By Martin R. Glick, David J. Reis, Christopher T. Scanlan and Matthew R. Diton of the law firm Arnold & Porter
Effective January 1, 2016, new state laws will affect both public and private employers with employees working in California. As is typical, almost all of the laws tilt the balance of workplace regulation further in favor of employees (and labor unions) at the expense of employers. Nonetheless—as in years past—it could have been worse; in particular, the governor vetoed several other employee-friendly bills, including a bill that, contrary to U.S. Supreme Court precedent, would have banned mandatory workplace arbitration agreements and policies.
New Piece-Rate Compensation Requirements
This new law codifying employers’ obligation to compensate “non-productive” time has attracted a fair amount of attention, though not all coverage of the bill has been particularly accurate. The statute covers employees paid on a piece-rate compensation system (such as agricultural workers paid by the volume of crops they pick or car mechanics paid by the number of services they perform). Those employees must now receive a “separate” hourly rate (calculated separately and additional to their piece rate earnings) for non-productive time, which, in essence, is working time where the employer is not providing the employee with piece-rate work: for example, performing non-piece-rate tasks or significant idle time. Non-productive time for purposes of the law includes legally mandated paid rest and recovery periods (but not unpaid meal breaks). The new law also provides a formula (essentially, a weighted hourly average) for rest and recovery time. The bill’s benefits for employers are three-fold. First, it clarifies the definition of other non-productive time as “…time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.” This should eliminate claims that certain activities included and related to the employee’s productive time should be separately compensated. Second, the bill provides several options for handling other non-productive time going forward, and exclusion from penalties in the case of good-faith error when calculating piece-rate workers’ other non-productive time compensation. Third and finally, AB 1513 helps qualified employers eliminate pending litigation or threatened claims by providing a safe harbor they can enter by paying employees a fixed amount calculated without penalties.
PLANNING AND ACTION: Employers who have not yet done so should begin putting the new standard of piece-rate compensation into practice at their workplace, which may require rebuilding payroll and time-keeping systems and choosing appropriate options. Employers should also determine litigation exposure and whether to avail themselves of the safe harbor.
Increased Requirements to Avoid Unequal Pay Because of Sex (SB 358)
SB 358 increases the State’s equal-pay requirements to remedy sex discrimination in compensation. Under the new law, California employers now must pay equal pay to workers of both sexes for “substantially similar work” across all of their locations, as opposed to only equal pay for equal work in the same establishment. The bill also places the burden on employers to affirmatively demonstrate that any wage disparities between sexes is based upon one or more specified factors, such as a seniority system, a merit system, a system that measures earnings by quantity or quality of production or a bona fide factor other than sex. Further, the employer must demonstrate that the chosen factor is applied reasonably, and that the factors relied upon account for the entire differential. Additionally, the bill reinforces existing laws that protect employees disclosing their own wages, discussing their wages with other employees and encouraging other employees to exercise their rights under the bill. Finally, the bill increases an employer’s recordkeeping requirements from two years to three years.
PLANNING AND ACTION: Now more than ever is the time to give a good hard look at compensation systems, ideally under attorney-client privilege if the goal is to identify legal risks. In particular, employers may want to consider adopting systems that contemporaneously document initial wage placement and subsequent wage adjustments. Employers should also be aware that both regulators and plaintiffs’ lawyers have called into question employer policies that set starting wages in relation to the employee’s previous earnings; the concern is that previous earnings for women may reflect sex discrimination at the employee’s last job. In addition, the newly announced standard for “substantially similar work” may require that internal and external comparators include other workers in the same job family or functional group even if they have different titles. Record retention policies may also need to be revised to ensure records are kept for the required three years.
Increased Prohibitions on Using “E-Verify” (AB 622)
Current California law prohibits the state, or any of its subdivisions, from requiring an employer to use electronic employment verifications systems, such as E-Verify, except when required by federal law or as a condition of receiving federal funds. AB 622 expands the definition of an unlawful employment practice to prohibit an employer from using the E-Verify system at a time or in a manner not required by a specified federal law or not authorized by a federal agency memorandum of understanding to check the employment authorization status of an existing employee or applicant who has not received an offer of employment, except as required by federal law or as a condition of receiving federal funds. AB 622 also requires employers who use E-Verify to provide to the affected employee or applicant any notification issued by the Social Security Administration or the United States Department of Homeland Security containing information specific to the employee or applicant’s E-Verify case or any tentative non-confirmation notice.
PLANNING AND ACTION: Outside of federal government contractors, there are few California employers who are required to use E-Verify. Employers who have been voluntarily using E-Verify should be aware of potential enforcement action after January 1, 2016, although the legislation may potentially be challenged as preempted by both current and proposed federal legislation.
Employers Permitted to Cure Certain Labor Code Violations Before Facing PAGA Lawsuits (AB 1506)
Approved by Governor Brown on October 2, 2015, and taking effect immediately, AB 1506 amends the Private Attorneys General Act of 2004 (PAGA) to provide employers 33 days from the postmarked date of an employee’s notice to the LWDA of the violation to cure any violation of Sections 226(a)(6) and (8). These sections require employers to include certain pieces of information on employees’ wage statements, such as the name and address of the legal entity that is the employer and the inclusive dates of the period for which the employee is paid. Under AB 1506, an employer may cure such defects by providing each affected employee with a fully compliant wage statement for each pay period for the three-year period prior to the date of the written notice. While the cure period provides employers with protection against wage statement lawsuits seeking damages, it does not prevent employees from seeking statutory penalties under Section 226(e). Importantly, employers are only permitted to cure such violations once within each 12-month period.
PLANNING AND ACTION: Ensure that wage statements include the name and address of the employer’s legal entity and the inclusive dates of the period for which the employee is paid. Also, be prepared to act quickly to cure these violations in the event you receive notice of a labor code violation, in order to avoid costly PAGA suits.
New Retaliation Protections for Whistleblower Families
California’s whistleblower protections now protect the family members of whistleblowers. Under the bill, an employer is prohibited from discharging or, in any manner, discriminating, retaliating, or taking adverse action against any employee who is a family member of a person who engaged in, or was perceived to engage in, protected conduct.
PLANNING AND ACTION: Consider revising standard anti-retaliation policies to prohibit retaliation against family members of those who engage in protected activity. Such language could echo non-discrimination provisions that protect individuals who associate with members of protected classes.
California Minimum Wage to Increase on January 1, 2016
As a reminder, the California state minimum wage is set to increase from US$9.00 to US$10.00 on January 1, 2016. All employers doing business in the state should be prepared to adjust any effected employees’ compensation accordingly.