It’s that time once again for the annual summary of new California employment laws. The California Legislature was active as ever in 2019. 2,576 bills were introduced of which 1,042 bills made it to Governor Newsom’s desk. Of those, the Governor signed 870 bills and vetoed 172.
Notably, Governor Newsom signed a number of bills that were previously vetoed by Governor Brown. It is also noteworthy that the Legislature, unlike in the recent past, focused less on wage and hour matters and more on terms and conditions of employment, such as arbitration; discrimination, harassment and retaliation protections; and recruiting and hiring.
Many of these laws will have a significant impact on California employers and companies with operations or employees in the state, while other changes are less dramatic but nonetheless important. Prompt action will be required to ensure compliance, including revising employment policies and practices and revising employee handbooks and notices. Below is a summary of many of the laws that affect employers in the state. All are effective January 1, 2020 unless otherwise noted.
AB 5 – New “ABC Test” for Independent Contractors
Arguably the most significant bill advanced by the Legislature in 2019 was AB 5, which codifies and expands the “ABC test” that is used to distinguish employees from independent contractors. The ABC test was established by the California Supreme Court in the Dynamex Operations West, Inc. v. Superior Court decision which limited its application to the Industrial Welfare Commission (IWC) Wage Orders. AB 5 not only codifies the ABC test for purposes of the IWC Wage Orders, it also immediately extends it to the Labor Code and the Unemployment Code, and will apply to workers compensation effective July 1, 2020.
Under the ABC test, a worker is presumed to be an employee unless the hiring entity can establish all of the following criteria are met:
A. The worker is free from the control and direction of the hiring entity, both under the contract for the performance of the work and in fact; and
B. The worker performs work that is outside the usual course of the hiring entity’s business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
AB 5 carves out exceptions for a number of occupations and industries including doctors, lawyers and insurance agents. If an exception applies, the independent contractor analysis converts to the more flexible Borello test, which focuses on the entity’s control over the worker. Moreover, the ABC test does not apply to bona fide business-to-business contracting relationships, provided they meet several criteria, including but not limited to, ensuring the service provider is free from the direction and control of the hiring entity, the service provider provides services directly to the hiring entity rather than the entity’s customers, and the service provider has a business license, a separate business location and is customarily engaged in an independent business.
Companies that misclassify employees as independent contractors may be subject to private lawsuits, Private Attorney General Act (PAGA) claims, and government enforcement actions.
AB 51 – Ban on Arbitration Agreements
AB 51 effectively bans mandatory pre-dispute arbitration agreements between employers and employees. Specifically, the bill prohibits an employer from requiring a job applicant or employee to waive any rights, forum or procedure to address employer violations of the Fair Employment and Housing Act (FEHA) or the Labor Code. Any person violating this prohibition is subject to a misdemeanor. The bill also prohibits retaliation and discrimination against an employee who refuses to sign such an agreement. The new law also prohibits employers from requiring employees to opt out of the agreement to preserve their rights. While it does not prohibit truly voluntary agreements, employers will have the burden of proving that the agreement was truly voluntary and not signed under duress. If employers elect to proceed with voluntary arbitration agreements, it is recommended that they include a cover page with the agreement highlighting the mutual benefits of arbitration compared to prosecuting their claims in court.
A business coalition of the U.S. Chamber of Commerce, National Retail Federation and others has filed a lawsuit in federal court challenging the AB 51 on the basis that it is preempted under federal law. Although the statute expressly states that the law does not intend to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (FAA), most practitioners believe it will not survive federal preemption in its current form. Former Governor Jerry Brown vetoed similar attempts by the legislature on the grounds they “plainly violate federal law.”
California employers are left with three options: abandon arbitration agreements entirely; continue requiring of arbitration agreements, and argue that AB 51 is preempted by the FAA; or present arbitration as a voluntary option for employees. Employers should consult with legal counsel regarding the implications of AB 51.
SB 707 – Untimely Payment of Arbitration Fees Voids Agreement
California law requires the employer to pay the arbitration fees for employment disputes, which can run between $40,000 and $80,000. SB 707 provides that the drafting party (the employer) must pay the fees necessary to commence or continue arbitration within 30 days after they are due, or be deemed to have materially breached the agreement. Employers who do not timely pay their arbitration fees will be found in default of the arbitration agreement and will have waived their right to compel arbitration. If that happens, the employee can force the matter to court or compel the arbitration and be awarded attorneys’ fees and costs. The employee can also be awarded monetary sanctions or evidentiary or terminating sanctions, which is akin to forfeiting your defenses or the entire case. Employers who fail to pay their arbitration fees on time going forward do so at great peril.
AB 749 – No “No Rehire” Agreements
AB 749 prohibits inserting “no rehire” clauses into settlement agreements with “aggrieved persons” (employees) who have filed a claim against the employer. An “aggrieved person” is defined by the statute as someone who has filed a claim against the employer in court, before an administrative agency, in an alternate dispute resolution forum or through the employer’s internal complaint process.
The new law does not apply where the employer has made a good faith determination that the employee engaged in sexual harassment or sexual assault or if there is a “legitimate non-discriminatory or non-retaliatory reason.”
AB 9 – Statute of Limitations for FEHA Claims
Before going to court to pursue an alleged FEHA claim, employees must file a complaint with the California Department of Fair Employment and Housing (DFEH). Until now, employees had one year to file a claim with DFEH for alleged FEHA violations or risk having the claim tossed as time barred. AB 9 extends the statute of limitation to three years. Last year, a similar bill (AB 1870) was vetoed by Governor Brown. This means that employers must be even more scrupulous in documenting complaints of harassment, discrimination and retaliation, as claims may filed for the first time up to three years after memories have faded and witnesses have moved on.
AB 673 – Penalties for Late Payment of Wages
Prior to this bill’s passage, the Labor Commissioner could recover a civil penalty of $100 per employee for the initial violation and $200 plus 25% of the late wages for subsequent violations, for failure to timely pay wages. Now, AB 673 gives employees the right to bring an action before the Labor Commissioner to recover penalties against the employer OR seek to enforce civil penalties under PAGA, but not both.
SB 688 – Expansion of Labor Commissioner’s Authority
Previously, the Labor Commissioner could seek penalties for underpayment of wages only if the wages fell below the minimum wage. SB 688 allows the Labor Commissioner to pursue actions against employers for failure to pay “contract wages,” which is defined as wages based on an agreement, even if all hours paid were compensated at or above the applicable minimum wage.
SB 778 – Sexual Harassment Prevention Training
Last year, SB 1343 expanded the required sexual harassment prevention training to smaller employers (those with five or more employees) and required training be provided for all employees, not just supervisors. SB 778 delays implantation of SB 1343 from January 1, 2020 to January 1, 2021. It also clarifies that new non-supervisory employees must be trained within six months of hire and new supervisory employees must be trained within six months of their assumption of a supervisory position.
Employers who provided training in 2019 are not required to provide refresher training for two years from the time they were trained. Employees who were trained in 2018 must be trained again in 2020, and remain on a two year cycle.
SB 530 – Sexual Harassment Prevention Training for Seasonal Workers
Previously, employers were required to provide seasonal and temporary workers with sexual harassment prevention training within 30 days or 100 hours of employment beginning January 1, 2020. SB 530 has pushed the deadline out one year so employers must provide training to seasonal and temporary workers beginning January 1, 2021.
SB 142 – Lactation Accommodation
Existing law required employers to provide a reasonable amount of break time to pump breast milk and make reasonable efforts to provide an employee with a lactation room. SB 142 expands the lactation accommodation duties and responsibilities for employers. Specifically, employers must provide a lactation room or location, not a bathroom, that is:
• In close proximity to the employee’s work area, shielded from view and free from intrusion;
• Safe, clean and free of hazardous materials;
• Contains a surface to place a breast pump and personal items;
• Contains a place to sit;
• Has access to electricity; and
• Must also provide access to a working sink and a refrigerator suitable for storing breast milk close to the employee’s workspace.
In addition, employers must develop and implement a lactation policy including publishing the policy in the employee handbook and providing the policy when an employee asks about or requests parental leave. Denial of lactation break time or space is tantamount to a violation of a rest period; subjecting the employer to a $100 penalty per violation, though lactation breaks are unpaid if they do not coincide with a regular rest period. There is a hardship exemption for employers with 50 or fewer employees.
SB 188 – Hairstyle-Based Race Discrimination
SB 188, known as the CROWN Act, amends FEHA to define “race” to include “traits historically associated with race” such as “hair texture, and protective hair styles” including “braids, twists, and locks.” The new law protects employees who wear their natural Afro-textured curly hair in an un-straightened (natural) style and addresses the issue of discrimination aimed against black employees and applicants based on the way they choose to wear their hair.
AB 25 – Employee Data Under the California Consumer Privacy Act
The California Consumer Privacy Act (CCPA) imposes a wide range of new requirements for the collection and processing of personal data of California residents effective January 1, 2020. Businesses subject to the CCPA are those that:
• Have an annual gross revenue of over $25 million; OR
• Annually buy or share personal information of 50,000 or more consumers; OR
• Derive 50% or more of their annual revenue from selling consumers’ personal information.
Under the CCPA, “consumer” is defined broadly as any California resident, which includes your employees if you are subject to the CCPA, AB 25 provides a temporary, one year carve-out for employee data. The new law exempts applicable employers from the CCPA’s requirements to provide rights of access, correction, deletion and opt-out of sale of personal information for California residents who are job applicants, employees, or contractors. The exemption applies only to personal information that is collected by the employer from the individual in their capacity as an employee and lasts only until December 31, 2020.
Notably, applicable employers will still have to provide a notice to applicants and employees about the categories of personal information they collect about them and the purposes for which they collect the information effective January 1, 2020.
AB 61 – Restraining Orders
Existing “red flag laws” allowed immediate family members and law enforcement to petition courts to issue a “gun violence restraining order” prohibiting individuals exhibiting a substantial likelihood of significant danger or harm to themselves or others from possessing a firearm or ammunition. AB 61 expands the law to allow employers and co-workers to pursue such restraining orders under certain circumstances.
State Minimum Wage Increase
Beginning January 1, 2020, the state minimum wage increases to $13.00 per hour for employers with 26 or more employees. The rate is $12.00 for employers with 25 employees or fewer. The minimum salary under the white collar overtime exemption test is two times the state minimum wage or $54,080 for large employers and $49,920 for smaller employers. Also, more than two dozen cities and counties have their own minimum wage that exceeds the state wage, and many of those will also increase on January 1 or summer of 2020. Some cities apply their elevated wage rate to employees that don’t even live or work fulltime in the city. The City of Los Angeles, for example, defines “employee” to mean any individual who in any particular week performs at least two hours of work within the geographic boundaries of the City of Los Angeles for any employer.
The Adverse Effect Wage Rate, payable to H-2A workers and others in “corresponding employment” increases to $14.77 in California on January 2, 2020.
Ag Overtime
Reminder that beginning January 1, the threshold for paying overtime for agricultural employees under IWC Wage Order 14 is after 9 hours per day or 50 hours per week. This change could also affect the minimum amount of paid sick leave employees must be granted. For employers that provide a front-loaded annual grant of paid sick leave, the amount front-loaded must generally be 24 hours or 3 days of paid leave at the beginning of each year or 12-month period. However, for employees who regularly work more than 8 hours a day, they must receive 3 times their regular number of daily work hours at the beginning of the year. Therefore employers must grant ag employees who work 9-hour shifts with 27 hours of paid sick leave.
Western Growers members are encouraged to review their existing employment practices and employee handbooks, and to make all necessary updates to ensure compliance with the new laws.