contractors although
they are in fact employees. Not coincidentally, the statute is
aimed as well at increasing income and payroll tax revenue by
requiring stricter compliance by employers. Responding to the same
reports and the same budget issues, President Obama's
Department of Labor has also announced a major initiative to
identify industries and employers where misclassification is
prevalent.
SB 459 amends Section 226.8 of the Labor Code and adds Section
2753. It is effective January 1, 2012.
SB 459 makes it unlawful to willfully misclassify an
individual as an independent contractor. It defines "willful
misclassification" as "avoiding employee status for an
individual by voluntarily and knowingly misclassifying the
individual as an independent contractor." The new law also
makes it unlawful to charge an individual who has been willfully
misclassified as an independent contractor any fee or to make
deductions from compensation for any reason, including for goods,
materials, or space rental, unless doing so would be permitted were
the employee properly classified.
The new law also authorizes the Labor and Workforce Development
Agency ("LWDA") to issue a determination that an employer
has violated the law, and it creates a penalty range of $5,000 to
$15,000 per violation, in addition to any other fines or penalties
permitted by law. Similarly, if either the LWDA or court issues a
determination that an employer has engaged in a pattern or practice
of willful misclassification or other violation of the law, the
civil penalties range from $10,000 to $25,000 per violation, in
addition to any other fines or penalties permitted by law.
Employers found in violation of the law must also display
prominently for one year on their web sites or in an area generally
accessible to employees or the public a notice stating that the
violation has occurred, that the employer has changed its business
practice, and that the posting or notice is pursuant to court
order. The notice must also provide information about how to
contact the LWDA.
Labor Code Section 2753 creates joint and several liability for
individuals who advise an employer to treat an individual as an
independent contractor to avoid employee status. Employees who
provide advice to their employers and attorneys providing counsel
and advice are excluded from the new provision.
If an employer found violating this law is a licensed contractor
pursuant to the Contractors' State License Law, the LWDA or
court shall also transmit a certified copy of the order to the
Contractors' State License Board. The Contractors' State
License Board must then initiate disciplinary action against a
licensee.
Written Commission Contracts Required By 2013 For All Commissioned Employees (AB 1396)
Labor Code Section 2751 previously required out-of-state
employers with no permanent and fixed place of business in
California who use commissions as a method of payment for employees
to put those contracts in writing. Employers who failed to comply
with the statute were liable for treble damages. Case law
invalidated the statute because it applied only to out-of-state
employers.
In response, the California legislature passed AB 1396, which
amends Labor Code Section 2751. The new statute requires that, by
January 1, 2013, any employer who enters into a contract of
employment involving commissions as a method of payment must put
the contract in writing. The written agreement must set forth the
method by which commissions are computed and paid. The law excludes
from the definition of "commissions" short-term
productivity bonuses and bonus and profit-sharing plans unless the
employer offers to pay a fixed percentage of sales or profits as
compensation for work performed. It also eliminates the treble
damages penalty for violations.
The new law applies to all employers with commissioned employees in
California, whether or not the employer is located in
California.
Labor Code 2751 also requires the employer to provide a signed copy
of the employment agreement to each employee who is a party to it.
It specifies that if the contract expires but the parties continue
to perform under its terms, the contract's terms are presumed
to remain in full force until a new contract superseding its terms
is executed or either party terminates the employment
relationship.
FEHA Protections Now Include Gender Identity and Gender Expression (AB 887)
Existing state law prohibits discrimination or harassment based
on an individual's gender or sex. AB 887 makes technical
changes to a variety of laws, including the Fair Employment and
Housing Act, to explicitly identify "gender, gender identity
and gender expression" as protected characteristics.
The new law also requires employers to allow an employee to appear
or dress in a manner consistent with the employee's gender
expression, in addition to appearing or dressing in a manner
consistent with the employee's gender identity. Under the new
law, "gender expression" is defined as "a
person's gender-related appearance and behavior whether or not
stereotypically associated with the person's assigned sex at
birth." Amended Government Code Section 12949 specifies that
the law does not limit an employer's ability to impose
reasonable workplace appearance, grooming, or dress standards.
However, within dress guidelines, an employer must permit employees
to appear or dress in a manner consistent with their gender
identity or gender expression.
Similarly, for purposes of workers' compensation coverage, the
law prohibits a finding of a personal relationship or personal
connection between an employee who is injured or killed by a third
party in the course of employment and the third party based on
third party's perception of the employee's protected
characteristics. AB 887 adds "gender, gender identity and
gender expression" to that list of protected
characteristics.
Health Care Facilities Must Adopt Safe Patient Handling Policy for Health Facilities (AB 1136)
AB 1136, the Hospital Patient and Health Care Worker Injury
Protection Act, adds Labor Code Section 6403.5, which requires
health care employers to adopt a patient protection and health care
worker back and musculoskeletal injury prevention plan. The plan
must provide trained lift teams in each general acute care
hospital. Employers must also provide training, including
appropriate use of lifting devices and equipment, for health care
workers.
The new law also mandates adoption of a safe patient handling
policy, which requires health facilities to replace manual lifting
and transferring of patients with powered patient transfer devices,
lifting devices, and lift teams. Finally, the new law prohibits
disciplinary action by a hospital if a health care worker refuses
to lift, reposition, or transfer a patient due to concerns about
patient or worker safety or the lack of trained lift team
personnel.
New Law Prohibits Interference in CFRA or PDL Leave (AB 592)
The California Family Rights Act ("CFRA") and
Pregnancy Disability Leave statute ("PDL") prohibit
employers from refusing to permit eligible employees to take leave
for specified reasons, including to care for a family member who
has a serious health condition or to take pregnancy disability
leave. Existing California law also prohibits retaliation against
an employee who exercises rights under the CFRA or PDL laws. AB 592
amends the CFRA and PDL statutes to make it illegal for an employer
to interfere with, restrain, or deny the exercise of or attempt to
exercise any right provided by California's Pregnancy
Disability Leave law or Family Rights Act.
The effect of this new law is to align the CFRA and PDL statutes
more closely with the federal Family Medical Leave Act
("FMLA") rights, which include a prohibition on employer
interference with exercise of FMLA rights.
Employers Must Maintain Insurance Coverage During PDL Leaves of Absence (SB 299)
SB 299 amends Government Code Section 12945 to require employers
to maintain and pay for group insurance coverage for eligible
female employees throughout the duration of PDL, under the same
conditions as if she had been employed continuously. The statute
does not appear to require employer-provided coverage for a period
of longer than 12 weeks in a 12-month period for female employees
who qualify for both PDL and CFRA leave.
The new law also permits employers to recover the premium expenses
paid if the employee fails to return to work and the reason she
does not return is not because the employee has taken CFRA leave or
because of a health condition that prompted the initial
leave.
Health Insurance Plans Must Provide Equal Coverage for Same
Sex Domestic Partners and Spouses (SB 757)
Existing law requires health care plans and policies to include
coverage for registered domestic partners of an employee equal to
the coverage of a spouse of an employee. SB 757 makes changes to
the Health and Safety and Insurance Codes to specify that every
group health care service plan contract or policy issued to a
California resident must provide equal coverage to same-sex
domestic partners or spouses as is provided to opposite-sex spouses
or registered domestic partners.
New Law Authorizes Division of Labor Standards Enforcement to Award Liquidated Damages (AB 240)
The Labor Commissioner is authorized to investigate complaints
filed by employees, but until now, employees could recover
liquidated damages only in a court action. AB 240 amends Sections
98 and 1194.2 of the Labor Code to permit an employee to recover
liquidated damages pursuant to a complaint before the Labor
Commissioner alleging payment of less than the minimum wage fixed
by a Wage Order or statute.
New Law Prohibits Mandatory Use of E-Verify by State or Government Contractors (AB 1236)
The federal E-Verify program allows employers to use an
electronic system to verify that newly hired employees are
authorized to work in the United States. AB 1236 prohibits any
state, city, county, or special district from requiring an employer
(other than one of those government entities) to use an electronic
employment verification system, unless mandated by federal law or
required for receipt of federal funds.
Genetic Discrimination Prohibited in Employment (SB 559)
Effective January 1, 2012, SB 559 amends California's Unruh
Civil Rights Act (Civil Code Section 51 et seq.) and the
FEHA, among other laws, to prohibit discrimination based on
"genetic information." The law defines "genetic
information" as information about an individual's genetic
tests, genetic tests of an individual's family members, and the
manifestation of a disease in an individual's family members.
The new law is consistent with the philosophy of the federal
Genetic Information Non-Discrimination Act of 2008.
Prevailing Wage Laws Expand in Scope and Increase Penalties (SB 136, AB 514, AB 551)
Several new laws expand the definition of "public
works" and thereby expand application of state prevailing wage
laws to state-funded construction. Prevailing wage laws increase
the cost of publicly funded construction. SB 136 modifies Section
1720.6 of the Labor Code to define "public work" as
including work done under private contract if it is "performed
in connection with the construction or maintenance of renewable
energy generating capacity or energy efficiency improvements,"
performed on state property, and more than half the energy
generated will be purchased by a government entity or the
improvements are primarily intended to reduce costs that would
otherwise be incurred by the state or a political subdivision of
the state.
AB 514 modifies the Labor Code Section 1720.3 to add a definition
of "hauling of refuse" from a public works site to an
outside disposal location to include hauling of soil, sand, gravel,
rocks, concrete, asphalt, excavation, materials, and construction
debris. It specifically excludes hauling recyclable metals from the
definition.
AB 551 increases the penalties for violations of prevailing wage
laws and for failing to retain proper payroll records. The law
increases the maximum penalty to $200 per calendar day and
increases the minimum penalty to $40 per calendar day for good
faith mistakes. Under the new law, contractors and subcontractors
with prior violations can be assessed $80 (up from $20) for
violations and $120 (up from $30) for willful violations.
Additionally, employers may be fined $100 per employee per calendar
day for payroll violations, an increase from $25 per day. The new
law also extends to three years the period of time during which a
business found to have committed two or more separate willful
violations within a three-year period is ineligible from bidding
on, being awarded, or performing work as a subcontractor on a
public works contract.
Vetoes
Not surprisingly, Governor Brown vetoed very few labor and
employment bills. Some of his vetoes were to the benefit of
employers. Most notable was his veto of AB 325, a bereavement leave
bill that would have prohibited employers from refusing to grant
employees up to three days of unpaid leave. Governor Brown's
veto message noted that the vast majority of employers voluntarily
make this accommodation, but that the measure would have created a
far-reaching private right to sue.
Similarly, in his veto message for SB 931, which would have
authorized payment to employees using a payroll card, Governor
Brown stated that the law would have created costly, complicated
new requirements for use of payroll cards by employers.
Governor Brown vetoed AB 267, which would have made choice of law
provisions in employment contracts void as a matter of public
policy. Governor Brown's veto message noted that California law
already prohibits application of laws that substantially diminish
California employees' rights.
Conclusion
With the exception of AB 1396, the requirement that commission
agreements be in writing, all of the above legislation is effective
January 1, 2012. Employers should review their employee handbooks
and policy manuals to make sure their existing policies are
consistent with the new legislation.
As to new hires for non-exempt employees, the Labor Commissioner is
to issue a form that can be filled out by the employer and provided
to new hires to supply the necessary information. It is unknown
whether the Labor Commissioner will make that form available before
January 1, 2012, when the statute becomes effective.
Employers who retain significant numbers of independent contractors
must also review their practices. SB 459 creates serious risks not
only for companies that utilize independent contractors but for
consultants who advise on that practice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.