
Special Alert: California Amends Recently-Enacted Paid Sick Leave Law, Effective Immediately Jul 14, 2015 Related Attorneys Expertise Practice Areas Employment Paid Sick Leave Amendments Take Effect Immediately (AB 304) 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 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 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 some combination. As amended by AB 304, section 246 now specifies 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 being 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 an employer 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, but 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 day 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.
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Paid Sick Leave Amendments Take Effect Immediately (AB 304)

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 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 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 some combination. As amended by AB 304, section 246 now specifies 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 being 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 an employer 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, but 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 day 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.

Special Alert: California Amends Recently-Enacted Paid Sick Leave Law, Effective Immediately

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