• California Governor Signs New Laws Affecting Employers
  • October 24, 2011 | Authors: Karen L. Corman; Lisa R. D'Avolio; John P. Furfaro; Kristin Major; Risa Salins; David E. Schwartz
  • Law Firms: Skadden, Arps, Slate, Meagher & Flom LLP - Los Angeles Office ; Skadden, Arps, Slate, Meagher & Flom LLP - New York Office ; Skadden, Arps, Slate, Meagher & Flom LLP - Palo Alto Office ; Skadden, Arps, Slate, Meagher & Flom LLP - New York Office
  • In deciding the fate of the flurry of employment-related bills that recently landed on his desk, California Governor Edmund G. "Jerry" Brown, Jr. vetoed several bills that would have placed further burdens on California employers, including bills restricting forum selection in employee agreements, mandating bereavement leave and imposing new requirements for payroll cards. However, Gov. Brown did sign a number of new measures, which likely will affect many California employers. These new laws, which will go into effect January 1, 2012, unless otherwise noted, include:

    Limits on Employers' Use of Credit Checks

    Assembly Bill 22 (AB 22) prohibits employers (except certain financial institutions) from obtaining "consumer credit reports" concerning California employees and applicants, unless the employee's position falls into one of the categories below:

    • a managerial position, as defined by California's executive overtime exemption;

    • a position that involves access to confidential or proprietary information;

    • a position in which the person is or would be a named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf;

    • a position for which a credit check is required by law;

    • a position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following information of any one person; (i) bank or credit card account information, (ii) social security number and (iii) date of birth;

    • a position that involves regular access to $10,000 or more of cash during the workday; or 

    • a position in the state Department of Justice or that of a sworn peace officer or other law enforcement position.

    AB 22 supplements existing federal and state law regulating the permissible uses of credit reports and the procedures by which credit reports may be obtained. For example, existing law already requires that an employee or prospective employee be notified of, and give consent to, a credit report being run on him or her before one is obtained, and requires certain disclosures before any adverse action may be taken based on the information contained in the report. AB 22 additionally will require an employer to inform the employee or applicant of the specific basis for which the consumer credit report is being requested. A complementary bill, Senate Bill 909, requires employers to provide a consumer with the website address or telephone number of the investigative consumer reporting agency where the consumer may find additional information about the agency's privacy practices.

    AB 22 specifically applies to "consumer credit reports," which, generally, are reports by a consumer credit reporting agency containing information bearing on a consumer's credit history or credit worthiness. However, AB 22 does not apply to other kinds of employee background checks, such as criminal record, driving records or verification of income or employment.

    New Penalties for Misclassification of Independent Contractors

    Assembly Bill 459 (AB 459) amends Sections 226.8 and 2753 of the California Labor Code to prohibit the "willful misclassification" of individuals as independent contractors or to charge such individual a fee or make any deductions from the individual's compensation if such deductions would have been unlawful if the individual were not misclassified. "Willful misclassification" is defined as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor."

    The new law further provides that the Labor and Workforce Development Agency may assess penalties against employers who willfully misclassify workers of between $5,000 and $15,000 for each violation, with enhanced penalties of between $10,000 and $25,000 per violation if there is determination that the employer has engaged in a "pattern and practice" of misclassification. The law also provides that a violating employer post a notice on its website (or, if it does not have a website, at its place of business) stating that the employer has been found to have committed a "serious violation of the law by engaging in the willful misclassification of employees," that the employer has changed its business practices and that any employee who feels that he or she is being misclassified may contact the Labor and Workforce Development Agency.

    AB 459 also makes any individual who advises an employer to misclassify an employee jointly and severally liable for the liabilities arising with respect to such misclassification. The law does, however, exempt from this joint and several liability employees providing advice to their employers and attorneys providing advice in the capacity of legal counsel to the employer.

    Notice of Pay Rate for New Hires; New Penalties for Failure to Pay Wages

    Assembly Bill 469 (AB 469). Similar to the law passed last year in New York (see February 2011 Employment Flash), AB 469, also known as the "Wage Theft Prevention Act of 2011," requires California employers to provide non-exempt employees hired on or after January 1, 2012, with a notice that states the employee's (a) wage rate and the basis, whether hourly, salary, commission or otherwise, (b) allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances, (c) the regular payday designated by the employer in accordance with the requirements of the Labor Code, (d) the name of the employer, including any "doing business as" names used by the employer, (e) the physical address of the employer's main office or principal place of business, and a mailing address, if different, (f) the telephone number of the employer, (g) the name, address and telephone number of the employer's workers' compensation insurance carrier, and (h) any other information the California Labor Commissioner deems material and necessary.

    Any changes with respect to any of the categories of information covered in the notice will require a new notice to the employee within seven days unless the change is otherwise memorialized in another written notice required by law or on the employee's wage statement. The notice requirement does not apply to exempt employees, public employees and certain employees covered by a collective bargaining agreement. The Labor Commissioner is required by the law to publish a template notice that employers can use as a model.

    AB 469 also provides that employers who pay less than the minimum required by applicable wage orders may be ordered to pay restitution of wages to the aggrieved employee, in addition to any civil penalties assessed under current law. AB 469 also increases the statute of limitations period for the Labor Commissioner to collect any statutory penalties or fees for violations of applicable wage and hour provisions of the Labor Code from one to three years.

    Expansion of FEHA to Include "Gender Expression"

    Assembly Bill 887 (AB 887) amends numerous provisions of existing California law, including the Fair Employment and Housing Act (FEHA), to refine the definition of gender to specifically include an individual's gender identity and "gender expression." "Gender expression" is characterized as an individual's gender-associated appearance and behavior "whether or not stereotypically associated with the person's assigned sex at birth." The law further provides that employers must allow an employee to appear or dress consistently with his or her "gender expression" not just his or her gender identity.

    New Requirements for Employee Commission Plans

    Assembly Bill 1396 (AB 1396) is a significant and onerous change for employers that pay employees, in whole or in part, on a commission basis. By January 1, 2013, employers who agree to pay a California employee commissions must have a commission agreement with the employee. The contract must be in writing, must set forth the method by which the commissions will be computed and paid and must be signed by the employer. The employer must obtain a signed acknowledgement of receipt from each employee. Even if the contract expires, the contract is presumed to remain in force until the contract is superseded or employment ends.

    AB 1396 defines commissions as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof." However, the law specifies that short-term productivity bonuses such that are paid to retail clerks (i.e. "spifs") are not covered and neither are bonus or profit-sharing plans unless the employer has agreed to pay a fixed percentage of sales or profits as compensation for work to be performed.

    Maintenance of Health Benefits During Maternity Leave

    Pursuant to Senate Bill 299/Assembly Bill 592, employers will be required to maintain health insurance coverage during Pregnancy Disability Leave (PDL) on the same terms as provided to the employee prior to the leave, for the period of the pregnancy-related disability, up to a total of four months. This law was intended to provide medical health insurance coverage during pregnancy disability for those women who are not covered by the Federal Family and Medical Leave Act (FMLA) and California's Family Rights Act (CFRA).

    For example, unlike the FMLA and CFRA, PDL does not establish a minimum amount of time that an employee must have worked at an employer to qualify for PDL, so employees who have been employed by their employer for only a short amount of time will benefit from this law. In addition, the FMLA and CFRA only apply to employers with 50 or more employees working within a 75-mile radius, whereas PDL applies to employers with five or more employees, so smaller employers may be more affected by this change in law than those employers that were already subject to the FMLA and CFRA.

    Similar to the FMLA and CFRA, the employer may recover the premium costs paid on behalf of the employee for the continued coverage if the employee fails to return from leave after the expiration of the leave but only if the failure to return from leave is not due to (a) the employee taking leave under the CFRA (e.g., baby-bonding leave following a pregnancy-related disability), or (b) the continuation, recurrence or onset of a health condition that entitles the employee to additional leave or other circumstances beyond the employee's control.

    Expansion of Rights Under CFRA and Pregnancy Disability Leave

    In response to concerns that some employers may be interfering with employees' ability to take leave under the CFRA and the PDL, Assembly Bill 592 amends both leave statutes to provide that "interference" with employees' leave rights is as an independent basis for employer liability. Accordingly, an employer who interferes with or attempts to restrain an employee's exercise of his or her rights under these statues through disciplinary action or other means may be subject to liability for an unlawful employment practice. 

    Limits on Requiring Employers to Use E-Verify

    In an effort to reduce administrative burdens on employers and promote job growth, Assembly Bill 1236 (also known as the "Employment Acceleration Act of 2011") restricts the ability of the state or any county, city or special district in California to require an employer (other than one of those government entities themselves) to use an electronic employment verification system, such as E-Verify, except when required by federal law or as a condition of receiving federal funds. Note that this law only restricts the ability of the government to require the use of electronic employment verification systems and does not prohibit an employer from choosing to use E-Verify even if not otherwise required by federal law or as a condition of receipt of federal funds.

    Health Insurance Anti-Discrimination Provisions Enhanced

    While existing law provides that group health insurance plans must offer coverage to registered domestic partners that is equal to that provided to spouses, the authors and backers of Senate Bill 757 (SB 757) noted that some employers that operate in multiple states are using out-of-state insurance companies that discriminate by not providing the same coverage for domestic partners as provided for spouses. SB 757 attempts to eliminate this exception by providing that any insurance policy sold, delivered or issued to a California resident may not discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.