LEGISLATIVE SUMMARY

The California Legislature was very active in July, as the elected representatives scrambled to ensure bills passed key committee votes before the July 17^th deadline to do so, and before the summer legislative recess commenced.  In fact, the California Legislature passed and Governor Jerry Brown has already signed into law several employment bills, including new laws that:

• Amend California’s Paid Sick Leave law in many respects, including as to accrual methods, pre-existing paid time off plans, and calculating the pay rate for sick time (AB 304);
• Amend California’s Fair Employment and Housing Act to extend retaliation protections to employees that request religious or disability accommodations (AB 987); and
• Provide that cheerleaders are employees of sports teams (AB 202) and impose new post-merger hiring requirements in the grocery industry (AB 359).

Not unexpectedly, a number of other bills survived this legislative hurdle, including bills that would:

• Increase California’s minimum wage to $11.00 per hour in January 2016 (rather than to $10.00 as currently scheduled), and to $13.00 per hour by 2017 (SB 3);
• Target gender-based wage differentials, including by preventing employers from obtaining or releasing salary history information (AB 1017 and SB 358);
• Expand the California Family Rights Act to apply to employers with more than 25 employees (instead of 50) and expand the class of family members for whom leave may be taken because of a serious health condition (SB 406);
• Allow employees to take time-off for “childcare or school emergencies” (SB 579);
• Provide new enforcement powers to the Labor Commissioner for wage and hour violations (AB 970 and SB 588)
• Prohibit advertisements discouraging the unemployed or public employees from applying (AB 676 and AB 883); and
• Preclude employers from requiring that employees agree to arbitration as a condition of employment (AB 465).

The Legislature will address these and other bills after it reconvenes on August 17^th, and given its current composition, many of these bills are likely to pass their remaining respective chambers by the September 11^th deadline to do so.  Those bills that pass the Legislature will be forwarded to Governor Jerry Brown for signature or veto by October 11, 2015.

Lastly, while most employment-related bills passed, there were several bills that did not, including bills that would have allowed private employers to provide a hiring preference to veterans (AB 1383), and that would have expanded workplace prohibitions on smoking to electronic cigarettes (SB 140).

Listed below, are the new laws that have already been enacted, followed by an overview (largely by subject matter), of the key employment bills of potential general application that remain pending.

NEW LAWS

California’s Paid Sick Leave Amendments Effective Immediately

California’s Healthy Workplaces, Healthy Families Act of 2014 (Healthy Families Act—AB 1522, codified at Labor Code sections 245 to 249) took effect July 1, 2015, making California the second state to require employers to provide paid sick leave to employees.   Human resource professionals will hardly get a chance to rest since on July 13, 2015, Governor Jerry Brown signed “urgency” legislation (AB 304) that is immediately effective and amends many Paid Sick Leave-related provisions.   These amendments are as follows:

Narrow Exemptions Modified, Including for CalPERS Retired Annuitants

One of the more significant features of the Healthy Families Act is its scope in that it applies to all employers, regardless of size, and that it applies to almost every “employee” except for the four specifically-enumerated exceptions to the definition of employee contained in Labor Code section 245.5(a)(1)-(4) (e.g., CBA-covered employees, CBA-covered construction employees, in-home support service workers, and flight crew employees covered by the Federal Railway Labor Act).

AB 304 creates a fifth exception (Labor Code section 245.5(a)(5)) for certain public sector employees who are a recipient of a retirement allowance and employed without reinstatement into his or her respective retirement system.   The Senate’s Committee analyses suggest this change is needed because CalPERS retired annuitants are prohibited from receiving compensation other than their pay, so this amendment would allow such retired annuitants to return to work while still receiving their pension annuity.

AB 304 also amends the exemption for construction industry employees covered by a CBA (Labor Code section 245.5(a)(2)) to remove the “onsite work” referenced in the initial definition of “employee in the construction industry.”  This change is intended to clarify that “employees in the construction industry” for purposes of this exemption means an employee performing work.

A bill (AB 11) that would have removed the exemption for in-home support service workers (Labor Code section 245.5(a)(3)) stalled in 2015 but may resurface in 2016.

“Same Employer” Requirement

While Labor Code section 246(a) initially provided that an employee need only work thirty  (30) or more days in California to be eligible, it did not specify whether this work must be performed for the same employer, or perhaps for prior employers, or a combination of employers.   AB 304 amends section 246 to specify the employee must work 30 or more days “for the same employer” to be eligible.

Alternative Accrual Methods

As originally enacted, the Healthy Families Act required a fairly rigid accrual method that did not necessarily correspond with the accrual methods employers used for providing paid sick leave in their pre-existing policies.  Specifically, the Healthy Families Act required non-exempt employees to accrue paid sick leave at the rate of one hour for every thirty hours worked, even though employers might have used another rate or an alternative method (i.e., per pay period rather than hours).  In response to these concerns, AB 304 amends Labor Code section 246(b) to enumerate two additional accrual methods.

First, under new subsection (b)(3), an employer may utilize a different accrual method provided the accrual is on a regular basis so that the employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment, or each calendar year, or each 12-month basis.

Alternatively, new subsection (b)(4) states an employer may satisfy the accrual requirements by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by completion of his or her 120th calendar day of employment.  As a practical matter, this second new option means employers will not need to track hours worked for accrual purposes if they simply provide the statutorily-required minimum paid sick leave (24 hours/3 days) by the end of the fourth month of employment.

Front-Loaded Policy Clarifications

Labor Code section 246(d) initially provided that no accrual or carryover is required if the employer provides the full amount of leave at the “beginning of each year,” but it did not specify how “each year” is determined nor did it contain the language in other subsections allowing an employer to use a “calendar year, year of employment or 12-month basis.”  AB 304 cures this discrepancy and specifies that no accrual or carryover is required if the employer provides the full amount of leave “at the beginning of each calendar year, year of employment or 12-month basis.”  It also specifies that “full amount of leave” means three days or 24 hours.

Grandfather Provision for Pre-2015 PTO Plans

In response to employer concerns the new paid sick leave mandate would negatively impact pre-existing paid time off (PTO) plans, the Healthy Families Act initially created section 246(e) to state employers would not need to provide additional sick leave if their PTO plans allowed paid time off on the same conditions and for the same purposes as AB 1522 and met one of two specific conditions.  As initially enacted, the PTO plan either: (1) had to satisfy the accrual, carry-over and use requirements of section 246; or (2) it had to provide no less than 24 hours or three days of paid sick leave or PTO for each year of employment, calendar year or 12-month basis.  Notably, this second basis was silent as to when during the 12-month period the PTO needed to be provided, and AB 304’s initial proposal that the entire 24 hours of PTO had to be provided at “at the beginning” of each year (however defined) generated considerable protests this would require many employers to modify pre-existing PTO policies.

AB 304 retains the first exception for PTO plans (i.e., those satisfying the accrual, carry over and use requirements of section 246) but substantially modifies the second exception, including providing a “grandfather” provision of sorts for PTO plans existing prior to January 1, 2015.  As amended, section 246(e)(2) approves PTO policies that provided paid time off to “a class of employees” before January 1, 2015 under an accrual method other than the one hour for 30 hours worked if the accrual is on a regular basis such that the employee (including employees hired into the class after January 1, 2015) has no less than one day/8 hours of accrued time off within three months of employment of each calendar year or each 12-month period, and the employee is eligible to earn at least three days/24 hours of paid time off within nine months of employment.  However, this new subsection also provides that if the employer subsequently modifies the pre-January 1, 2015 PTO policy, the modified policy must comply with any of the four accrual methods in subsection (b) or provide the full amount of PTO at the beginning of each year of employment, calendar year, or 12-month period.  It also states that this section will not prohibit the employer from increasing the accrual amount or rate for a class of employees covered by this section.

As a practical matter, this new subsection means employers with PTO policies prior to January 1, 2015 need not ensure the entire amount of statutorily-required paid time off be provided “at the beginning” of each year provided the grandfathered PTO plan meets the newly-identified requirements (eight hours by 90 days, and 24 hours by nine months), but once any changes are made to the grandfathered PTO plans, they must either satisfy an alternative accrual method or provide the entire PTO amount “at the beginning” of each year.

Reinstating Sick Leave for Returning Employees

As initially enacted, Labor Code section 246(f)(2) stated an employer need not pay out unused sick time upon separation but must reinstate any prior balances if rehired within one year.  In response to questions of whether reinstatement would be required if the previously accrued balance had been paid regardless, AB 304 clarifies an employer need not reinstate accrued sick leave that was previously paid out upon cessation of employment.

Since section 246(f)(2) initially stated that rehired employees would be entitled to use previously accrued paid sick days and to begin accruing additional sick time, it was ambiguous whether a rehired employee could begin using the previously accrued hours even if they had already exceeded the usage or accrual limits. AB 304 amends this subsection to clarify that a reinstated employee’s rights are “subject to the use and accrual limitations” of section 246.  As a practical matter, this means the employee would still have to satisfy any remaining portion of the 90-day employment period before usage, and could not exceed the usage (24 hours) or accrual amounts (48 hours) for the year in which the employee (provided the employer has a written policy establishing such usage and accrual limits).

Notice Requirements for “Unlimited” Time-Off Policies

Labor Code section 246(h) requires employers to provide written notice to employees of available paid sick leave balances, either through the itemized wage statements required under Labor Code section 226 or a separate writing provided on the designated pay date.  Responding to employer concerns about how to track balances and provide these notices if the employer provides “unlimited” paid sick time, AB 304 specifies such employers may satisfy this notice obligation by indicating “unlimited” on the notice or wage statement.

Pay-Stub Notices Delayed for Motion Picture and Broadcasting Industries

For employers covered by Wage Orders 11 and 12 of the Industrial Welfare Commission (i.e., motion picture and broadcasting industries), AB 304 delays the requirement to provide wage statements or other written notices identifying sick leave balances until January 21, 2016.  AB 304’s legislative history indicates this industry-specific amendment is needed because employers in these industries commonly use different third-party payroll companies for each production.

Calculating Pay Rates

The Healthy Families Act initially stated that paid sick leave shall be paid at the employee’s hourly wage, but then articulated a very confusing formula for determining this rate if the employee has received different hourly rates in the preceding 90 days before paid sick leave is used.  Somewhat helpfully, AB 304 substantially amends Labor Code section 246(k) to delete this formula, and identifies guidelines for paying paid sick leave, including distinguishing between exempt and non-exempt employees.

As amended, paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.

For non-exempt employees, the employer may choose between two options.  First, the employer may calculate paid sick leave in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, regardless of whether the employees actually works overtime in that workweek.  Alternatively, the employer may calculate paid sick leave by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

A Duty to Maintain Records, but No Duty to Inquire

Section 247.5 requires employers to maintain for at least three years records documenting the hours worked and paid sick leave days accrued and used by the employee.  In response to employer concerns this might require employers to inquire about whether a PTO-related absence is due to sickness (as opposed to any other purpose), thus undercutting an administrative benefit of PTO plans, AB 304 adds language providing that an employer is not obligated to inquire into or record the purpose for which an employee uses paid leave or paid time off.

Paid Sick Leave Provisions are Severable

Perhaps anticipating legal challenges to the Healthy Families Act, or learning from the drafter’s mistake in not including a so-called “severability” provision in the Affordable Care Act, AB 304 adds language specifying the Healthy Families Act’s provisions are severable, such that if any are deemed invalid they will not affect the other provisions.

Accommodation Requests Constitute Protected Legal Activity for Retaliation Purposes (AB 987)

California’s Fair Employment and Housing Act (FEHA, Gov. Code section 12940 et seq.) prohibits harassment and discrimination based on various protected classifications, and prohibits retaliation against employees who protest or oppose such unlawful employment practices.  The FEHA also requires employers to reasonably accommodate an employee’s medical condition or religious beliefs.  However, it had been unclear whether an individual who requests such accommodation may state a FEHA retaliation claim in addition to a failure to accommodate claim based upon such requests.

Several recent California appellate court decisions had held an accommodation request does not constitute a “protected legal activity” for FEHA retaliation purposes, reasoning that treating accommodation requests as protected legal activities would blur the distinctions between two conceptually different FEHA theories of recovery.  (See e.g., Rope v. Auto-Chlor Sys. of Washington, Inc. (2013) 220 Cal.App.4^th 635; Nealy v. City of Santa Ana (2015) 234 Cal.App.4^th 359.)  This new law responds to these cases and amends the FEHA to prohibit an employer or covered entity from retaliating or otherwise discriminating against a person for requesting accommodation for a disability or religious beliefs, regardless of whether the accommodation request was granted.

Cheerleaders to be Considered Employees of Professional Sports Teams (AB 202)

There have recently been several high-profile wage and hour class actions filed by cheerleaders or dance teams of professional sports franchises.  This new law adds Labor Code section 2754 to provide that for purposes of state law governing employment, including the Labor Code, the Unemployment Insurance Code and the FEHA, a cheerleader utilized by a California-based professional sports team, directly or through a labor contractor, will be deemed an employee.  The professional sports team will also be required to ensure the cheerleader is classified and treated as an employee, thus preventing them from being treated as independent contractors.

For purposes of this new law, “cheerleader” is defined as “an individual who performs acrobatics, dance, or gymnastic exercises on a recurring basis, but will not include individuals utilized no more than one time in a calendar year.”  “Professional sports teams” is defined as teams at either a minor or major league level for baseball, basketball, football, ice hockey or soccer.

New “Change of Control” Requirements for Grocery Workers (AB 359)

This industry-specific bill implements a number of new requirements upon the sale of “grocery establishments” (as defined).  Among other things, it requires that upon a “change in control” (as defined), the incumbent grocery employer shall prepare a list of specified eligible grocery workers for the successor grocery employer, and requires the successor hire from this list during a 90-day transition period.  The successor grocery employer will also be required to retain eligible grocery workers for a 90-day period, during which they could not be discharged without cause, and upon the close of that period, the successor grocery employer must consider offering continued employment to those workers.

PENDING BILLS

Additional Minimum Wage Increase (SB 3)

Even though California’s minimum wage is already scheduled to increase to $10.00 per hour on January 1, 2016, SB 3 proposes several additional increases.  Specifically, California’s minimum wage would increase to $11.00 per hour on January 1, 2016, and to $13.00 per hour on July 1, 2017.  After January 1, 2019, the minimum wage would also be annually adjusted based on the California Consumer Price Index (CPI) and rounded to the nearest five cents.  This bill also provides that it would not preclude the Industrial Welfare Commission (IWC) from increasing the minimum wage beyond that required by the CPI formula, but would preclude the IWC from adjusting it downwards even if the CPI was negative for the preceding year.

Status:  SB 3 passed the Senate along a party-line vote, and passed the Assembly’s Labor and Employment Committee along a similar party-line vote, and will soon be heard by the Assembly’s Appropriations Committee.  While California overwhelmingly approved a two-step minimum wage increase in 2013 (AB 10), that increase had specifically omitted annual CPI-based increases, and a very similar bill to SB 3 (SB 935) stalled last year.

Arbitration Agreements Targeted (AB 465)

This bill would create a new Labor Code section (section 925) to provide that any waiver of rights, penalties, remedies, forums and procedures established by the Labor Code, including the right to file a claim with the Labor Commissioner or a civil action in court, may not be required as a condition of employment.  It would also preclude the waiver of any rights that cannot be waived under state or federal law, and require that any waiver be knowing and voluntary, in writing, and expressly not made as a condition of employment.  It would also require the party seeking to enforce the waiver to prove that it was made voluntarily and knowingly and not as a condition of employment.  Otherwise, any such waiver will be deemed involuntary, unconscionable, against public policy and unenforceable.

It would further prohibit employers from threatening, retaliating or discriminating against any person who refuses to waive such rights, and, in addition to any other legal remedy, would impose a civil penalty of up to $10,000 per each individual for each violation of this section, plus reasonable attorney’s fees.

This bill would apply to any such waivers, including private arbitration agreements, entered into, altered, modified, renewed or extended on or after January 1, 2016.

Status:  This bill narrowly passed the Assembly despite bi-partisan opposition, and recently passed the Senate’s Labor and Industrial Relations Committee and is pending in the Senate’s Appropriations Committee.  Although loosely modeled on a similar bill that was enacted last year (AB 2617 [imposing limits on contractual waivers regarding the Unruh Act]), even if enacted, AB 465 will almost certain face judicial challenge on the grounds is preempted by the Federal Arbitration Act.

Limited “Cure Period” for Wage Statement Violations (AB 1506)

California’s Private Attorneys General Act of 2004 (PAGA, Labor Code section 2699 et seq.) authorizes employees to file civil actions against employers for Labor Code violations to recover civil penalties otherwise assessed or collected by the Labor and Workforce Development Agency.  PAGA specifically enumerates Labor Code violations for which the employer is afforded an opportunity to cure a violation before suit may be filed, and also enumerates Labor Code violations for which no cure period exists.  One provision for which no cure period is currently allowed is Labor Code section 226, which requires employers provide an itemized wage statement containing nine specifically-enumerated items, including gross wages earned, employee name, etc.

Responding to employer concerns of frivolous class actions based on hyper-technical violations (i.e., an employer’s name was misspelled) that caused no actual injury to an employee, this bill would amend PAGA to provide a limited ability to cure certain wage statement violations before a PAGA civil action may be filed.  Specifically, this bill would allow an employer 33 days to cure any alleged violation of wage statement requirements concerning “the inclusive dates of the period for which the employee is paid” or “the name and address of the legal entity that is the employer.”  (Labor Code sections 226(a)(6) and (8) respectively).  However, the bill specifies that “cure” means that the employer must issue fully compliant wage statements to employees for the entire statutory period (three years), and it limits an employer’s ability to cure these pay statement violations to one time in a 12-month period.

A similar but broader bill (AB 558) that would have amended PAGA to provide a cure period for any wage statement violations stalled in committee.

Status:  This narrower version of AB 558 has passed the Assembly and the Senate’s Judiciary Committee, and is pending in the Senate’s Appropriations Committee.  It appears to have considerable bi-partisan support and likely will pass the Senate and be forwarded to Governor Brown for signature or veto.

Labor Commissioner Judgment Enforcement (SB 588)

Citing a concern that employees are often unable to collect upon judgments for unpaid wages, this bill would provide the Labor Commissioner a number of additional mechanisms to enforce judgments.  For instance, it would enable the Labor Commissioner, on behalf of an aggrieved employee, to file a levy against any credits, money or other property of an employer to collect on a judgment for unpaid wages.  As another example, if an employer failed to satisfy a judgment within 20 days of receiving a notice of levy, the employer may be required to cease business operations in California or obtain a surety bond of $150,000.  Third, businesses that contract for certain “property services” may be jointly and severally liable for the wage violations of the service contractor, so long as the business was named in the underlying complaint.

The bill’s author states that it materially differs in several respects from two bills (AB 1164 and 2416) that also proposed wage enforcement measures but stalled in 2013 and 2014.  First, according to the author, while those earlier bills would have permitted pre-judgment liens (i.e., an ability to tie up an employer’s assess before any finding of wrongdoing), this bill authorizes a levy or lien only after a judgment has been rendered against the employer.  Second, while the earlier bills proposed a lien against the real or personal property of an offending employer, this bill only authorizes a levy against the employer’s credit, money or related property (other than real property).  (Even under the current version (SB 588) a lien can be obtained against real property but only after the employer fails to satisfy a notice of judgment and continues to operate without complying with the surety bond requirement).  Third, while the earlier bills would have authorized the employees to directly file a lien, this bill vests that ability in the Labor Commissioner acting on behalf of the employees.

In light of these changes, SB 588 does not appear to face the significant opposition that ultimately defeated AB 1164 and AB 2416, although there may be additional amendments forthcoming to address concerns SB 588 imposes personal liability upon managers lacking authority to direct wage violations or that the surety bond requirement is too high.

Status:  This bill passed the Senate on a party-line vote, and has similarly passed the Assembly’s Labor and Employment and Judiciary Committees on party-line votes.  It is presently pending in the Assembly’s Appropriations Committee.

Expanded Labor Commissioner Enforcement Powers (AB 970)

This bill would amend several Labor Code provisions to expand the citation authority of the Labor Commissioner.  For instance, while Labor Code section 558 presently authorizes the Labor Commissioner to investigate Labor Code or Industrial Welfare Commission (IWC) orders regarding wages, this bill would also authorize the Labor Commissioner to issue a citation for violations of applicable “local” overtime laws.  Similarly, it would amend Labor Code sections 1197 and 1197.1, which presently authorize the Labor Commissioner to investigate violations of the minimum wage set by the IWC to issue a citation for violations of any state or local minimum wage laws.

This bill would also amend Labor Code section 2802 to authorize the Labor Commissioner to issue citations and penalties against employers who fail to properly indemnify employees for expenses incurred in employment.  The bill’s author indicates the amendment to section 2802 is intended to address concerns employers are improperly deducting charges for tools or equipment necessary to perform the job, but the amendments are worded more broadly to any violation of section 2802.

In each instance, the Labor Commissioner may cite the employer if the local agency has not done so, and if the Labor Commis