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Labor & Employment Legal Alert
December 7, 2016              

2017 Labor & Employment Law Update for California Employers

In 2016, California passed a slew of labor and employment laws affecting businesses across the state and their personnel policies and practices. Below is a brief summary of many of these laws, which generally take effect on January 1, 2017, unless otherwise noted. Employers should review their policies and practices—preferably with counsel—to ensure compliance and to limit potential exposure depending on their varying needs and concerns.

PROPOSITION 64: LEGALIZATION OF MARIJUANA UNDER STATE LAW AFFECTS THE WORKPLACE

California voters passed Proposition 64, known as the Adult Use of Marijuana Act, which permits the recreational use of marijuana for adults 21 years old and over. Effective November 9, 2016, state law allows adults to smoke or ingest marijuana in a private home, to possess small amounts of nonmedical marijuana, and to grow small amounts at home for personal use. Effective January 1, 2018, state law will also allow for the purchase and consumption of marijuana at a licensed business. Proposition 64 continues to prohibit smoking while driving a vehicle, in all public places, and anywhere that smoking tobacco is prohibited. Possession of marijuana on the grounds of a school, day care, or youth center while children are present is illegal. 

Marijuana, however, remains illegal under federal law, including for medical use, and the new administration could decide to undertake enforcement efforts not currently utilized. Proposition 64 also makes clear that employers remain free to test workers for marijuana use before hiring them, or at any point during their employment if there is a reasonable suspicion of impairment. If employees test positive, Proposition 64 allows businesses to terminate their employment even if there is no indication that they were actually impaired on the job. These employer-friendly provisions codify case law that emerged after the legalization of medical marijuana.

AB X2-7: EXPANSION OF SMOKING BAN IN THE WORKPLACE

Labor Code Section 6404.5 now expands its smoke-free workplace protections by eliminating most of the previous exemptions that allowed for smoking in certain work environments. For example, prior to Assembly Bill No. X2-7 becoming effective on June 9, 2016, hotel lobbies, bars, taverns, gaming clubs and warehouse facilities were not considered "places of employment," and thus smoking was permitted. These exemptions, among others, have been removed, and now only seven narrow exemptions remain. Further, the new law eliminated the ability of employers to have designated smoking break rooms for employees. AB X2-7 also eliminated the exception for small businesses with a total of five or fewer employees and expanded the workplace smoking ban to include owner-operated businesses in which the owner is the only worker. Finally, the smoking ban includes the use of e-cigarettes and vaping devices that contain nicotine.

AB 488: FEHA ANTI-DISCRIMINATION LAWS EXPANDED TO PROTECT CERTAIN LICENSED INDIVIDUALS WITH DISABILITIES

The California Fair Employment and Housing Act (FEHA) protects the right to seek, obtain, and hold employment without discrimination because of race, religion, sex, age, disability, or sexual orientation, among other characteristics. Under the FEHA, the current definition of "employee" in Section 12926 of the Government Code excludes individuals with disabilities that were granted special licenses to work at nonprofit sheltered workshops, day programs, or rehabilitation facilities at less than the minimum wage. Thus, these individuals currently have no recourse for employment discrimination under the FEHA. Assembly Bill No. 488, effective January 1, 2017, extends FEHA protections to these individuals. 

Specifically, AB 488 adds Section 12926.05 to the Government Code, which allows a disabled individual employed under these special licenses to bring a complaint against their employer for any form of discrimination prohibited by the FEHA. The Bill further clarifies that the definition of "employee" in Section 12926 is not intended to permit discrimination against these disabled individuals. Section 12926.05 also contains an affirmative defense for employers against any claims brought by individuals employed under a special license. To establish this defense an employer must prove, by a preponderance of the evidence, that the challenged action was permitted by statute or regulation and was necessary to serve employees with disabilities under a special license.

AB 908: STATE DISABILITY AND PAID FAMILY LEAVE BENEFITS INCREASE

Assembly Bill No. 908 increases paid family leave payments with the goal of making them more meaningful to low-wage workers. California's State Disability Insurance (SDI) and Paid Family Leave (PFL) programs currently provide only 55% of wage levels for six weeks to allow workers to bond with a child or provide caregiving for a sick relative. This bill would revise the formula for determining benefits available for both SDI and PFL and would raise the weekly benefit amount for periods of disability commencing on January 1, 2018, to either 60% or 70% depending on income. 

Effective January 1, 2018, AB 908 also removes the seven-day waiting period for these benefits. Existing law deems an individual to be eligible for disability benefits if, among other things, the individual is unable to perform his or her regular or customary work for a seven-day waiting period during each disability benefit period and prohibits payments for benefits during this waiting period.

AB 1311: Weekly Pay Required for Security Guards Employment by Private Patrol Operators

To reverse a 2015 California court decision which found that certain Labor Code pay timing requirements did not apply to security guards (Huff v. Securitas Security Services), the Legislature passed Assembly Bill No. 1311. The law expands California's weekly pay requirement in California Labor Code Section 201.3 to security guards employed by a private patrol operator that is a temporary services employer (which does not include a bona fide nonprofit organization) that provides temporary employees to clients, a farm labor contractor (as defined by statute) and a garment manufacturing employer. It generally requires temporary services employers to pay registered security officer employees at least once a week, regardless of when the assignment changes. Furthermore, covered security guards must be paid their wages for the workweek no later than the regular payday of the following workweek. The bill was enacted as an urgency statute, so took effect immediately on July 22, 2016.

AB 1676 and SB 1063: ELIMINATION OF WAGE DISPARITIES

Existing California law prohibits employers from paying employees at rates less than the rates paid to employees of the opposite sex for substantially similar work when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. This prohibition is codified at Labor Code Section 1197.5, which also provides exceptions based upon various factors, including a seniority system, a merit system, or any other "bona fide factor" other than sex, such as education, training, or experience. 

Assembly Bill No. 1676, however, provides that an individual's prior salary cannot, by itself, justify any disparity in compensation. Part of the rationale for this new legislation is an attempt to remove one more barrier to wage equality. The California Legislature found that the gender wage gap has not narrowed significantly in recent years and that in 2015 the gender wage gap in California was 16%. Wage inequality is even greater among women of color. Accordingly, the reliance by an employer upon an individual's prior salary to establish wage rates could perpetuate historical wage inequality. 

Senate Bill No. 1063 also amends Labor Code Section 1197.5 to expand the Fair Pay Act to prohibit employers from paying lesser wages to employees of another race or ethnicity for substantially similar work. SB 1063 requires that an employer affirmatively demonstrate that wage differentials are based on lawful, nondiscriminatory factors such as: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) a bona fide factor other than race or ethnicity. 

AB 1676 and SB 1063 re-emphasize the importance of using objective, non-discriminatory factors in establishing initial wage rates, compensation, advancement, bonuses, and other forms of remuneration. 

AB 1843: BAN THE BOX EXPANDS

California Labor Code Section 432.7 prohibits most employers from asking an applicant to disclose any arrest or detention that did not result in a conviction, or from using such information as a factor in connection with employment. Assembly Bill No. 1843 expands this prohibition to include any information concerning or relating to an arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law. This legislation is one more limitation on an employer's ability to inquire into criminal background information. More than 100 jurisdictions around the country, including San Francisco, have adopted "ban the box" legislation placing significant restrictions on when and how an employer may inquire into applicants' criminal background records. On December 1, 2016, the City of Los Angeles granted preliminary approval of such a measure, which could be signed by Mayor Eric Garcetti before the end of the year.

AB 2337: EMPLOYERS MUST NOTIFY EMPLOYEES OF RIGHTS UNDER LAWS PROTECTING VICTIMS OF DOMESTIC VIOLENCE, SEXUAL ASSAULT, OR STALKING

Existing law prohibits an employer from discharging or in any manner discriminating or retaliating against an employee who is a victim of domestic violence, sexual assault, or stalking for taking time off from work for specified purposes related to addressing the domestic violence, sexual assault, or stalking. Currently, any employee who is discharged, threatened with discharge, demoted, suspended, or in any manner discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has taken time off for those purposes is entitled to reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer, as well as appropriate equitable relief. 

Assembly Bill No. 2337 requires employers to inform each employee of his or her rights established under those laws by providing specific information in writing to new employees upon hire and to other employees upon request. The bill also requires the Labor Commissioner, on or before July 1, 2017, to develop a form that an employer may elect to use to comply with these provisions. Employers are not required to comply with the notice of rights requirement until the Labor Commissioner posts the form.

AB 2535: Expansion of Itemized Wage Statement Exception to Total Hours Requirement

Labor Code Section 226 currently requires employers to state the total number of hours worked by the employee on his or her itemized wage statements. Assembly Bill No. 2535 was a reaction to a federal court decision, Garnett v. ADT LLC, which ruled that Section 226(a) required the reporting of total number of hours worked even for exempt outside sales employees. Previously, the only exception to this requirement applied to employees paid solely by salary and exempt from overtime pay under Labor Code Section 515(a) or applicable Industrial Welfare Commission (IWC) Wage Orders.

AB 2535 expands this exception to cover other employees who are exempt from minimum wage and overtime. The additional exceptions include: 
  1. Exempt executive, administrative, or professional employees consistent with the applicable IWC Wage Order;
  2. Outside salespersons as provided in the applicable IWC Wage Order;
  3. Exempt, salaried computer software professionals;
  4. Parents, spouses, children, or legally adopted children of employers;
  5. Participants, directors, and staff of a live-in alternative to incarceration rehabilitation programs with special focus on substance abusers;
  6. Crew members employed on certain commercial passenger fishing boats; and
  7. Employees participating in national service programs as provided in any applicable IWC Wage Order.

AB 2899: EXPANDED BOND REQUIREMENTS FOR MINIMUM WAGE VIOLATION CHALLENGES

Assembly Bill No. 2899 expands the requirement that employers post a bond upon appeal of wage violations under California Labor Code Section 1971.1. Existing law requires employers to file a wage bond only for appeals in cases where an employee files a wage claim with the Labor Commissioner for unpaid wages. AB 2899 applies the bond requirement to appeals for cases that were initiated by the Labor Commissioner for violations of wage laws. It also requires that employers post a bond with the Labor Commissioner prior to filing an appeal of a decision by the Labor Commissioner relating to violation of minimum wage laws. The bond must cover the total amount of minimum wages, liquidated damages, and overtime compensation owed to employees. The total amount of the bond is to be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings. 

SB 3: MINIMUM WAGE INCREASES AND PAID SICK LEAVE EXPANDS FOR IN-HOME SUPPORTIVE SERVICES WORKERS

Senate Bill No. 3 increases the minimum wage for all employers with 26 or more employees to $10.50 per hour, effective January 1, 2017. The law establishes annual increases in the minimum wage for the next seven years (up to $15.00 per hour as of January 1, 2022). Thereafter, subsequent increases will be calculated by the Director of Finance based on the consumer price index. For employers with 25 or fewer employees, the minimum wage increase will be delayed for a year beginning January 1, 2018. The law does not bar counties and cities from enacting a minimum wage that exceeds the state's minimum wage. 

Effective July 1, 2018, SB 3 also removes the Paid Sick Leave exemption for In-Home Supportive Services workers. The revised statute establishes a different definition of "full amount of leave" for these employees: 

  • Eight hours or one day in each year of employment, calendar year, or 12 month-period beginning July 1, 2018; 
  • Sixteen hours or two days once the minimum wage reaches $13; and 
  • Twenty-four hours or three days once the minimum wage reaches $15. 

SB 269: CERTAIN BUSINESSES NOW HAVE A SAFE HARBOR PERIOD AND A LIMITED EXEMPTION IN CONSTRUCTION-RELATED ACCESSIBILITY CLAIMS

Effective earlier this year, on May 10, 2016, Senate Bill No. 269 created a rebuttable presumption that certain technical violations do not cause an individual to experience "difficulty, discomfort or embarrassment," which would otherwise entitle him or her to statutory damages in a construction-related accessibility claim. This rebuttable presumption is available only to businesses that employ 25 or fewer employees on average over the past three years and have average annual gross receipts of less than $3.5 million. The presumption arises when: (1) the defendant has, within 15 days of service of a summons and complaint asserting a construction-related accessibility claim or receipt of a written notice, whichever is earlier corrected, all of the technical violations that are the basis of the claim; and (2) the claim is based on one or more of the technical violations listed in Cal. Civil Code Section 55.56(e)(1)(A)-(G). SB 269 also exempts businesses that employ 50 or fewer employees from liability for statutory damages if the structure or area of the alleged violation was inspected by a Certified Access Specialist or "CASp" before a claim was filed and all required corrections were completed within 120 days of the inspection. 

SB 1001: LAWS TOUGHEN ON UNFAIR IMMIGRATION-RELATED PRACTICES

Senate Bill No. 1001 amends existing law regarding unfair immigration-related practices by an employer. Under existing law, an employer is prohibited from engaging in or directing another person to engage in an unfair immigration-related practice against a person for the purpose of or intent to retaliate against any person for exercising a protected right. Unfair immigration-related practices are defined as requesting more or different documents than are required under federal law, or refusing to honor documents tendered that on their face reasonably appear to be genuine. 

SB 1001 amends the existing law to make it unlawful for an employer to: (1) request more or different documents than required under Section 1324a(b) of Title 8 of the United States Code to verify that an individual is not an unauthorized immigrant; (2) refuse to honor documents tendered that on their face reasonably appear to be genuine; (3) refuse to honor documents or work authorizations based on specific status or term that accompanies the authorization to work; or (4) attempt to reinvestigate or re-verify an incumbent employee's authorization to work using an unfair immigration-related practice. An employee who suffers an unfair immigration-related practice can file a complaint with the Division of Labor Standards Enforcement. The bill also provides that a violation of these provisions can result in a penalty of up to $10,000. 

SB 826: LEGISLATURE AUGMENTS SPENDING AUTHORITY TO MEET HIGHER PERSONNEL COSTS RESULTING FROM MINIMUM WAGE INCREASES

Senate Bill No. 826 (Budget Bill) authorizes appropriations for the state government for the 2016-2017 fiscal year. In light of 2016 Senate Bill No. 3, which imposes on companies with more than 25 employees an increase in the minimum wage to $10.50 per hour as of January 1, 2017, the Budget Bill authorizes an attendant increase in state departmental expenditure authority. Such funds will be used to finance the increased costs for personal service contracts and other personnel resulting from the increased minimum wage. 

SB 1167: INDOOR HEAT ILLNESS REGULATIONS COMING TO CALIFORNIA SOON

Senate Bill No. 1167, which will be codified as California Labor Code Section 6720, requires the Division of Occupational Safety and Health (the "Division") to propose heat illness and injury prevention regulations regarding employees who work indoors. By January 1, 2019, the Division must propose these regulations to the Occupational Safety and Health Standards Board for review and adoption. The law permits the Division to limit certain high heat provisions to certain industries. 

SB 1241: EMPLOYEES CAN VOID FORUM SELECTION CLAUSES IN CONTRACTS

Senate Bill No. 1241, codified as California Labor Code Section 925, permits employees who primarily reside and work in California to void forum selection or choice of law clauses in most agreements with their employers that are entered into, modified, or extended after January 1, 2017. Section 925 provides that, for all employment agreements required as a condition of employment—such as arbitration agreements, executive agreements, and commission agreements—an employee has the unilateral right to void any contractual provision that would:

  • Require an employee who “primarily resides and works in California” to adjudicate claims arising in California in any locale outside the state; or 
  • “Deprive [such an] employee of the substantive protection of California law with respect to a controversy arising in California.”

An employee may void only the specific provision, however, not the entire agreement. Also, the statute does not apply where the employee was represented individually by counsel in negotiating the terms of the agreement in which the forum selection clause or choice of law clause is contained. Section 925 permits a reviewing California court to enjoin reliance on the prohibited provision, declare it unlawful, and/or award reasonable attorneys’ fees.

SB 1342: WAGE LAW ENFORCEMENT SHARED BETWEEN STATE AND LOCAL AGENCIES

Senate Bill No. 1342, which will be codified as California Government Code Section 53060.4, permits cities and counties to work with the California Division of Labor Standards Enforcement to enforce wage payment laws. The stated intent of the new measure is to give local wage enforcement programs the necessary tools to conduct successful wage claim investigations to recover unpaid back wages. It permits a city or county to delegate its administrative subpoena authority to city or county officials in order to investigate and enforce local laws or ordinances, including local wage laws. 

UPDATE: REVIEW BY U.S. SUPREME COURT SOUGHT BY ERNST & YOUNG IN CASE STRIKING DOWN CLASS ACTION WAIVER

In August 2016, the U.S. Court of Appeals for the Ninth Circuit, in Morris v. Ernst & Young, struck down as illegal a "concerted action waiver" (i.e., a waiver of class, collective or other group actions) in an arbitration agreement. In doing so, the court contradicted the California Supreme Court and widened a split among federal appellate courts on whether the National Labor Relations Act (NLRA) prohibits enforcement of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than a collective or class, basis. Since then, the defendants in the Ernst & Young case, as well as in a similar appellate decision in another circuit, Lewis v. Epic Systems Corp., filed petitions for certiorari asking the U.S. Supreme Court to resolve the issue. In addition, the National Labor Relations Board has asked the U.S. Supreme Court to resolve the same issue in a similar case. Employers should continue to monitor these federal appellate decisions and consult legal counsel in managing issues arising under their arbitration agreements. 

NEW FEDERAL REGULATIONS MAY AFFECT EXEMPT CLASSIFICATION OF CALIFORNIA WORKERS

New Fair Labor Standards Act (FLSA) regulations—adopted by the U.S. Department of Labor (DOL) to be effective December 1, 2016—increase the minimum salary levels for certain exemptions. Together with anticipated future increases to California's minimum wage, California employers have much to consider in complying with both federal and state wage and hour laws. However, on November 22, 2016, a federal judge in Texas issued a nationwide injunction prohibiting the new regulations from going into effect. 

Should the injunction be lifted and the new DOL regulations become effective, they will affect employers with California employees because both federal and state wage and hour laws apply to them. California is widely known for wage and hour laws more stringent than their federal counterparts. Up until the adoption of the new DOL regulations, however, California employers could take comfort in the notion that compliance with California exemption requirements generally would mean compliance with the FLSA (but not vice versa). The new DOL regulations now require California employers to revisit the exemption requirements under the FLSA.

The DOL regulation significantly increases the compensation required to meet the minimum salary standard to qualify for exempt status under the FLSA. Specifically, it requires a minimum salary threshold based on the 40th percentile of earnings of full-time salaried employees in the lowest-wage Census Region. Currently, this means that the minimum salary for a white collar exemption is $913 per week or $47,476 per year. The DOL regulation also permits the salary threshold to update every three years, beginning on January 1, 2020, to maintain the 40th percentile level noted above. Before the DOL regulation, the Salary Basis Test under the FLSA required a minimum salary of $455 per week or $23,660 per year. 

To help meet the new salary requirements, the DOL regulation now permits employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary requirements (i.e., up to $4,747.60). Notably, the use of such bonuses and commissions, however, can be risky because the bonus and commission amounts can fluctuate. Moreover, employers cannot use any such bonuses and commissions toward meeting the Salary Basis Test under California wage and hour laws.

The new DOL regulations also increase the total annual compensation requirement for highly compensated employees from $100,000 to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which on December 1, 2016, will be $134,004. The DOL regulations permit this minimum threshold to update every three years, beginning on January 1, 2020, to maintain the 90th percentile statistic. The increase in salary for the high-compensated employee exemption, however, generally does not have much affect for California employers because the high-compensated employee exemption has no counterpart under California state wage and hour laws. Thus, California employers cannot solely rely on this federal exemption and still must meet one or more of California's state law exemptions. The highly-compensated exemption, however, would be relevant for employers in California on federal enclaves or in areas where only federal law applies.

EEOC ISSUES NEW GUIDELINES ON NATIONAL ORIGIN DISCRIMINATION AND HARASSMENT

On November 21, 2016, the Equal Employment Opportunity Commission (EEOC) issued new guidelines on "national origin" discrimination and harassment. The new guidelines will be helpful to employers confronted with various hiring, firing, and discipline issues related to language abilities, citizenship, and origin-related harassment in order to avoid violations of Title VII of the Civil Rights Act of 1964. Many of the guidelines track California case law on similar topics, such as: 

  • The place of origin can be a country, former country, or geographic region closely associated with a particular national origin group.
  • National origin discrimination includes discrimination based on:
    • Ethnicity: A person can be discriminated against because he or she either belongs, or doesn't belong, to a particular ethnic group.
    • Physical, linguistic, or cultural traits: Subjecting a person to adverse employment action due to his or her accent, style of dress, or other traits associated with a certain origin may constitute discrimination. 
    • Perception: Regardless of a person's actual origin, if he or she is discriminated against due to the belief that he or she is of that origin. 
    • Association: A person's association with someone of a particular national origin (for example, his or her spouse or child) can
  • The EEOC warns against hiring practices that may result in perpetuation of the historical makeup of a workforce. For example, "word of mouth" recruiting can lead persons of one national origin to recruit, promote or hire similar persons of the same national origin. Similarly, an apprenticeship program that only admits candidates who are sponsored by existing employees could lead to few minority hires if the industry or workplace is not diverse.
  • Employers must ensure they have legitimate business reasons for making language-based employment decisions. 
    • Accents: A decision cannot be based on accent unless (1) the ability to communicate in spoken English is required to perform job duties effectively; and (2) the individual's accent materially interferes with job performance.
    • Fluency: Fluency may be required if it is necessary for the effective performance of the position.
    • "English-only" policies: Language-restrictive policies are unlawful unless they are required to promote safe and efficient job performance or business operations, and are only enforced for those purposes.
  • Employers cannot use United States citizenship requirements as a pretext for discrimination in hiring. The Immigration Reform and Citizenship Act of 1986 makes it illegal for an employer to discriminate based upon an individual's citizenship or immigration status. Unless the law requires an employer to do so based on the specific industry, an employer cannot limit its employees to U.S. citizens or lawful permanent residents, and should not consider immigration status in hiring.
  • Employers do not have to accommodate national origin traditions or practices. However, national origin often overlaps other protected classes, such as religion, in which accommodations may be required.

Read the full guidelines

 

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