United States: California's Employment Law Class Of 2017 (Part II): The Laws, Their Effects And Some Recommendations For Compliance

Last Updated: October 29 2016
Article by L. Julius M. Turman, Eric Walder and Ariana Goodell

In part I of this two part series reviewing the employment law class of 2017 we focused on developments in discrimination, anti-retaliation and discharge, hiring and background checks, and workplace health and safety. In part II we will focus on developments in wage and hour law, leave laws, industry-specific regulations, and California's recent legislation affecting choice-of-law in employment contracts. Similar to the laws featured in part I, a majority of these laws amend previous employment legislation. This trend demonstrates that the 2016 legislative session focused more on expanding and addressing lingering questions that stem from existing workplace mandates, than creating new rights under California law. As the majority of the laws take effect on January 1, 2017, HR departments and employment counsel are off and running, to get employers prepared for a new year of implementation.


Fair Wage Act (SB 3)

This bill amends the minimum wage in California and will eventually raise the statewide minimum wage to $15 per hour. The amended law provides for six stepped annual statewide increases of the current minimum wage of $10 an hour. The bill sets out gradual increases in the California minimum wage, starting with a move up to $10.50 per hour January 1, 2017, for all employees working for an employer of 26 or more employees. Smaller businesses with 25 or fewer employees will follow the same incremental increases as larger employers, but starting a year later, with a move up to $10.50 per hour January 1, 2018.

The incremental increases every January 1 will be as follows:

Year Medium and Large Employers

(26 or more employees)

Small Employers

(25 or fewer employees)

2016 (currently) $10.00 $10.00
January 1, 2017 $10.50 $10.00
2018 $11.00 $10.50
2019 $12.00 $11.00
2020 $13.00 $12.00
2021 $14.00 $13.00
2022 $15.00 $14.00
2023 TBD $15.00

Starting August 1, 2022, the California Director of Finance will annually calculate the adjusted minimum wage to be implemented January 1 of the following year. The calculation will be based on a specified formula, which includes a version of the consumer price index (CPI). SB 3's indexing provision allows only increases to the minimum wage – no decreases.

Effect: (Effective January 1, 2017) Under this measure, nearly six million California workers—more than one-third of the Golden State's workforce—will receive a raise. Unlike laws passed by some other states, SB 3 does not bar counties and cities from enacting their own minimum wages that are higher than the state’s minimum wage. The scope of the minimum wage’s application is set by the amended statute's definition of "employer." This definition is more expansive than some of the 22 other existing definitions of the term in the current Labor Code, and includes entities that could be considered joint employers. There are no carve-outs in the definition of an employer for this new amended statute; public sector employers are included.

Reed Smith RECOMMENDS: In order to prepare for the wage increase, employers should assess the new minimum wage’s effect on payment of overtime, overtime-exempt employees' compensation, and salary compression. Employers will also need to update minimum wage posters and inform employees about their new pay rate(s). Additionally, HR, payroll, and managerial employees should be trained on the minimum wage increases, the posting and notice requirements, and how to respond to employee inquiries concerning wage rate changes.

Wage Statements For Exempt Employees (AB 2535)

AB 2535 clarifies that itemized wage statements for certain exempt employees do not need to detail the employee's "total hours worked." The bill is applicable to exempt, executive, managerial, professional, outside sales, or computer software professionals, who are paid on a salary basis. The bill also applies to parents, spouses, children, or legally adopted children of the employer; participants, directors, and staff of a live-in alternative to an incarceration rehabilitation program for substance abuse; exempt crew members of licensed commercial passenger fishing boats; and participants in national service programs.

Effect: (Effective January 1, 2017) The purpose of AB 2535 is to clarify exactly for which employees an employer must track hours worked and record those hours on an itemized wage statement. AB 2535 revises California Labor Code Section 226 and the long-standing practice and interpretation of California law that an employer needs to track the hours of only non-exempt employees, not employees who are exempt under any Industrial Welfare Commission Wage Orders or Labor Code provision. AB 2535 clarifies the prior version of Labor Code Section 226 that only non-exempt employees and others who are paid according to hours worked are required to have their hours tracked and logged on an itemized wage statement. AB 2535 expands on Labor Code Section 226 and alters reporting requirements by establishing that employers do not need to report total hours worked on a pay stub for employees who are "exempt from the payment of minimum wage and overtime" under specified statutes or any applicable order of the Industrial Welfare Commission. The clarification will preclude frivolous and costly litigation with regard to hours worked by exempt employees.

Reed Smith RECOMMENDS: Employers (and their payroll providers) should continue to include the total hours worked on the wage statements of all non-exempt employees, and should review their classification procedures to ensure employees are accurately classified as exempt or non-exempt.

Minimum Wage Violations (AB 2899)

When an employer seeks a writ of mandate to contest the Labor Commissioner citation regarding failure to pay minimum wages, it will require that a bond be first posted with the Labor Commissioner. AB 2899 bonds are to be issued in favor of the unpaid employee, in an amount equal to the unpaid wages, liquidated damages, and overtime compensation assessed, but excluding any penalties. If the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings, the proceeds are forfeited to the employee.

Effect: (Effective January 1, 2017) AB 2899 updates the existing bond requirements under the Labor Code. Under this new law, employers who contest a Labor Commissioner ruling that they failed to pay the minimum wage must post a bond equal to the unpaid wages, excluding penalties. The bond is issued in favor of the unpaid employees.

Reed Smith RECOMMENDS: Employers who choose to contest Labor Commissioner findings must now aggressively pursue their rights and advocate their position. This new legislation makes the process of appealing Labor Commissioner decisions even more costly up front, in the occasion that the Labor Commissioner rules against the employer.


Increased Paid Family Leave And State Disability Benefits (AB 908)

Under this new measure, state Paid Family Leave (PFL) and State Disability Insurance (SDI) wage-replacement benefits will increase from 55 percent to 60 or 70 percent of a participant's wages. Workers making less than one-third of the state average quarterly wage will be able to recover 70 percent of their wages, while all other workers will be able to recover 60 percent of their wages. In addition, starting July 1, 2018, the seven-day waiting period for PFL benefits will be eliminated.

Effect: (Effective January 1, 2018) The new law AB 908 expands the state's Paid Family Leave program in an effort to help more workers in California who take paid leave for a family need, such as caring for an ill family member or bonding with a new child. This law builds upon Governor Jerry Brown's commitment to support California's working families.

Reed Smith RECOMMENDS: While the additional wage replacement is wholly funded by employee contributions, the increase in benefits is likely to increase the number of employees who will take leave for qualifying situations. Employers should therefore update their policies to encourage employees to provide notice of their need for such leave as far in advance as possible. They should also ensure that their HR processes are in place to be able to immediately provide employees with all necessary information to utilize these benefits in the case of an unexpected emergency.

Notice Of Domestic Violence Leave And Accommodation Rights (AB 2337)

Employers must now provide written notice to new employees upon hire, and to current employees upon request, of their right to time off and accommodation rights, with regard to actions and proceedings to protect victims of domestic violence, sexual assault, and stalking. The Labor Commissioner, no later than July 1, 2017, must publish a notice that employers can use for notification.

Effect: (Effective January 1, 2017) AB 2337 strengthens the job protections for victims of domestic violence, and ensures that those who work for employers with 25 or more employees are notified of protected time-off rights for domestic violence, sexual assault, or stalking, without threat of termination or retaliation.

Labor Code Section 230 already prohibited employers of 25 or more from discriminating or retaliating against employees who are victims of domestic violence, sexual assault, or stalking, for taking time off from work for specified purposes. AB 2337 establishes the additional requirement that employers provide written notice of these already-existing rights to new employees "upon hire," and to current employees "upon request."

The statute as now amended protects time off for: (1) seeking a temporary restraining order or other injunctive relief to help ensure the health, safety, or welfare of the employee and/or his or her child; (2) seeking medical attention; (3) obtaining services from a domestic violence shelter or rape crisis center; (4) obtaining psychological counseling; and/or (5) participating in safety planning or relocation.

Reed Smith RECOMMENDS: One practical way employers can easily comply with the notification requirements of this amended law would be to include the form explaining an employee's right to take leave under these circumstances in an employer's employee handbook and new hire packets. Additionally, employers should ensure they have the Labor Commissioner's designated form or their own standard notice on file so that that any current employee who requests this information can immediately be provided with it.


Overtime For Agricultural Workers (AB 1066) – Agricultural Industry

The Agricultural Workers Act creates new phased-in overtime protections for agricultural occupation workers, under Wage Order 14-200. These workers are currently eligible for overtime pay only after a 10-hour work day or 60-hour work week. The phase-in, beginning in 2019, will gradually decrease the daily and weekly hours that an agricultural worker must work to receive overtime pay, to eight hours in a work day and 40 hours in a work week by 2022.

Effect: (Effective January 1, 2019) This law expands overtime pay for agricultural workers, who frequently work extended hours, especially during the harvest seasons. However, many farmers already continue to struggle to comply with existing regulations and the ongoing water crisis. Thus, some farmers may decide to limit their workers' hours and hire more employees to avoid overtime costs in order to avoid the implied costs of the new law.

Reed Smith RECOMMENDS: Employers of agricultural workers should immediately evaluate their records to determine the average amount of time these employees work during the harvest season and establish a business plan that will ensure they can continue maximizing their efficiency while implementing a new structure that will account for the additional wages that need to be paid to agricultural working overtime.

Property Service Workers Protections (AB 1978) Janitorial Industry

The Property Services Workers Protection Act requires janitorial services to register annually with the DLSE, and to institute measures to protect janitorial employees from wage theft and sexual harassment. The DLSE will create and maintain a database of property service employers and develop a biennial sexual harassment and violence prevention training. The bill prohibits an employer from registering or renewing its registration if it has not fully satisfied any final judgment for unpaid wages or made appropriate tax contributions. "Successor employers" are also liable for any wages and penalties owed by the predecessor's employer.

Effect: (Effective July 1, 2018) This law will provide additional protections to janitors on the job. The law accomplishes this goal in a variety of ways: (1) the creation of sexual harassment prevention training materials and notice requirements that ensure janitors know their rights and know who to contact in the event that they are assaulted in the workplace, and (2) the creation of a contractor registry that will add transparency and increase accountability.

Reed Smith RECOMMENDS: Janitorial employers should be sure to keep a close eye on the steps the DLSE takes to enforce this legislation and readily adopt practices that will satisfy the requirements of the law and lead to an educated workforce.


Choice Of Law And Forum In Employment Contracts (SB 1241)

SB 1241 creates Labor Code Section 925, which prohibits employers from requiring an employee who lives and works in California to agree, as a condition of employment, to: (1) litigate or arbitrate claims that arise in California in a forum outside of California, or (2) agree to waive the protection of California law in a controversy arising in California. Any contract that violates these restrictions is voidable at the employee's request, and the matter would be adjudicated in California under California law. The law applies to contracts entered into, modified, or extended on or after January 1, 2017. If, however, an employee is represented by legal counsel in negotiating the terms of an agreement with respect to choice of law or forum, this law will not apply.

Effect: (Effective January 1, 2017) Under SB 1241, companies will no longer be allowed to pre-select the venue for any dispute that may arise between themselves and their employees. For example, many companies utilize a forum selection clause in their employment contracts that outlines the state law that will control any disputes and where actions can be brought. Should a dispute between a company and an employee in California occur, the proceedings will be subject to California law, which is known for being progressive with regard to the rights of employees.

Reed Smith RECOMMENDS: Employers, regardless of where they are headquartered, should review their form employment contracts (and associated confidentiality and arbitration agreements) to remove any forum selection clauses, as these clauses will not be enforceable and would reflect poorly upon the employer in the case of the contract being challenged.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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