Legislative Update: New Crop of Proposed Laws Keeps Employers On Edge

The California legislature is hard at work to pump out a bevy of new legislation recessing for the fall campaign season. Many of these bills winding their way through Sacramento may have a significant impact on employers if they are passed and signed into law. As this is an election year for the Gevernor and most of the legislature, employers can be sure that California politicians will be working to burnish their credentials with unions who can supply significant campaign infrastructure (i.e., foot soldiers) for the fall races. Here is a look at some of the more significant proposals.

S.B. 1661. If signed into law, the bill would create a family disability insurance program for employees who must take time off work to care for themselves or a family member (child, spouse, parent or domestic partner) who is injured, or falls ill, or to bond with a new child following birth, adoption or foster care. Planned as an extension of the current State Disability Insurance ("SDI") system, employees may submit claims for benefits at rates up to 55% of their actual wages. Under the current proposal, the program would be funded half by employers and half by the employees. Employers would have the option to pay into the state fund or to provide the equivalent benefit through private insurance or direct payment. This proposal would extend existing disability insurance rights under state law to allow persons without an injury to collect disability pay to offset loss of income in the event that a family member needs constant medical care.

Currently, both the federal Family Medical Leave Act ("FMLA") and California Family Rights Act ("CFRA") both allow employees to take up to 12 weeks unpaid leave annually to care for ill relatives. Still, FMLA and CFRA are limited to employers with 50 or more employees, and requires a minimum amount of work per year from the employee before they are eligible for unpaid leave. S.B. 1661 contains no such limitations on its applicability. The only exemption in the bill is for government employers.

The current SDI system is reportedly on the brink of collapse despite a significant increase in the SDI payroll tax in 2000. The new proposal would further increase costs to workers in the form of payroll taxes and to employers in the form of further administrative time and lost productivity from employee absences that otherwise would not have been taken but for the new benefit. In addition, employers must pay additional money for insurance premiums to cover the benefit. In the event that employers opt to purchase private insurance to cover this benefit for their employees, the state will assess a 14% "regulatory fee" on the amount of the premium to ensure that such employers are paying their "fair share," according to the Bill Analysis Report by the Assembly Committee on Insurance.

The bill passed the Senate in June 2002, and was sent to the Assembly for consideration. According to media accounts, there is significant opposition to this bill from business interests, including the California Chamber of Commerce, who claim that the proposal will disproportionately hurt small businesses. Among the possible compromises contemplated is to have employees pay the entire premium for this insurance. The bill passed both legislative houses and was transmitted to the Governor for approval. Governor Davis had not indicated his position on the bill at the time of this publication.

S.B. 1736. This bill would mandate arbitration for certain labor contract disputes in the agricultural industry in California. The National Labor Relations Act exempts farm workers from its scope. In 1975, California instituted its own Agricultural Labor Relations Act ("ALRA") governed by the Agricultural Labor Relations Board ("ALRB"). (Labor Code, §§ 1140, et seq.) ALRA allowed farm workers to bargain collectively. Since its institution, unions have found it exceedingly difficult to actually obtain labor contracts with the many agricultural industry employers in California. While many employee groups have voted to organize their work place and many bargaining units have been created, the employers have been recalcitrant in actually coming to agreeable terms with the unions who represent the employees. Unions have turned to the legislature once again for assistance. If after 90 days from the date of union certification the employer and the union have not reached terms for a contract, a party may petition the ALRB to compel mediation by the parties. If the mediation is not successful in forging a deal within 30 additional days, either party may compel the ALRB to appoint a neutral arbitrator who will decide the terms of the contract for the parties.

The legislature has passed this measure and it was sent to Governor Davis for his signature by the end of August 2002. There was no indication from the Governor's office how the matter will be handled.

A.B. 1599. This bill would add age as a prohibited basis of discrimination not only in hiring, firing, suspending and demoting, but also in the terms and conditions of employment, including employee benefits. This legislation was intended to counteract an anticipated ruling by the California Supreme Court in Esberg v. Union Oil Company of California (2002) 28 Cal.4th 262 that FEHA did not prohibit discrimination on the basis of age in the terms and conditions of employment, even though it explicitly prohibited it in hiring, firing, suspending and demoting of employees. Governor Davis signed the bill into law effective January 1, 2003.

S.B. 1538. This bill proposes to invalidate private, pre-dispute agreements to arbitrate claims under the Fair Employment and Housing Act ("FEHA"), California's anti-discrimination statutes. Any employee claim of harassment or discrimination on the bases of race, sex, national original, religious creed, color, national origin, ancestry, medical condition, physical or mental disability, marital status or sexual orientation must be litigated in court and may not be resolved by an arbitrator. This despite the fact that the California Supreme Court two years ago delineated the rights and obligations of parties to an employment arbitration agreement requiring arbitrators to respect statutory rights and remedies, as well as procedural safeguards in discovery rights. (Armendariz v. Foundation Health Psychcare Services (2000) 24 Cal.4th 83.) Mandated litigation will only protract employment disputes, making them more costly to employers and more lucrative to plaintiffs through higher settlement demands.

In addition, the bill would make it an unfair employment practice under FEHA to require an employee to waive rights and procedures established by FEHA or to retaliate against employees who refuse to waive FEHA rights and procedures. This may create a new basis for wrongful termination in violation of public policy, and possibly create confusion as to whether wrongful termination in violation of FEHA is arbitrable or not. As part of the bill, any arbitration agreement purporting to send FEHA claims to arbitration as a condition of employment is void as a matter of law. The employer has the burden of proving that "any waiver or arbitration agreement was knowing, voluntary and not a condition of employment." (Emphasis added.) Employers essentially would be required to show that it individually interviewed each employee to explain their rights, that the employee wanted to arbitrate all claims against the employer and that the arbitration agreement was strictly optional. It would be more difficult to separate the FEHA and non-FEHA claims from an employment arbitration agreement. Employers may be required to present two different arbitration agreements: one that is mandatory and a condition of employment regarding non-FEHA claims, and a second one that is strictly voluntary, like a benefits program where the employee may opt out, regarding the FEHA claims. The administrative difficulties in successfully navigating this minefield would be extreme. The bill passed both legislative houses and has been transmitted to the Governor for approval. Governor Davis had not indicated his position on the bill at the time of this publication.

A.B. 2957. This bill proposes to create a California version of the federal Worker Adjustment and Retraining Notification ("WARN") Act. [29 U.S.C. §§ 2101, et seq.] Employers will have to give 60 days advance notice of any mass layoff to the workers, the California Employment Development Department ("EDD") and the chief local elected official in the area. A "mass lay-off" in the context of this bill means an employer with at least 50 employees lays off 50 or more employees, or 33% of its employees, within a 30 day period. This proposed California law casts a broader net than WARN, which only applies to employers with at least 100 employees who lay off at least 50 people. (29 U.S.C. § 2101, subd. (a)(3).) The bill passed both legislative houses and has been transmitted to the Governor for approval. Governor Davis had not indicated his position on the bill at the time of this publication.

A.B. 2989. Instead of mere advance notification, this legislation would mandate severance packages for employees with more than three (3) years of consecutive service at a commercial facility with more than 100 employees. Each laid-off employee would receive one (1) week of pay for each year of service. The bill passed both legislative houses and has been transmitted to the Governor for approval. Governor Davis had not indicated his position on the bill at the time of this publication.

A.B. 2990. Existing California law prohibits an employer from discriminating or retaliating against an employee who exercises his or her rights under the California Labor Code, such as by filing a wage claim or testifying at a Labor Commissioner hearing. This bill would amend the Labor Code to create a rebuttable presumption in favor of the employee who claims to have suffered retaliation or discrimination for exercising rights under the Labor Code. In a lawsuit where the employee sues the employer for retaliation or discrimination for exercising statutory rights, the employer would be required to show that the employee was terminated, demoted, suspended, suffered reduced hours or pay, or otherwise was discriminated against for a reason other than the employee's protected activity. The adverse employment action will be presumed to be retaliatory or discriminatory if it occurs within 90 days of exercising the statutory right. The proposed law excepts from its reach bona fide seasonal layoffs and reductions in force affecting the majority of employees. The bill passed both legislative houses and has been transmitted to the Governor for approval. Governor Davis had not indicated his position on the bill at the time of this publication.

H.R. 217. This bill, entitled the "Civil Rights Amendments Act of 2001," presents a significant addition to the federal Civil Rights Act of 1964 (42 U.S.C. §§ 2000a, et seq.) by proposing the addition of a new protected status: "affectional or sexual orientation." This bill, introduced by Rep. Ed Towns (D-New York), is the first significant amendment to civil rights laws since 1991. The bill was introduced on the first day of the 107^th Congress, on January 3, 2001, and was referred to the House Committee on the Judiciary and Committee on Education and the Workforce. No action has been taken on the bill. The bill's prospects are limited in light of the party in control of the House of Representatives and the Executive branch. Should the Democratic party regain control of the House of Representatives and retain control of the Senate, the bill may resurface next year.