In 2014 California enacted the Healthy Workplaces, Healthy Families Act of 2014 (Healthy Families Act—AB 1522, codified at Labor Code sections 245 to 249), requiring employers to provide paid sick leave (PSL) to employees.  While certain posting and notice requirements took effect January 1, 2015, the remainder of the PSL provisions will take effect on July 1, 2015.  The following will provide an overview of the PSL provisions, including identifying those taking effect on July 1st, providing a checklist for employers, and identifying other resources for employers to comply with the new law.

Please note, there are several currently-pending employment bills in California (e.g., AB 304, SB 3 and SB 579) that may further impact this new law and an employer’s obligations, including one (AB 304) that is proceeding on an “urgency basis,” meaning it may take effect concurrently with the other paid sick leave requirements on July 1, 2015.  As discussed throughout, AB 304 would materially amend the Healthy Families Act provisions, including regarding accrual, paid time off plans, the pay rate for sick leave, as well as notices for employers using “unlimited” time off policies.  Because AB 304’s amendments may so materially amend provisions that have not yet even taken effect and do so very close in time with the current July 1st effective date, this report will highlight these proposed amendments in depth, but employers should continue to monitor further additional changes before any bill’s enactment. (As of June 18, 2015, AB 304 remains pending in the Assembly and must obtain a two-thirds supermajority vote in both legislative chambers to be enacted on an urgency basis, including by July 1, 2015.  The full text of AB 304 is available on the California Legislature’s website at www.leginfo.ca.gov.)

Several municipalities (San Francisco and Oakland) have also enacted their own PSL laws, and several others (San Diego and Los Angeles) are considering additional laws, so employers may need to evaluate these municipal-level ordinances as well.  This report will identify below some of the potential changes proposed by currently pending bills and it will provide a quick overview of the San Francisco and Oakland ordinances, but employers are encouraged to continue to monitor these developments as the PSL requirements throughout California continue to develop.

Additionally, the Department of Labor Standards Enforcement (DLSE) has issued a considerable amount of material regarding this new law, including Frequently Asked Questions (FAQs) wage theft prevention act notice and poster templates, as well as a webinar on the new law.  All of these resources can be found at:  http://www.dir.ca.gov/dlse/ab1522.html.  Since the DLSE has not always publicized that these materials are available (or that it has even revised its FAQs), employers should periodically check the DLSE’s website for the latest updates.

Finally, because of the numerous detailed provisions contained in this new law, this report will not cover every aspect of it, but is intended to provide a general overview.  The full text of AB 1522, as enacted in 2014, is available at http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_1501-1550/ab_1522_bill_20140910_chaptered.html.  This update is also not intended to provide legal advice, so employers are encouraged to contact their counsel with any specific questions.

The Healthy Families Act Applies Broadly and to Almost Everyone

The Healthy Families Act applies to almost all employers, including private, public, state and municipal employers.  In other words, unlike most other leave laws in California, employers do not have to have a minimum number of employees and there is no “small employer” exemption.

It also applies to nearly all California employees who meet the eligibility requirements (discussed below), including exempt and non-exempt employees, and part-time and temporary employees.  The only employees exempted from the law are those identified in Labor Code section 245.5(a)(1)-(4), which, simply summarized, are employees covered by collective bargaining agreements (CBAs) containing specifically-enumerated provisions, in-home support services employees, and certain flight crew employees covered under the Railway Labor Act.

While the CBA-exemption for construction employees has slightly different requirements (see Labor Code section 245.5(a)(2)), the more general CBA-exemption excludes employees covered by a CBA that expressly provides for the wages, hours of work, and working conditions of employees, as well as for paid sick days (with final and binding arbitration for any disputes concerning paid sick days), premium wage rates for all overtime and a regular hourly rate of not less than 30 percent more than the state minimum wage.  This last provision would require an hourly rate of $11.70 based on the current minimum wage of $9.00, and will increase to $13.00 on January 1, 2016 when the California minimum wage increases to $10.00.

Note on Pending Bills:  Currently pending SB 3 would increase California’s minimum wage to $11.00 on January 1, 2016, and to $13.00 on July 1, 2017, with annual increases beginning in January 2019 based upon the consumer-price index.  If SB 3 is enacted, CBA-covered employees would need to receive a regular hourly rate of $14.30 on January 1, 2016 to be exempt from the Healthy Families Act.

Eligibility and Accrual Rules

At the outset, it should be noted that the Healthy Families Act is intended only to create minimum requirements regarding PSL, so employers retain the ability to use more favorable policies provided they otherwise comply the Healthy Families Act, including as to when leave may be taken and for what purposes.

To be eligible for PSL, employees need only work in California thirty (30) or more days within a year from the commencement of employment, although as discussed below, they cannot begin using accrued PSL until they have worked 90 days for an employer.

Note on Pending Bill:  While Labor Code section 246 does not presently require the employee to have worked for the same employer for thirty days, AB 304 would amend this section to include a “same employer” requirement.

Eligible employees may accrue PSL under several different methods depending on which method the employer elects.

The Statutory Default Method

Unless the employer utilizes a different method, employees will accrue PSL under Labor Code section 246(b)(1) at the rate of not less than one (1) hour for every thirty (30) hours worked, beginning on the later of July 1, 2015 (the operative date of the Paid Sick Leave law), or the commencement of employment.   For accrual purposes, employees exempt from overtime shall be deemed to work forty (40) hours per week, unless the employee’s normal workweek is less than forty (40) hours, in which case the employee shall accrue PSL based upon that normal workweek.

As discussed below, employees must be allowed to use at least three (3) days or twenty-four (24) hours of PSL per year, and to carry-over any accrued but unused PSL to the next year.  However, since the law provides that an employer “has no obligation” to allow an employee to use more than this amount in a year, employers may cap usage at three days or 24 hours and may also cap accrual at six (6) days or forty-eight (48) hours, with the difference between annual usage and accrual/carry-over intended to ensure that employees start the next year with the full-allotment of PSL to cover any illnesses before they would otherwise accrue leave in the new year.  Please note, these potential caps are not mandatory so employers seeking to impose them must specify this intent in their written policies, otherwise employees may accrue and carryover more than six (6) days per year.

Note on Pending Bill:  AB 304 would also provide two alternative accrual methods other than “one hour for every thirty hours worked” for non-exempt employees, and the presumed rate of “forty hours per week for exempt employees.”  Specifically, AB 304 would add new subsections (3) and (4) to Labor Code section 246(b), to permit employers to use an alternative accrual method provided the accrual is regular and ensures an employee has no fewer than 24 hours of sick leave by the 120th day, or the employer may satisfy the accrual method generally by simply providing no less than 24 hours or three days by the 120th day.  

The proposed new subsections would be as follows:

“(3) An employer may use a different accrual method, other than one providing one hour per every 30 hours worked, provided that the accrual is on a regular basis so that an 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.”

“(4) An employer may satisfy the accrual requirements of this section by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of his or her 120th calendar day of employment.”

Frontloaded Policy

Rather than use the statutory “accrual method” discussed above, employers may instead choose to “frontload” their employee’s PSL.  Under this method, employers must provide three (3) days or twenty-four (24) hours of sick leave benefits on July 1, 2015, or at the beginning of each year.  Employers would need to ensure that even under this approach that employees could use PSL for the same purposes and under the same conditions as those subject to the default standard.   An advantage of this approach would be that employers could avoid the potentially time-intensive accrual and carryover tracking (since it replenishes each year), but a disadvantage would be that employees may be entitled to use PSL before it would otherwise accrue.

Note on Pending Bill:  While Labor Code section 246(d) presently requires frontloaded policies to provide this leave at “the beginning of each year,” AB 304 would amend this provision to require employers to provide the full amount of leave “at the beginning of each calendar year, year of employment or 12-month basis.”  This amendment appears intended to make section 246(d) consistent with other provisions that already include language distinguishing between calendar year, employment year and any 12-month period.  AB 304 would also specify that “full amount of leave” means “three days or 24 hours.”

Paid Time Off Policies

A concern about the Healthy Families Act was its potential impact on employers who already provide an equal amount of sick time or paid time off (PTO). Labor Code section 246(e) presently addresses this concern by stating that an employer does not need to provide “additional” paid sick days if it meets certain requirements. Specifically, the employer is exempted from providing additional paid sick days if: (a) it has a paid leave policy or paid time off policy, (b) the employer makes available an amount of leave that may be used for the same purposes and under the same conditions as specified in this new law, and (c) the employer’s policy does either of the following: (1) it satisfies the accrual, carry over and use requirements of this law; or (2) it provides no fewer than twenty-four (24) hours or three (3) days of paid sick leave, or equivalent paid leave or PTO, for employee use for each year of employment, calendar year or 12-month basis.

Note on Pending Bill:  AB 304 proposes to make a number of revisions to Labor Code section 246(e) dealing with PTO policies.  First, as amended, section 246(e) would recognize an employer’s ability to offer different policies to different employees by specifying employers need not provide additional paid sick leave if the employer already maintains a policy “applicable to employees” which otherwise satisfies section 246(e)’s requirements. 

Secondly, it would grandfather in PTO policies in place prior to January 1, 2015, provided that the policy allowed PTO for the same purposes and under the same conditions, and satisfied one of three options (rather than two).  As discussed in greater detail below, the first of the two new options would provide that the accrual is on a regular basis (including other than the one hour for every thirty hours worked) and is such that an employee an employee would accrue one day or eight hours within three months of employment, and at least three days or 24 hours within nine months of employment.  The second of the two new options would approve the PTO or paid sick plans maintained by various state or public agencies under specifically-enumerated Government Code provisions. 

Third, AB 304 would amend this section to state that employers paid sick leave or PTO “at the beginning of each year of employment, calendar year or 12-month period.”

These contemplated material changes to a not-yet-even-effective statute are complicated, so the entirety of proposed section 246(e) dealing with PTO plans is set forth verbatim below, with the amendments since AB 1522’s passage identified in bold:

Proposed Amended Section 246(e) regarding PTO Plans

(e) An employer is not required to provide additional paid sick days pursuant to this section if the employer has a paid leave policy or paid time off policy, the employer makes available an amount of leave applicable to employees that may be used for the same purposes and under the same conditions as specified in this section and the policy satisfies one of the following options:

(1)Satisfies the accrual, carry over, and use requirements of this section.

(2)Provided paid sick leave or paid time off to a class of employees before January 1, 2015, pursuant to a sick leave policy or paid time off policy that used an accrual method different than providing one hour per 30 hours worked, provided that the accrual is on a regular basis so that an employee, including an employee hired into that class after January 1, 2015, has no less than one day or eight hours of accrued sick leave or paid time off within three months of employment of each calendar year, or each 12-month period, and the employee was eligible to earn at least three days or 24 hours of sick leave or paid time off within nine months of employment. If an employer modifies the accrual method used in the policy it had in place prior to January 1, 2015, the employer shall comply with any accrual method set forth in subdivision (b) or provide the full amount of leave at the beginning of each year of employment, calendar year, or 12-month period. This section does not prohibit the employer from increasing the accrual amount or rate for a class of employees covered by this subdivision.

(3)Notwithstanding any other law, sick leave benefits provided pursuant to Article 3 (commencing with Section 19859) of Chapter 2.5 of Part 2.6 of Division 5 of Title 2 of the Government Code, or annual leave benefits provided pursuant to Article 2.5 (commencing with Section 19858.3) of Chapter 2.5 of Part 2.6 of Division 5 of Title 2 of the Government Code, that meet the requirements of this section.

Employers with pre-existing PTO policies are encouraged to review their policies to ensure they comply with the new usage and accrual rules.  Please note also, unlike the exemptions provided to this entire law for certain groups (discussed above), this particular exemption applies only to the provision of “additional” time off, but does not exempt employers from other aspects of this new law (i.e., notices, posters, record-keeping, etc.).

Timing and Use of PSL

While employees are eligible to begin accruing after on their first day of employment (provided they have worked in California for 30 days), employees may not begin using accrued PSL until the 90th day of employment, at which point they may use previously accrued PSL and any additional PSL as it is accrued (subject to the employer’s ability to limit usage to three (3) days or twenty-four (24) hours generally, discussed above and below).

Please note, the bill’s author stated this new law was intended to ensure three (3) days of PSL, and that this relatively low amount (at least compared to prior versions that had proposed nine or seven days) was intended to safeguard against employee’s abusing this benefit.  Unfortunately, however, the new law uses the somewhat confusing language of “no less than 24 hours or three days of paid sick leave,” making it unclear when applied to employees who work shifts other than the standard eight-hour day. 

However, according to the DLSE’s FAQs, an employer must provide whichever amount affords more benefits to the employee.  For instance, an employee who works a regular 10-hour shift (ex. under an alternative workweek schedule) is entitled to three (3) days or thirty (30) hours of PSL in a year, even though full-time employees working a standard eight-hour shift would only receive three (3) days or twenty-four (24) hours.  However, the DLSE seems to have adopted a different rule for part-time employee, and suggested that employees are entitled to twenty-four (24) hours (not simply just three (3) days) regardless of how many days off it takes to reach twenty-four hours.  In the DLSE’s FAQs, they used an example of an employee working a six-hour shift and concluded that employee would essentially be entitled to four (4) days of PSL.  Note, while the DLSE only specifically discussed the example of an employee working six-hour shifts, there is nothing in the DLSE’s FAQs or reasoning that suggests employees who regularly work shorter shifts might not be entitled to even more additional days off if needed to reach the twenty-four (24) hour minimum.

PSL Usage

Accrued PSL may be used for the diagnosis, care or treatment of an existing health condition of, or preventative care for, an employee or an employee’s “family member.”  “Family member” is specifically defined in Labor Code section 245.5(c), and contains many particular legal terms, but generally includes children (regardless of age), parents, spouses, registered domestic partners, grandparents, grandchildren, and siblings.

PSL may also be used if an employee is a victim of domestic violence, sexual assault or stalking.

Note on Pending Bills:  While there was no legal requirement to provide PSL prior to AB 1522’s enactment, California’s “kin care” law (Labor Code section 233) required employers who provided sick leave to allow employees to use up to half of their annual allotment to care for sick family members.  While the Healthy Families Act specifies that sick leave may be used for sick “family members,” pending SB 579 would amend the “kin care” to makes its definitions (i.e., of family member) and grounds for usage  consistent with the Healthy Families Act.  (SB 579 passed the Senate on a nearly unanimous basis and appears likely to pass the Assembly and proceed to Governor Jerry Brown for signature or veto.)

Employee Notice Requirements

An employee may use PSL by providing either an oral or written request.  Where the need for PSL is “foreseeable,” the employee must give reasonable advanced notice.  However, when the need is unforeseeable, an employee need only give notice “as soon as practicable” (which the statute does not define).  The law specifically states that employers cannot require employees to find a replacement.  The law does not discuss whether an employer may require an employee to provide a doctor’s note for paid sick leave usage.

Generally, the employee will determine how much PSL they need to use, although employers may set a minimum increment for using PSL, as long as that minimum increment does not exceed two (2) hours.

Payment of Paid Sick Leave

Employers must generally pay PSL at the employee’s hourly wage, and must pay an employee for PSL usage by no later than the next regular payroll day after leave is taken.

However,  if within the ninety 90 day period preceding the sick leave usage the employee had different hourly rates, was paid by commission or piece rate, or was a non-exempt salaried employee, then the employer must calculate the rate of pay for PSL purposes using the formula contained in Labor Code section 246(k).  Specifically, the employer shall determine the rate of pay 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 ninety (90) days of employment.

Note on Pending Bill:  In response to employer concerns this 90-day look-back and formula was unduly burdensome, AB 304 would significantly amend Labor Code section 246(k) by deleting the reference to “hourly rate” and replace it with “regular rate of pay” and instead provide employers two options for paying sick leave, as follows:

“(1)Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.  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.”

(2) Notwithstanding paragraph (1), if the employee, in the 90 days of employment before taking accrued sick leave had different hourly pay rates, was paid by commission or piece rate, or was a nonexempt salaried employee, the rate of pay may be calculated 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.”

Termination and Reinstatement

Unlike vacation, “accrued PSL” is not considered wages, and employers are not required to compensate employees for unused PSL upon separation of employment.  (Obviously, employers would still be required to pay out any remaining PTO balances).  However, employers must reinstate the prior unused balance if the employee is rehired within one year of separation, in which case the employee may immediately begin using the prior balance and immediately begin accruing additional PSL.

Note on Pending Bill:  AB 304 would amend Labor Code section 246(f)(2) to clarify that an employer would not be required to reinstate accrued time off to an employee that was paid out upon the prior separation of employment.  It would also amend this subsection to clarify that any reinstated balances would be “subject to the use and accrual limitations” of this section, meaning the employee would still have to satisfy any remaining portion of the 90-day period before usage, and could not exceed the usage accrual amounts for the year in which the employee is rehired, provided the employer has a written policy limiting usage, accrual and carryover.

Posting, Notices, Wage Statements, and Recordkeeping

The new law also imposes posting, notice and recordkeeping requirements upon employers.

Poster Requirement

As of January 1, 2015, employers are required to display in a conspicuous place in each workplace a poster explaining the new PSL accrual requirements.  The Labor Commissioner has developed and published a poster employers may use, which is available on its website at:  http://www.dir.ca.gov/DLSE/Publications/Paid_Sick_Days_Poster_Template_(11_2014).pdf

Wage Theft Prevention Act Notice Requirements

Since 2012, Labor Code section 2810.5 has required employers to provide to non-exempt employees written information at the time of hiring regarding certain specified items (e.g., rate of pay, employer name, employer address, etc.).  As amended by AB 1522, Labor Code section 2810.5 will also require employers to provide written information concerning this PSL requirement.  The Labor Commissioner has modified its Wage Theft Prevention Act Notices to reflect the PSL requirement, and these updated forms which employers may use to advise all non-exempt employees, newly hired and existing, can be found here: http://www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf.

Since these Wage Theft Prevention Act notices must be provided at time of hiring and within seven (7) days of any change, the DLSE’s FAQs state employers must provide these updated notices containing PSL to current employees by no later than July 8, 2015 (i.e., within seven days of the July 1st effective date) and to subsequently hired employees at the time of hiring.

Notice of Paid Sick Leave Balances

Employers must also provide employees a written notice setting forth the amount of PSL (or PTO an employer provides in lieu of paid sick leave) available.  (Labor Code § 246(h).)  This written notice must be provided either on the itemized wage statement required under Labor Code section 226 or on a separate writing, and must be provided on the designated pay date with the employer’s payment of wages.

Note on Pending Bill:  AB 304 would amend Labor Code section 246(h) in two respects.  First, responding to employer concerns about how to track balances and provide these notices if the employer provides “unlimited” paid sick time, this bill would specify that an employer may satisfy this notice obligation by indicating “unlimited” on the notice or wage statement.  Second, for employers in the broadcasting and motion picture industries, AB 304 would delay this requirement of identifying sick leave balances on wage statements or other written notices until January 21, 2016.

Record Retention Requirements

Employers must also maintain, for at least three years, records reflecting the hours worked and PSL accrued and used by each employee.  Employers must also make these records available, if requested by either the employee or the Labor Commissioner.  Notably, Labor Code section 247.5 provides that if an employer fails to maintain the records required by this section, it will be presumed the employee is entitled to the maximum number of hours accruable under the new law, unless the employer can show otherwise by clear and convincing evidence.

Note on Pending Bill:  AB 304 would amend Labor Code section 247.5 to add language providing that an employer is not obligated to inquire to or record the purpose for which an employee uses paid leave or PTO.

Discrimination and Retaliation

The Healthy Families Act prohibits discrimination or retaliation against employees for exercising their rights under the new law (i.e., using or requesting to use PSL, or making a complaint about or participating in an investigation concerning a violation of the law’s requirements).

Significantly, there is a “rebuttable presumption of unlawful retaliation” if an employer denies the employee the right to use accrued PSL, or takes an adverse employment action against an employee within thirty (30) days of:  (1) filing a complaint with the Labor Commissioner alleging a violation of this law; (2) cooperating with an investigation of an alleged violation of this law; or (3) opposing a policy, practice, or act prohibited by this law.  For these reasons, the DLSE recommended against requiring a doctor’s note from employees who are utilizing sick leave, although this is not prohibited within the statute itself.

Other Municipalities

The Healthy Families Act specifically states that it is intended to provide minimum requirements, and does not preempt local sick leave ordinances that may provide more generous benefits.  Thus, employers must comply with both local and California laws, which may differ in some respects, and provide whichever provision is more generous to their employees in those locations. 

Within the last year, both San Diego and Los Angeles came close to adopting ordinances that would provide PSL to employees working in those cities, while Oakland and San Francisco have already done so, as described below.  Employers should periodically check for new ordinances in municipalities where they have employees, in order to make sure they are complying locally, as well as statewide.

A quick review of the Oakland and San Francisco Ordinances, especially the material differences, is set forth below:

Oakland’s Sick Leave Law

Oakland’s sick leave law is often broader than California’s Healthy Families Act.  Under Oakland’s new law, eligible employees may accrue up to nine (9) days of PSL at the rate of one (1) hour of PSL for every thirty (30) hours worked. Unused PSL carries over from year to year, but is subject to the accrual cap.  However, unused PSL does not need to be paid out at time of separation from employment.

Employees are eligible to accrue PSL if they work at least two (2) hours per week in the City of Oakland. Unlike the generally applicable California law, there is no basis under Oakland’s new law to grant PSL at the beginning of each calendar year.  Further, employers who already make available sufficient paid time off to their employees do not need