A Wave of New Changes to California Employment Laws for 2012

New Mandatory Employee Notification Requirements (AB 469)

AB 469, effective January 1, 2012, makes numerous additions and changes to the wage and hour provisions of the Labor Code. Under current law, employers are required to post specified wage and hour information in a location where it can be viewed by employees. Under AB 469, employers are required to provide to non-exempt employees (except for public employees or those covered by a collective bargaining agreement containing specified information), at the time of hiring, a written notice with the following information, in the language the employer normally uses to communicate employment-related information to the employee:

• The employee's rate or rates of pay and the basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime.
• Allowances claimed as part of the minimum wage, including meal or lodging allowances.
• The employer's designated regular payday.
• The name of the employer, including any "doing business as" names used by the employer.
• The physical address of the employer's main office or principal place of business and mailing address, if different.
• The telephone number of the employer.
• The name, address and telephone number of the employer's workers' compensation carrier.
• Any other information the Labor Commissioner deems material and necessary.

The employer must notify each employee in writing of any changes made to this information within seven days of their implementation, unless such changes are reflected on a timely wage statement furnished in accordance with Labor Code section 226, or other writing required by law within seven days of the changes.

The Labor Commissioner is required to prepare a sample template that complies with the notice requirements, which will be posted here when complete: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html. AB 469 also amends Labor Code section 226 to require that employers retain a copy of the itemized wage statement and a record of deductions for three years.

Furthermore, AB 469 imposes more stringent penalties and requirements on employers with respect to wage violations than those imposed by current law, including requiring employers to pay restitution to any employee who has been paid a wage less than the minimum fixed by the Industrial Welfare Commission wage orders, making it a misdemeanor for any employer to willfully violate specified wage statutes or orders, or who willfully fails to pay wages due under a final court judgment or final order of the Labor Commissioner, and permitting the Labor Commissioner to hold an administrative hearing to recover liquidated damages, which currently can only be done in court.

California Employers May be Required to Pay for Health Insurance for up to Seven Months (SB 299 and AB 592)

Companion legislation SB 299 and AB 592 have expanded existing law to ensure that all pregnant women maintain health insurance benefits while on pregnancy-related leave. The new laws may significantly impact both small and large employers through increased health coverage costs.

Currently, California pregnancy disability law (PDL) only requires employers to provide women with up to four months of unpaid pregnancy leave. The law does not require employers to continue healthcare coverage during that leave. Starting January 1, 2012, however, employers will be required to continue and maintain health coverage benefits for up to four months in a 12-month period. As with other PDL benefits, it applies regardless of an employee's length of service with the company and applies to employers with 5 or more employees.

Employers must remember that other, already-existing federal and state laws that also guarantee continued health coverage, may also come into play. In such event, an employer may be obligated to continue coverage for up to seven months. This would happen, for example, if an employee were to qualify for continued healthcare coverage under the new law (for up to four months), and then become eligible for California Family Rights Act (CFRA) benefits immediately thereafter (for up to 12 weeks).

Employers should also note that, in certain circumstances, they may be able to recover amounts paid from the employee. This would apply if an employee chose not to return to work for reasons other than taking protected leave and where the reason for not returning was within the employee's control, such as finding another job or electing not to return to the workforce.

AB 592 adds interference with the right to take family care and medical leave pursuant to CFRA or leave under the state's Pregnancy Disability Leave ("PDL") law to a growing list of unlawful employment practices. Existing law specifically prohibits both refusing to grant CFRA or PDL leave to eligible employees and discriminating or retaliating against employees for requesting protected leave. Unlike the federal Family and Medical Leave Act ("FMLA"), however, California law did not explicitly provide for employer liability for "interfering" with a valid request for CFRA or PDL leave. The bill resolves the difference in terminology between FMLA and California law, making clear that it is unlawful for an employer to "interfere with, restrain, or deny the exercise of, or attempt to exercise" CFRA or PDL rights.

AB 592 amends Government Code section 12945.2 and, in coordination with its sister bill, SB 299, also amends Government Code section 12945.

Commission Plans Must be in Writing by 2013 (AB 1396)

AB 1396 amends the Labor Code to require, by January 1, 2013, that whenever an employer enters into a contract of employment with an employee for services to be rendered within the State of California and the method of payment involves commissions, the contract must be in writing and must set forth the method of computing and paying the commissions. The employer must give a signed copy of the contract to the employee and must get a signed receipt for the contract from the employee. In the case of a contract that expires but the parties nevertheless continue to work under the terms of the expired contract, the contract remains in full force and effect until the agreement is superseded or the employment relationship ends.

AB 1396 incorporates the meaning of the term "commissions" from Labor Code Section 204.1, which provides that "[c]ommission wages are compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof." AB 1396 further provides that the term "commissions" does not include short-term productivity bonuses, or bonus and profit-sharing plans "unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed."

Restrictions on the Use of Consumer Credit Reports in Employment (AB 22)

AB 22 restricts use of consumer credit reports in employment decisions. The law bans employers and prospective employers, except certain financial institutions, from obtaining or using a consumer credit report for employment purposes unless the employee or applicant holds or is seeking one of the following positions: (1) a managerial position, which the law defines as a position qualifying for the state executive employee overtime exemption; (2) a California Department of Justice position; (3) a sworn peace officer or other law enforcement position; (4) a position for which credit information is required by law to be disclosed or obtained; (5) a position that involves regular access, other than for the routine processing of credit card applications in a retail establishment, to certain confidential personal information, including bank or credit card account information, Social Security numbers, and dates of birth; (6) a position in which the person is or would be a named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf; (7) a position that involves access to the employer’s confidential or proprietary information, defined as a trade secret under California Civil Code Section 3426.1(d); and (8) a position that involves regular access to cash totaling $10,000 or more belonging to the employer, a customer, or a client, during the workday. If an employee or applicant falls within one of the designated categories, an employer must provide written notice to the employee or applicant before obtaining a credit report and must identify the reason for requesting the report. The employer also must inform the employee or applicant of the source of the report, and provide a box to check to request a free copy of the report.

New Independent Contractor Misclassification Liability (SB 459)

The passage of SB 459 adds two new Labor Code sections, 226.8 and 2753 effective January 1, 2012. The new law prohibits the willful misclassification of individuals as independent contractors. The new law affects all industries and will have a significant impact on construction and transportation companies as well as employers using seasonal, short-term, and direct salespersons.

SB 459 defines a "willful misclassification" as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor." The new law also prohibits employers from charging an individual who is willfully misclassified as an independent contractor a fee or making any deductions from compensation for things such as goods, materials, space rental, services, licenses, repairs, maintenance and fines.

Section 226.8 imposes significant penalties ranging from a minimum of $5,000 to $25,000 for "each violation." The civil penalties for one individual could be tens of thousands of dollars depending on the interpretation of "each violation" and the penalty imposed. That penalty could rise even further if a court finds a pattern and practice of willful misclassification, and possibly significantly more if a representative action is permitted against a company pursuant to the Private Attorneys General Act (PAGA). The Labor Commissioner is charged with enforcement of this new law, but like other provisions of the Labor Code, it gives affected individuals the right to file a complaint.

The new law also imposes non-monetary penalties. Section 226.8 requires offenders to post a mandatory notice on their website, or in an area accessible to all employees for one year. Additional non-monetary penalties are imposed on licensed contractors who are required to transmit a certified copy of the order finding a violation to the Contractors' State License Board which is required to initiate disciplinary action against a licensee within 30 days of receiving the order establishing a willful misclassification of anyone as an independent contractor.

Regarding the test for establishing whether a worker is an employee or an independent contractor, the California Department of Industrial Relations states on its website: "There is no set definition of the term 'independent contractor' and as such, one must look to the interpretations of the courts and enforcement agencies to decide if in a particular situation a worker is an employee or independent contractor." If the IRS determines that a worker is an employee, it will not assess back employment taxes if the employer qualifies for the so-called "safe harbor exception" (Revenue Act of 1978, Section 530). However, the IRS safe harbor does not apply to state taxes and withholding, worker's compensation, etc.
The decision to engage an individual or entity as an independent contractor represents a calculated business risk. Companies must assess the risk of misclassification, including the dollar amount of payment and the duration of relationship, probability that worker will voluntarily pay income tax withholding and social security self-employment tax, risk of liability for workplace injury and other considerations.

Human Trafficking Bill Requires Disclosure (SB 657)

On January 1, 2012, the California Transparency in Supply Chains Act (SB 657) will go into effect and require certain retail and manufacturing companies to disclose their efforts to ensure their direct supply chains are free from slave labor and human trafficking. Proponents of the new law argue that a top down approach will require larger entities to coerce smaller suppliers to disclose the nature of their business to ensure that it will be even tougher for slavery to occur throughout the State.

The information a company supplies under the law must indicate the extent to which a company:

• Verifies supply chains to evaluate and address risks of human trafficking and slavery, including if the verification was conducted by a third party
• Conducts unannounced and verified audits of suppliers for trafficking and slavery in supply chains to evaluate compliance with company standards
• Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking
• Trains employees and management with direct responsibility for supply chain management, to mitigate risks within the supply chains of products
• Certifies that materials incorporated into the product comply with the laws regarding human trafficking of the country or countries in which they are doing business

Key components of companies’ disclosures under the law include human rights policy, due diligence, human rights risk assessments, verification and traceability, training/capacity building, collaboration, and disclosure/transparency.

Coverage of California Domestic Partners Under Health Insurance Plans Issues to Out-of-State Employers (SB 757)

SB 757 expands the reach of the California Insurance Equality Act, which currently requires insurance companies to provide the same coverage for registered domestic partners as for spouses.

Although the existing law, which went into effect in January 2005, prohibits insurance providers from issuing policies or plans that treat registered domestic partners and spouses differently, California insurance law does not apply to policies issued outside of California to employers whose principal place of business and majority of employees are located outside of California. This exception has permitted qualified out-of-state employers and out-of-state insurers to avoid the non-discrimination provisions of the California Insurance Equality Act.

SB 757 amends the Health and Safety and Insurance codes to clarify that, notwithstanding the general exception for policies issued outside of California to employers whose principal place of business and majority of employees are located outside of California, no policy or certificate of health insurance marketed, issued, or delivered to a California resident shall discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.

Discrimination Based on Genetic Information (SB 559)

SB 559 expands the prohibited bases of discrimination under the Unruh Civil Rights Act and the California Fair Employment and Housing Act (FEHA) to include genetic information. "Genetic information" is broadly defined, and includes information relating to an individual employee's genetic tests, the genetic tests of the employee's family members, and the manifestation of a disease or disorder in the employee's family members. Under the new law, discrimination in hiring or employment based on any of these characteristics is unlawful.

California's Organ Donation Leave Law Clarified (SB 272)

Last year, the California Legislature enacted the Michelle Maykin Memorial Donation Protection Act (Act), codified at Labor Code sections 1508-1513. The Act provided employees with paid leave to donate an organ or bone marrow. Specifically, the Act requires private sector employers (with 15 or more employees) to grant up to 30 days of paid leave in a one-year period to an employee who is an organ donor, and up to 5 days of paid leave in a one-year period to an employee who is a bone morrow donor.

During the last year, various questions arose about the Act's interpretation, prompting the California Legislature to amend its provisions. Hence, SB 272.

SB 272 amends Labor Code section 1510 to clarify, among other things, that (1) the days of leave provided by the Act are business days, not calendar days; (2) the one-year period is measured from the date the employee's leave begins and consists of 12 consecutive months; (3) leave taken under the Act is not a break in the employee's service for purposes of the employee's right to paid time off; and (4) when an employee takes leave under the Act, the employer must maintain the employee's health benefits under a group health plan in the same manner the coverage would have been maintained if the employee had never left on leave.

California's Anti-Discrimination Laws are Broadened to Expressly Prohibit Discrimination Based on "Gender Identity" and "Gender Expression" (AB 887)

Various California laws have long outlawed discrimination based on a person's "sex," a term of art that includes a person's "gender." For example, the FEHA prohibits an employer from discriminating against an employee in the terms, conditions or privileges of employment based on that employee's "sex." (Gov. Code, § 12940, subd. (a).) In turn, the FEHA defines the term "sex" to include "pregnancy, childbirth" or "gender." (Gov. Code, § 12926, subd. (p).) But the FEHA, and other anti-discrimination laws, have often left employers and others wondering what it means to discriminate against someone based on their "gender." Recently, the California Legislature enacted AB 887, which makes broad across-the-board amendments to several California statutes, including FEHA, to address "gender" discrimination.

AB 887 provides that "gender" includes a "person's gender identity and gender expression." Further, "gender expression" means a "persons gender-related appearance and behavior whether or not stereotypically associated with the person's assigned sex at birth." Although AB 887 does not define the term "gender identity," legislative history reveals that the term "refers to a person's deeply felt internal sense of being male or female." (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 887 (2010-2011 Reg. Sess.) Aug. 17, 2011, p. 3.)

Thus, various California laws, including the FEHA, will now expressly prohibit discrimination based on a person's "gender identity" and "gender expression." With these express prohibitions, AB 887 hopes to curtail discrimination against "transgender" individuals. (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 887 (2010-2011 Reg. Sess.) Aug. 17, 2011, p. 4.)

Of additional note to employers, AB 887 also amends Government Code section 12949 to require an employer to allow an employee "to appear or dress consistently with the employee's gender identity or gender expression."

Medical Debts Exempt from Wage Garnishment (AB 1388)

Under existing law, an employer must withhold from an employee's wages the amount stated on an earnings withholding order, up to the portion of the earnings the employee proves is necessary to support himself or his family. The newly passed law adds an exemption from wage garnishment for debt that is incurred "for the common necessaries of life furnished to the judgment debtor" or his or her family, including, e.g., hospital services and other medical debts.

Increased Potential Liability for Minimum Wage Violations (AB 240)

AB 240 amends Labor Code section 98 to permit the Labor Commissioner to award employees liquidated damages in an administrative complaint for failure to pay minimum wage. The amount of liquidated damages is equal to the amount of unpaid wages, so a successful employee would essentially recover double the wages owed.

Prior to the passage of this bill, California workers could either file a civil action to recover unpaid wages, or they could file an administrative complaint with the Labor Commissioner. But liquidated damages were available only if the case was brought in court, as the Labor Commissioner only had the authority to recover wages, penalties, and other demands for compensation.

Employment Acceleration Act Prevents State and Local Government from Requiring Employers to Use E-Verify Program (AB 1236)

Although more and more states and municipalities have begun mandating the use of E-Verify, a program operated by the Department of Homeland and Social Security Administration to verify whether employees are eligible to work in the United States, California has taken a different approach, recently passing a law prohibiting state and local governments from requiring private employers to use E-Verify. AB 1236 adds sections 2811-2813 to the Labor Code. The new law specifies that neither the state nor any city, county, or special district may mandate the use of any electronic employment verification system by private employers, including as a condition receiving a government contract or obtaining a business license.

NLRB Notice Requirements

The National Labor Relations Board ("NLRB") has issued a Final Rule requiring most private sector employers to notify employees of their rights under the National Relations Act by posting a notice. Employers must also provide a link to the notice from their internal or external website if they routinely use the site to inform employees of personnel rules or policies. Copies of the 11-by-17-inch notice are available on the NLRB website in multiple languages at http://www.nlrb.gov/poster, and may also be ordered by mail by filling out a form at the web address. Employers should begin posting the notice on or before January 31, 2012.

The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances.