United States: California Enacts New Employment Laws For 2017

Last Updated: March 13 2017
Article by Doug Dexter

California Governor Jerry Brown concluded the 2016 Legislative Session by signing several bills affecting employment relationships. Listed below are those bills that perhaps most critically impact your daily operations. Unless stated otherwise, these new laws take effect January 1, 2017.

Juvenile Arrests and Convictions Removed From Employee Background Checks (AB 1843)

AB 1843 expands state background check laws to prohibit (with narrow exceptions) employers from inquiring into or using information regarding an applicant's juvenile criminal background, including juvenile arrests, detentions, processings, and adjudications. Pre-existing California law prohibited the vast majority of employers from seeking information about or asking job applicants to disclose: 1) information related to an arrest or detention that did not result in a conviction; 2) information related to participation in a pre- or post-trial diversion program; 3) dismissed or sealed criminal convictions; or 4) marijuana-related convictions over two years old. AB 1843 provides that the "conviction" allowing inquiry does not include juvenile court adjudications. Health facility employers may seek information on a few crimes (related to sex and drugs) committed within 5 years of the application. Such employers now must provide the applicant with a list of those offenses for which disclosure is being sought.

Restrictions Against Non-California Forum and Choice of Law Provisions in Employment Agreements (SB 1241)

SB 1241 adds Section 925 to the Labor Code, which will prohibit employers from requiring California employees to adjudicate claims outside of California or to submit to the laws of another state. Section 925 applies to all employment contracts, including arbitration agreements, that are entered into, modified, or extended on or after January 1, 2017. The only exception is where the employee had individual attorney representation in negotiating the employment agreement. Employees who enforce their rights under Section 925 may be awarded attorneys' fees. Section 925 will effectively preclude most efforts to apply restrictive covenants or to otherwise avoid unique California law through foreign forum or choice of law clauses. Moreover, employers should avoid terminating employees for refusing to sign agreements that would violate Section 925.

Exempt Employees' Wage Statement Need Not List Hours (AB 2535)

AB 2535 revises California Labor Code § 226 to clarify that employers need not report the total hours worked on an itemized wage statement for employees who are "exempt from the payment of minimum wage and overtime." Section 226 has previously limited the requirement to report total hours worked to employees "whose compensation is solely based on a salary and who is exempt from payment of overtime." AB 2535 was passed in part as a response to Garnett v. ADT, LLC, 139 F. Supp. 3d 1121 (2015), where the federal district court held that exempt outside salespersons paid solely on commission needed to have their total hours worked listed in their wage statement. The court questioned "the usefulness of reporting total hours worked for employees paid solely by commission," but opined that "it is nonetheless required by Labor Code Section 226(a)." Effective January 1, 2017, that requirement disappears.

Increased Benefits in Paid Family Leave Program (AB 908)

Under the California Paid Family Leave program ("PFL"), an employee can take up to six weeks to care for a family member or to bond with a minor child while receiving partial wage replacement. Starting January 1, 2018, AB 908 will increase these benefits from a current level of 55 percent of salary to either 60 or 70 percent, depending on the applicant's salary level. These increases will be capped, however, at a maximum weekly benefit established by the Department of Industrial Relations. AB 908 will also eliminate the seven-day waiting period for benefits.

Fair Pay Act Extended to Race and Ethnicity (AB 1676 & SB 1063)

The Fair Pay Act, which became effective January 1, 2016, prohibits paying an employee of one gender less than an employee of the opposite gender for substantially similar work in terms of skill, effort and responsibility. Starting January 1, 2017, that law has been expanded to prohibit compensation differences among members of different races and ethnicities performing substantially similar jobs.

However, the Fair Pay Act does not prohibit pay differences where the compensation differential can be attributed to: 1) a seniority system; 2) a merit system; 3) a system tying earnings to output, like a commission-based compensation system; or 4) any other bona fide factor such as education or experience. It expressly provides, however, that an employee's prior salary alone is not a bona fide factor justifying a salary disparity. Given the expansion, employers may wish to audit employee salaries and retain all records justifying any disparity among salaries earned by employees of different genders, races, or ethnicities.

Increased Overtime Obligations for Agricultural Workers Starting in 2019 (AB 1066)

For employers with 26 or more employees, overtime wages for agricultural workers will increase starting January 1, 2019, and will continue to increase per the schedule below until January 1, 2022:

  • January 1, 2019: overtime at a rate of 1.5 times the regular rate is owed for work beyond 9.5 hours per day or 55 hours per week;
  • January 1, 2020: overtime at a rate of 1.5 times the regular rate is owed for work beyond 9 hours per day or 50 hours per week;
  • January 1, 2021: overtime at a rate of 1.5 times the regular rate is owed for work beyond 8.5 hours per day or 45 hours per week;
  • January 1, 2022: overtime at a rate of 1.5 times the regular rate is owed for work beyond 8 hours per day or 40 hours per week, and double time is owed for all hours worked beyond 12 in a workday.

Employers with 25 or fewer employees are given more time to comply with the increased overtime obligations for agricultural workers, as follows:

  • January 1, 2022: overtime at a rate of 1.5 times the regular rate is owed for work beyond 9.5 hours per day or 55 hours per week;
  • January 1, 2023: overtime at a rate of 1.5 times the regular rate is owed for work beyond 9 hours per day or 50 hours per week;
  • January 1, 2024: overtime at a rate of 1.5 times the regular rate is owed for work beyond 8.5 hours per day or 45 hours per week;
  • January 1, 2025: overtime at a rate of 1.5 times the regular rate is owed for work beyond 8 hours per day or 40 hours per week, and double time is owed for all hours worked beyond 12 in a workday.

Currently, agricultural workers are owed 1.5 times their regular rate after working 10 hours per day and for the first 10 hours on the seventh consecutive workday in a workweek. Double time is owed for hours worked beyond 10 hours on the seventh consecutive day. However, under current law, there is an exception if agricultural workers work no more than six hours per day and 30 hours per week.

Agricultural workers will continue to be exempted from the requirement of one day's rest for each seven workdays, so long as they are provided with an equivalent number of days off in each calendar month.

These wage increases may be suspended if the Governor elects to suspend scheduled minimum wage increases.

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.

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