A number of significant developments in California labor and employment law occurred in 2015. This article will highlight the developments we believe are most important for California employers, including a new mandatory paid sick leave law, a substantial overhaul of the Fair Pay Act, the solidification of special meal period waivers for healthcare employees, the prohibition of certain no-hire clauses in California settlement agreements, and a few others.
California Paid Sick Leave Laws
On July 1, 2015, California became the second state in the nation (following Connecticut) to implement a mandatory paid sick leave law and the first state in the nation to require paid sick leave for all employers. Unlike Connecticut, there is no small employer carve out.
Under the new law, employers must have a paid sick leave policy that either:
- allows employees to accrue one hour of sick leave for every 30 hours worked, or at least 24 hours of sick leave by the 120th calendar day of employment (if accruing regularly at a different rate); or
- provides employees with at least 24 hours or three days of sick leave at the beginning of each year of employment, calendar year or 12-month period (the “Upfront Method”).
Employers must inform employees of their rights and provide them with regular, written notification of the amount of paid sick leave that they have available. This may be communicated through itemized wage statements or through a separate, written communication.
Employees become eligible to use accrued, paid sick leave on the 90th day of employment. Once eligible, employers may not prevent or otherwise impede employees from using their leave entitlements. Employees must be permitted to use the leave for their own or a family member’s medical treatment or illness and when the employee is a victim of domestic violence, sexual assault, or stalking.
Interestingly, the California Labor Code fails to address whether employers may require employees to provide any medical certification for sick leave absences, only noting that employees should provide advance notice whenever reasonable. Employers should therefore generally avoid requesting medical certification until the employee has missed more than the three days protected by law.
Employers may limit the amount of paid sick leave that an employee may use each year to either 24 hours or three days, whichever is greater (depending upon the employee’s regularly scheduled workday). Employers may also “cap” the total amount of sick leave that an employee may have accrued at any given time to 48 hours. Employers may not, however, eliminate unused hours at the end of each year. Any unused, accrued sick leave must carry over to the next year, though the employee is generally not entitled to these hours upon termination. (An employee would be entitled to accrued but unused sick leave upon termination if sick leave is part of an all-inclusive paid-time-off (PTO) policy, which California treats as wages that must be paid out upon termination.)
Employers with existing PTO policies are not exempt from the new mandates. Employers must ensure that their PTO policies permit their employees to use at least 24 hours or three days of time off each year for the purposes described in the new law. The policy must also generally comply with the above accrual, usage, and carry over requirements. The only exception is that policies enacted before January 1, 2015 may accrue at a slower rate (provided that they otherwise meet the requirements of the law). For these “grandfathered” policies, employees need only accrue one day or eight hours of PTO by the third month of employment of each calendar year and 24 hours or three days of PTO by the ninth month of each year. If, however, the employer makes any modification to the accrual method used in the policy, the exception will cease to apply, and the employer must fully comply with the paid sick leave law.
Employers who have not yet reviewed their PTO and other leave policies in light of this new law should do so as quickly as possible. The law provides for penalties of up to $8,000 per employee if an employee suffers harm as a result of a violation. In reviewing the policies, employers should also be careful not to neglect other local sick leave ordinances, such as in San Francisco, Oakland, and Santa Monica (effective July 1, 2016), which impose stricter requirements than the new, state-wide law.
If things were not already challenging for California employers, matters certainly became more so with the passage of the Fair Pay Act. On October 6, 2015, Governor Jerry Brown signed the “strictest” fair pay legislation in the country. While laudable for its goal of reducing wage disparity between male and female employees, the law likely will lead to an increase in costly wage disputes, including class actions. Employers should familiarize themselves with the law’s heightened standards to ensure compliance and take steps now to defend against potential litigation in the future.
Under the new law, employers are required to justify pay differences between male and female employees if the employees perform “substantially similar work,” regardless of geographic location and regardless of job title. This is a far cry from the former standard, which only required employers to justify pay differentials if the employees performed “equal work” in the “same establishment.” In fact, under the former standard, the law also automatically exempted certain gender wage differentials from scrutiny if the differentials were based on 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. The new law does away with these simple exemptions and places a new burden on the employer to affirmatively prove that a wage differential is actually and entirely based on such factors and that each applicable factor has been reasonably applied.
Employers should review their current payroll records to determine if any gender wage disparities exist and, if so, be prepared to explain them. Unfortunately, this is not likely to be an easy endeavor. While employers may have been able to rely on simple pay audits in the past, such audits are likely no longer sufficient. Pay audits are often based on job titles and job descriptions, which, under the law’s new provisions, may not accurately reflect “substantially similar” work and therefore not accurately show wage disparities. To ensure accuracy, employers may be forced to interview each individual employee or supervisor to determine what work is actually being performed at each location. While likely a costly endeavor, this may be the only way to “affirmatively” demonstrate that no actual pay disparities exist, or that they are justifiable if they do.
To further aid in providing an explanation for any wage disparities, employers should keep all job applications, resumes, interview notes, job descriptions, performance reviews, production records, tests and test results, personnel files, wage records, wage rates, job classifications, and any other documentation discussing terms and conditions of employment or explaining the basis for a personnel decision for at least three years.
Finally, employers should ensure they do not prohibit or actively discourage discussion about wages. The Fair Pay Act specifically targets the elimination of “pay secrecy” and has included strong anti-retaliation provisions to protect employees who disclose, discuss, or inquire about their own or co-workers’ wages for the purpose of enforcing their rights under the Act.
Special Meal Period Waiver Exception For Health Care Employees Becomes Law
In February 2015, a California Court of Appeals held that a special meal period waiver exception permitting healthcare workers to waive their entitlement to a second meal period was unlawful, causing significant confusion for medical service providers. Subsequently, in a rare win for employers, the California legislature amended the labor code to eradicate the confusion and preserve the exception.
As a brief review, California requires that employers provide employees with an unpaid 30 minute meal break after five hours of work and a second unpaid 30 minute meal break after 10 hours of work unless the total number of hours worked is less than 12 (in which case the second lunch may be waived). However, since at least 2001, pursuant to an Industrial Welfare Commission wage order, California has recognized a special exception for healthcare workers, which provides that healthcare workers who regularly work long workdays (in excess of eight hours) may voluntarily waive their right to one of the two meal periods, without regard to the length of the shift.
This healthcare worker exception, however, was found unlawful by the California Court of Appeals in Gerard v. Orange Coast Mem. Med. Ctr. The court explained that, contrary to the Industrial Welfare Commission’s interpretation, no such special exception actually existed. The California Labor Code only permitted the waiver of a second meal period for shifts that are longer than 10 hours if the total length of the shift is less than 12 hours.
This decision created confusion among employers who had long applied the special exception and could have become the basis for future class actions. The California legislature quickly acted to remedy the issue, passing S.B.327, which amended the California Code to explicitly provide for the special meal period waiver rules. Healthcare employers may now confidently rely on the “new” rule, provided that the waiver is documented in writing, signed by both the employer and the employee, and includes a notification that the employee may revoke the waiver at any time by providing the employer with at least one days’ written notice. Of course, employers must also ensure that any employee who waives his/her right to a second meal period is fully compensated for time worked.
No-Rehire Clauses May Void Settlement Agreements
Employers should be cautious in the use of “no rehire” provisions in settlement agreements based on a recent Ninth Circuit Court of Appeals ruling, which held that the provisions may be invalid if the facts and circumstances of the case demonstrate that the restriction “substantially” limits an individual’s pursuit of employment.
In Golden v. California Emergency Physicians Medical Group, a California emergency department physician sued his former medical practice group for discrimination after losing his staff membership. Shortly before trial, the parties agreed to settle the lawsuit in exchange for a monetary sum and a release of claims. The parties recited the agreement in open court before the district court judge, including as one of the provisions an agreement that Dr. Golden would not seek future employment with the medical group or any facility owned by the medical group at any time, whether currently or in the future. The clause also permitted the medical group to terminate Dr. Golden at any time if it acquired a medical facility at which Dr. Golden was subsequently employed. When the parties eventually reduced the agreement to writing, Dr. Golden refused to sign because it included this provision. The district court ordered the physician to sign the settlement agreement, but Dr. Golden refused and appealed.
On appeal, Dr. Golden argued that the provision might impermissibly restrain his professional practice in the future, in violation of California Business & Professions Code § 16600, which prohibits contracts that restrain an individual from engaging in a lawful profession. Further, because the term was, in Dr. Golden’s view, material, the entire settlement agreement should be voided, and his lawsuit should be reinstated.
The Ninth Circuit Court of Appeals agreed that the provision could potentially create an impermissible restraint on Dr. Golden’s professional practice but did not have the facts to make that ultimate determination. The court remanded the case to the lower court, directing it to obtain additional facts to determine whether the restraint on Dr. Golden’s practice was of a “substantial character,” such that it actually violated § 16600. Notably, the court rejected the district court’s conclusion that § 16600 did not apply merely because the no-rehire provision was not a “covenant not to compete.” The court explained that California’s strong public policy against restraints on lawful employment applies to all agreements, not merely covenants not to compete.
This case serves as a cautionary reminder that employers should draft every agreement carefully and avoid broad language that could be interpreted as restricting an employee’s right to obtain employment elsewhere. This is particularly true where an employer owns several subsidiaries, has several affiliates, or otherwise controls a substantial portion of the labor market. While the court in Golden did not decide whether the employer had actually violated § 16600 or what the effects might be, it may be best practice for California employers to avoid such provisions altogether. If the provision turns out to be overly broad and in violation of § 16600, an employer could face substantial liability. Including unlawful or unenforceable non-compete provisions in an agreement (and apparently not just an employment agreement) could be held to be an unfair business practice under the Business and Professions Code.
Family School Partnership Act Expanded
The Family School Partnership Act previously required employers with 25 or more employees to allow employees to use up to 40 hours of unpaid time (limited to eight hours in any calendar month) to participate in school or child care related activities. In 2015, the California legislature amended the Act to require employers to provide employees with the right to take the same job-protected leave to find, enroll, or re-enroll their children in a school or with a child care provider. The amendments also require that employers allow employees to take time off to address a “child care provider or school emergency.” This would include periods in which a child cannot remain at a school or with a child care provider because: (1) the school or child care provider has requested that the child be picked up or has an attendance policy (excluding planned holidays) requiring that the child be picked up; (2) there are behavior or discipline problems; (3) there is a closure or unexpected unavailability of the school or child care provider (again excluding planned holidays); or (4) there is a natural disaster.
Minimum Wage Increase / Overtime Eligibility Exemption Amount Changed
Effective, January 1, 2016, the California minimum hourly wage increased from $9.00 per hour to $10.00 per hour. This also affects the salary levels needed for employees to be exempt from overtime eligibility. The new minimum monthly salary for exemption is $3,467 (up from $3,170). The minimum annual salary is $41,600 (up from $37,440). (Employers should also be mindful of local ordinances, which may require an even higher minimum wage. For example, San Francisco currently has a minimum wage of $12.25, and several cities have recently voted on ordinances to progressively raise minimum wages to $15.00 per hour.)
Changes to Piece-Rate Compensation
There were a number of substantial changes to piece-rate compensation laws in 2015. In brief, new California Labor Code § 226.2 requires that piece-rate employees be compensated for (1) rest and recovery periods and (2) other non-productive time at or above specified minimum hourly rates, separate from any piece-rate compensation. “Other non-productive” time is defined as time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated for on a piece-rate basis. Employers should be sure to include on an itemized wage statement (1) the total hours of compensable rest and recovery periods, (2) the rate of compensation paid for such periods, and (3) the gross wages paid for such periods during the pay period.
Based on concern that E-Verify may be used to unlawfully discriminate against certain applicants or employees, the California legislature passed A.B. 622, which explicitly prohibits employers, except as required by federal law or as a condition of receiving federal funds, from using E-Verify to check the employment authorization status of an existing employee or an applicant who has not been offered a position of employment. Notably, the law authorizes civil penalties of up to $10,000 per violation, with each use of the E-Verify system constituting a separate violation. Thus, employers should be careful that they are using E-Verify in compliance with federal law.
California’s (Unruh) Civil Rights Act Adds New Protected Classes
In 2015, the Unruh Civil Rights Act was amended to add new protected classes. The Act now prohibits discrimination that is not only based on based on sex, race, color, religion, ancestry, national origin, age, disability, medical condition, marital status or sexual orientation but also citizenship, primary language or immigration status. The law does not, however, require that services or documents be provided in a language other than English.