LEGISLATIVE SUMMARY
California’s 2015 legislative session concluded on October 11, 2015, with the usual flurry of activity, including Governor Jerry Brown signing and vetoing various employment-related bills. And, not surprisingly, California employers once again face a number of new laws to contend with in 2016 (and in some cases earlier), including laws that:
Notably, Governor Brown also signed a law providing a “cure” period against PAGA representative actions for certain technical wage statement violations (AB 1506), and a temporary affirmative defense for rest/recovery period and non-productive time violations involving employees paid on a piece-rate basis (AB 1513).
There were also bills that did not survive but may reemerge in future sessions. The most notable of these was SB 3 which would have increased California’s minimum wage to $11 an hour in January 2016 (rather than the currently scheduled increase to $10 an hour), to $13 by July 2017, and with annual inflation-based increases beginning in 2019. Governor Brown also vetoed bills that would have materially expanded California’s Family Rights Act (SB 406), invalidated most employment arbitration agreements (AB 465), limited employer inquiries about salary history during the hiring process (AB 1017), prohibited job advertisements from dissuading the unemployed from applying (AB 676) and created a new group of employees (public sector employees) protected from discrimination (AB 883).
Listed below are the new laws scheduled to take effect on January 1, 2016 (except where otherwise indicated), followed by a brief overview of some laws that failed passage in 2015 but may reemerge in future sessions:
NEWLY ENACTED LAWS
Amendments to California’s Equal Pay Act (SB 358)
Echoing the Paycheck Fairness Act (S. 84) pending at the federal level, this new law amends California’s Equal Pay Act to target gender-based wage gaps, including by incorporating many provisions proposed in the federal version.
For instance, Labor Code section 1197.5 presently prohibits employers from paying less to members of the opposite sex who perform equal work in the same establishment. This law eliminates the “same establishment” requirement, and revises the “equal work” requirement to instead prohibit paying less for “substantially similar work, when viewed as a composite of skill, effort and responsibility” performed under similar working conditions. The law’s author indicates this change is intended to reflect the fact it is difficult to demonstrate any two positions are completely equal “in the modern, highly differentiated workplace.”
It also amends the statutorily-enumerated exceptions in section 1197.5, which presently are a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex. Specifically, the new law retains the first three exceptions, but significantly revises the “bona fide factor other than sex” exception to require the employer prove a wage-differential is not based on or derived from a sex-based differential and is consistent with a “business necessity,” such as a difference in education, training or experience that is job-related with the position in question. It also specifies that “business necessity” means “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purposes it is supposed to serve.” However, it also provides that this defense shall not apply if the employee demonstrates that an alternative employment practice exists that would serve the same business purpose without producing the wage differential.
In addition to demonstrating at least one of those factors, the employer must also satisfy two new criteria: (a) that each factor relied upon is applied reasonably; and (b) the one or more factors relied upon accounts for the entire wage difference. While the law’s author contends the current law implicitly requires the employer to prove a wage differential is justified rather than an employee having to prove a wage differential is unjustified, it clarifies the burden of proof is on the employer to demonstrate the existence of legitimate factors, other than the sex of the employee, for any wage disparity.
This law also amends section 1197.5(d) to expand from two years to three years an employer’s obligation to retain records of the wages and wage rates, job classifications and other terms and conditions of employment for employees.
It also adds new subsection (j) to prohibit employers from discharging, or in any way discriminating or retaliating against, any employee who takes action to invoke or assist in any manner the enforcement of California’s Equal Pay Act. Under this new subsection, employers may not prohibit an employee from discussing the employee’s own wages, discussing the wages of others, or inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under this section.
It also extends the existing enforcement mechanisms for wage discrimination to claims for retaliation and provides a one-year statute of limitations for retaliation claims. In addition to Labor Commissioner enforcement, this law also authorizes an employee who has been discharged, discriminated or retaliated against to pursue a civil action for reinstatement and reimbursement of lost wages, and would require that such civil actions be commenced no later than one year after the cause of action accrues.
California’s Paid Sick Leave Amendments Took Effect in July 2015
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 hardly got a chance to rest since on July 13, 2015, Governor Jerry Brown signed “urgency” legislation (AB 304) that was 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. This industry-specific amendment apparently 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.
Amendments to the Family-School Partnership Act and to Kin Care Leave (SB 579)
This law expands the reasons for which an employee may take job-protected leave under the Family School Partnership Act, currently codified at Labor Code section 230.8. Section 230.8 previously required employers with 25 or more employees to allow employees to use up to 40 hours of unpaid time (limited to eight hours in any calendar month) to participate in school or childcare related activities. This law expands this provision to also allow employees to take job-protected time off to find, enroll or reenroll their children in a school or with a licensed child care provider.
More significantly, it will also allow employees to take time off to address a “child care provider or school emergency.” New subsection (e) would define this as meaning a child cannot remain in a school or with a child care provider due to one of the following: (1) the school or child care provider has requested the child be picked up, or it has an attendance policy (excluding planned holidays) that prohibits the child from attending or requires the child be picked up; (2) behavioral or discipline problems; (3) closure or unexpected unavailability of the school or child care provider, excluding planned holidays; or (4) a natural disaster, including but not limited to, fire, earthquake or flood.
While section 230.8 presently provides such job-protected leave to parents, guardians and grandparents, this law re-defines “parent” in new subsection (e)(1) to extend these protections to stepparents, foster parents or an employee who stands in loco parentis to a child.
This law also amends California’s “kin care” provision (Labor Code section 233), which requires employers to allow employees to use one-half of their accrued sick leave to care for a “family member” (as defined), to permit an employee to use sick leave for the purposes specified in the Paid Sick Leave law (Labor Code section 245 et seq.). In other words, rather than attempting to copy over a number of the Paid Sick Leave law’s provisions and definitions into the kin care law, this much simpler approach modifies the kin care law to specify that its definition of “family member” and grounds for sick leave is consistent with the Paid Sick Leave law. This means that employees will be able to use kin-care leave for the illness or preventative care for a child, parent, spouse, registered domestic partner, grandparent, grandchild or sibling.
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 previously 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.4th 635; Nealy v. City of Santa Ana (2015) 234 Cal.App.4th 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.
Retaliation Protections for Family Members (AB 1509)
While California law presently prohibits retaliation against employees who engage in protected legal activities (i.e., filing a wage-related complaint), this new law extends these protections to address several perceived gaps in coverage, particularly for low wage earners. For instance, to address the situation where multiple family members work for the same employer, it will prohibit an employer or a person acting on their behalf from retaliating against an employee because they are a family member of someone who has engaged in or was perceived to have engaged in protected activity.
Another cited concern involves retaliation in the temporary staffing context or in the construction/contractor context, where the entity ordering the alleged retaliation is not the direct employer (e.g., the general contractor ordering the subcontractor to dismiss a complaining employee). Accordingly, the new law provides that “employer” or “person acting on their behalf” includes “client employers” or a “controlling employer” (as defined in the Wage Theft Prevention Act [Labor Code section 2810.3]) and in Labor Code section 6400(b) regarding multi-employer worksite obligations to provide a safe place of employment.
These specific changes will be made to the following Labor Code provisions regarding whistle-blowing: (1) Labor Code section 98.6 (regarding complaints made to the Labor Commissioner); (2) Labor Code section 1102.5 (regarding internal and external complaints made about legal violations); and (3) Labor Code section 6310 (regarding complaints made about unsafe working conditions).
For purposes of the amendments to section 98.6 relating to Labor Commissioner complaints, it also specifies that it would not apply to claims arising under Labor Code section 96(k), which prohibits employers from retaliating against employees who engage in lawful off-duty conduct, unless the activity involved the exercise of employee rights otherwise covered by section 98(a).
Lastly, this law makes a minor amendment to a bill enacted in 2014 (AB 1897) that had made “client employers” jointly liable with labor contractors for the failure to pay wages or to obtain valid workers’ compensation services. Specifically, it amends newly added Labor Code section 2810.3 to clarify that “household goods carriers” (as defined) enjoy the same exemption from joint liability as afforded to “motor carriers” (as defined).
Limited “Cure Period” for Wage Statement Violations Immediately Effective (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 to 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 law amends PAGA to provide a limited ability to cure certain wage statement violations before a PAGA civil action may be filed. Specifically, it allows 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, it 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.
This law contains an urgency provision and is immediately effective.
Clarifications Regarding Piece Rate Compensation and Potential Affirmative Defense for Prior Violations (AB 1513)
While there is generally no dispute that rest periods are hours worked for which employees must be paid, several recent California court decisions have addressed disputes about the exact nature of such compensation for employees paid on a piece rate basis, particularly regarding calculating compensation for rest periods and other so-called “non-productive” work time. (See e.g., Gonzalez v. Downtown LA Motors LP (2013) 215 Cal.App.4th 36 [automobile service technicians paid on piece rate basis entitled to at least minimum hourly wage for time spent waiting between piece-rate repair work]; Bluford v. Safeway, Inc. (2013) 216 Cal.App.4th 846 [piece rate compensation paid to drivers could not be “averaged” over non-piece rate (or rest break) time, and rest period compensation could not be simply considered part of mileage rate].) Responding to concerns that these decisions might create a new round of class action litigation, this law identifies the prospective pay requirements for rest/recovery breaks and non-productive time for piece rate employees, and allows employers to o
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