2014 Update for California Employers
While 2013 was marked by some novel and interesting judicial and administrative decisions, including Quicken Loans (in which the National Labor Relations Board invalidated certain common employee handbook policies), Vance v. Ball State University (in which the U.S. Supreme Court established the parameters of who could be deemed a "supervisor" for employment discrimination purposes), Nelson v. Knight (in which the Iowa Supreme Court opined that an attractive female employee could be terminated because she was "too distracting" to the small business owner), and Purton v. Marriott (in which the California Court of Appeal addressed an employer's liability for accidents caused by alcohol consumption at its holiday party), the California Legislature also enacted a number of new bills that become effective in 2014.
Among the most significant of these are the following:
Minimum Wage Increase and Resulting Salary Increase to Maintain Exempt-Employee Status (AB 10)
The California minimum wage will increase to $9.00 per hour, effective July 1, 2014, and to $10.00 per hour effective January 1, 2016. A less-advertised consequence of this increase, however, is the impact it will have on the salary test for preserving an employee's exempt status. Under California law, a supervisor classified as exempt must be paid a monthly salary that is no less than two times the wages paid to a full-time minimum wage employee. After July 1, 2014, the minimum monthly salary to preserve exempt status under California Labor Code section 515, will rise to $3,120 per month, annualized to $37,440. As this change is scheduled to occur mid-year, employers are advised to make their adjustments early, if needed, to avoid this potential pitfall. In addition, under AB 442 the penalties available for minimum wage violations will now include "liquidated damages."
Wage Rate Increases for Computer Software Employees and Physicians
Labor Code sections 515.5 and 515.6 provide exemptions for overtime for certain computer software employees and licensed physicians who earn a set minimum wage that is adjusted annually by the Division of Labor Standards Enforcement. Effective January 1, 2014, the minimum hourly rate increased to $40.38 (from $39.90) for computer professionals and to $73.57 (from $72.70) for physicians, reflecting a 1.2 percent increase in the California Consumer Price Index. Affected employers should adjust their rates accordingly.
Meal Periods, Rest Breaks, And Now "Recovery Periods" (SB 435)
For several years, the California Code of Regulations has required employers of outdoor-working employees to allow their outdoor workers the opportunity to "take a cool-down rest in the shade for a period of no less than five minutes when they feel the need to do so to protect themselves from overheating." (Cal. Code. Regs., tit. 8, § 3395, subd. (d)(3).) Previously, an employer who failed to provide these cool-down recovery periods was subject to a citation issued by the California Division of Safety and Health. But now, effective January 1, 2014, SB 435 provides employees with a right, under California Labor Code § 226.7, to seek recovery of statutory damages each workday that an employer fails to provide an employee with these cool-down recovery periods. Employers with outdoor-working employees should review their current policies and practices to ensure that meal periods, rest breaks, and recovery periods are addressed and afforded.
Making It Harder For Prevailing Employers To Obtain Attorney's Fees And Costs In Wage Cases (SB 462)
California Labor Code Section 218.5 allows the "prevailing party" to recover attorney's fees and costs in any action brought for the nonpayment of wages (e.g., minimum or overtime wages), fringe benefits, or health and welfare or pension fund contributions. SB 462 amends Labor Code Section 218.5 to make it more difficult for employers to obtain attorney's fees and costs under this section. Indeed, effective January 1, 2014, to obtain attorney's fees and costs under Labor Code Section 218.5, an employer must not only be the "prevailing party" in such an action, but the court must also find that the "employee brought the court action in bad faith." On the other hand, due to the enactment of AB 1386, which amends Section 98.2 of the Labor Code, a final order of the Division of Labor Standards Enforcement can create a lien on the employer's real property to secure amounts due to a prevailing employee-claimant. Unless the lien is satisfied or released, it will continue for 10 years after the date of its creation.
The IRS To Begin Enforcing Its Rule That Automatic Gratuities Are Wages, Not Tips
Restaurants often add automatic gratuities on the bill of large parties (for example, a 20% automatic gratuity for parties of eight or more). Previously, for IRS purposes, these automatic gratuities were considered part of an employee's "tips," and thus the employee could pocket their share of automatic gratuities, and it was up to the employee to report them to their employer and on their tax return. Starting in 2014, however, the IRS will treat an employee's portion of automatic gratuities as the employee's regular wages and, as such, they will be subject to tax withholdings by the employer. Thus, employees will now receive their portion of automatic gratuities as part of their normal paychecks, and employers will be tasked with the responsibility of actively monitoring these wages, performing the necessary tax withholdings, and correctly reporting these wages to the IRS. Notably, because automatic gratuities will now be considered part of an employee's regular wages for IRS purposes, employers should analyze whether they are required to account for these automatic gratuities when computing an employee's overtime rate.
Wage Withholdings (SB 390)
Under Labor Code Section 227, it is unlawful for an employer to willfully, or with the intent to defraud, fail to make agreed-upon payments to health and welfare funds, pension funds or vacation plans, or other various benefit plans. SB 390 amends this provision so that it is now also unlawful for an employer to fail to remit withholdings from an employee's wages that were made pursuant to state, local, or federal law, such as taxes. SB 390 further provides that in criminal proceedings under this section, any withholdings that are recovered from an employer shall be forwarded to the appropriate fund or plan and, if restitution is imposed, the court shall direct to which agency, entity, or person it shall be paid.
Criminal History Inquiries (SB 530)
On October 10, 2013, Governor Jerry Brown approved SB 530, which amends California Labor Code Section 432.7 to include additional prohibitions for employers related to pre-employment inquiries into an individual's prior criminal history. California law already prohibits employers from asking applicants to disclose, or from using, arrest records. Effective January 1, 2014, employers are prohibited from asking job applicants to disclose, or from utilizing as a factor in determining any condition of employment, information concerning a conviction that has been judicially dismissed or ordered sealed. SB 530 exempts employers from the above requirements in the following circumstances: (1) the employer is required by law to obtain such information; (2) the applicant would be required to possess or use a firearm during the course of the employment; (3) an individual who has been convicted of a crime is prohibited from holding the position sought by the applicant, regardless of whether that conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation; and (4) the employer is prohibited by law from hiring an applicant who has been convicted of a crime.
As with the existing version of Section 432.7, SB 530 allows an applicant to recover from an employer the greater of actual damages or two hundred dollars ($200), plus costs and reasonable attorneys' fees, for a violation of the statute and the greater of treble actual damages or five hundred dollars ($500), plus costs and reasonable attorneys' fees, for an intentional violation of the statute. An intentional violation of the statute is a misdemeanor punishable by a fine not to exceed five hundred dollars ($500).
This expanded protection for applicants with criminal conviction records supplements the federal government's recent efforts on this topic. The U.S. Equal Employment Opportunity Commission has published an Enforcement Guidance on the consideration of conviction records in employment decisions. In order to avoid claims of disparate treatment or impact, the EEOC recommends that employers develop narrow policies that determine the specific criminal offenses that may demonstrate unfitness for particular jobs. The EEOC recommends individualized assessments as opposed to blanket policies. Employers should carefully review their job application form to ensure compliance with these new requirements.
Domestic Worker Bill of Rights (AB 241)
Another wage-and-hour change comes from the Domestic Worker Bill of Rights, which took effect January 1, 2014. The new legislation establishes, among other things, overtime compensation at a rate of one and one-half times the regular rate of pay to caregivers who work more than nine hours a day or more than 45 hours a week. Covered caregivers include those who provide one-on-one care for 80 percent or more of their duties, such as nannies and in-home caregivers of the elderly or disabled. It does not cover babysitters, family members who provide babysitting services, or caregivers of low-income individuals through California's In Home Supportive Service. Caregivers who work at facilities that provide lodging or boarding are also excluded.
Victims' Rights to Time Off From Work (SB 288)
Employers may not retaliate or discriminate against employees who are victims of certain felony crimes, domestic violence or sexual assault for taking time off from work to appear in court or to obtain prescribed relief. A new addition to California Labor Code -- Section 230.5 -- now will also prohibit an employer from terminating or discriminating against an employee who is a victim of certain additional specified criminal offenses from taking time off to appear in court. These specified offenses include vehicular manslaughter while intoxicated, felony child abuse, felony stalking and many other "serious felonies." The employee-victim may take such time off from work to appear in court to be heard at any proceeding involving a postarrest release decision, plea, sentencing, postconviction release decision, or any proceeding in which a right of the victim is at issue. Employers should include a policy addressing this leave of absence right in their employee handbooks.
Victims of Stalking (SB 400)
Sections 230 and 230.1 of the California Labor Code set forth various protections for victims of domestic violence or sexual assault. SB 400 expands these protections to victims of stalking and also requires employers to provide "reasonable accommodations" to such victims. The bill defines reasonable accommodations to include a transfer, reassignment, modified schedule, changed work telephone, changed work station, installed lock, an implemented safety procedure, or another adjustment to a job structure, workplace facility, or work requirement in response to domestic violence, sexual assault, or stalking, or referral to a victim assistance organization. As with reasonable accommodations for disabilities, employers must engage in a timely, good faith, and "interactive process" with the affected employee to determine effective reasonable accommodations. Again, language should be added to an employee handbook to address this new right.
Family Temporary Disability Insurance Program (SB 770)
Beginning on July 1, 2014, the scope of the family temporary disability program will be expanded to include time off to care for a seriously ill grandparent, grandchild, sibling or parent-in-law. The employee's certification required to qualify to take such leave to care for a family member must include a number of items, including a statement that the serious health condition warrants the participation of the employee to care for the family member. "Warrants the participation of the employee" includes providing psychological comfort as well as arranging third party care for the family member.
Sexual Harassment Definition Clarified (SB 292)
SB 292 amends the definition of harassment under California law to clarify that sexually harassing conduct does not need to be motivated by sexual desire. This law is intended to overturn the decision in Kelley v. Conoco Companies which had affirmed summary judgment against the plaintiff in a same-sex harassment case on the grounds that the plaintiff had failed to prove that the alleged harasser harbored sexual desire for the plaintiff. This legislation may signal an interest by Sacramento in passing broader "anti-bullying" protections for California employees.
Expansion of Employee Whistleblower Protections (SB 496)
On October 12, 2013, California Governor Jerry Brown signed into law SB 496, which amends Section 1102.5 of the California Labor Code to provide greater whistleblower protections to employees who disclose information related to their employer's alleged violations of or failure to comply with the law. Specifically, SB 496 now provides that an employee's disclosure of information to a government or law enforcement agency regarding their employer's violation of local rules or regulations is a legally protected disclosure. Formerly, employees were only protected if they disclosed information regarding their employer's noncompliance with state and federal laws. Employees now enjoy complete whistleblower protection for disclosing information if the employee has reasonable cause to believe that the information shows a violation of a state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. Also, disclosures made to a supervisor of another employee who has the authority to investigate, discover and correct the alleged legal violation is a significant expansion of the protection under SB 496. Interestingly, the statute's expansion now also includes the circumstance where the employer merely "believes the employee disclosed or may disclose information." Employers are subject to steep civil penalties, up to $10,000 per violation, if they prevent or retaliate against an employee for an employee's disclosure of information related to their employer's violation of the law or refusal to participate in any activity which would result in a violation of local, state, or federal law.
Unfair Immigration-Related Practices (AB 263, SB 666)
AB 263 amends several sections of the California Labor Code, all with the goal of providing greater employee protections for making complaints regarding unsafe, unfair and illegal work practices. First, AB 263 amends Section 98.6 of the Labor Code to include an employee's written or oral complaint of unpaid wages as a legally protected activity. Employers may not discharge or in any manner discriminate, retaliate or take any adverse action against an employee for making such a complaint regarding unpaid wages owed to them. Under AB 263, employers are now at risk of facing a civil penalty of up to $10,000 per employee for each violation for failing to comply with Section 98.6.
AB 263 further amends the Labor Code by adding protections for immigrant employees. Under the new Unfair Immigration-Related Practices section of the Labor Code (sections 1019 et seq.), employers may not engage in any unfair immigration-related practice, as defined under the statute, against any employee for the purpose or intent of retaliating against employees for the exercise of any right afforded to them under the law. The term "unfair immigration-related practice" is defined to include: (i) requesting more or different documents than are required under federal immigration law, (ii) refusing to honor immigration-related documents that on their face reasonably appear to be genuine; (iii) using the federal E-Verify system to check the employment authorization status of a person at a time or in a manner not required by federal law, (iv) threatening to file or the filing of a false police report, and (v) threatening to contact immigration authorities. Now, without the threat of reprise from their employer regarding their immigration status, employees are allowed to (1) make a good-faith complaint or disclosure of an employer's violation of or noncompliance with any federal, state or local law; (2) seek information regarding their employer's compliance with federal, state or local laws; or (3) inform and assist other employees of their rights or remedies under the law. Employers are subject to heavy sanctions for any unlawful threat, attempt, or actual use of an employee's immigration status to retaliate against an employee for engaging in legally protected workplace activities. Sanctions may include, but are not limited to, up to a 90-day suspension of the employer's business licenses and a host of other civil damages.
Another legislative enactment, SB 666, provides that businesses licensed under the Business and Professions Code (including lawyers, accountants, engineers, and contractors) are subject to suspension, revocation, or disbarment if they are determined to have reported or threatened to report an employee's, former employee's, or prospective employee's citizenship or immigration status, or the citizenship or immigration status of a family member of the same, to a federal, state, or local agency because the employee, former employee, or prospective employee exercises a right under the provisions of the Labor Code, the Government Code, or the Civil Code. In addition to any other remedies available, the bill provides for a civil penalty, not to exceed $10,000 per employee for each violation, to be imposed against a corporate or limited liability company employer. The bill contains an important exception, stating that an employer is not subject to suspension or revocation for requiring a prospective or current employee to submit, within three business days of the first day of work for pay, an I-9 Employment Eligibility Verification form. (Beginning not later than January 1, 2015, the DMV will be required to issue driver's licenses to certain non U.S. citizens, although this particular form of driver's license may not be used to verify employment eligibility for purposes of a Form I-9.)
Finally, certain unfair immigration-related practices are also a crime. For example, Penal Code section 518 defines "extortion" as the obtaining of property from another, with his/her consent, or the obtaining of an official act of a public officer, induced by a wrongful use of force or fear. Extortion is punishable as a felony by up to four years in jail. AB 524, which amends the Penal Code, provides that "wrongful use of force or fear" now includes the threat to report an individual or their family’s immigration status or suspected immigration status.
Expansion of Leaves of Absence for Emergency Duty (AB 11)
Existing California law requires employers to provide temporary leaves of absence for volunteer firefighters so that they could attend required fire or law enforcement trainings. AB 11 expands the protected leave rights for volunteer firefighters, reserve peace officers, and emergency rescue personnel, and allows for leave for emergency rescue training in addition to fire or law enforcement training. The law applies only to employers with 50 or more employees. Under the law, employees that are fired, threatened with being fired, demoted, suspended, or otherwise discriminated against because they took time off for qualifying training are entitled to reinstatement and reimbursement for lost wages and benefits. Employee handbooks should be revised to comply with this expanded law.
Military and Veteran Status Is Now a Protected Category Under the FEHA (AB 556)
AB 556 broadens the scope of "protected categories" under the California Fair Employment and Housing Act to include "military and veteran status." Under the law, an employee with "military and veteran status" is defined as a member or veteran of the United States Armed Forces, United States Armed Forces Reserve, the United States National Guard, and the California National Guard. The law provides an exemption in circumstances where an employer makes an inquiry into an employee's military status to afford the employee preferential treatment in hiring. All equal employment opportunity policies should now include this additional protected category.
Family Friendly Workplace Ordinance
San Francisco's Family Friendly Workplace Ordinance ("FFWO") became effective on January 1, 2014. As currently written, the ordinance applies to employers with 20 or more employees, although an amendment is expected to pass early in the year which will clarify that the ordinance applies regardless of where the 20 employees are based. The ordinance provides employees who are employed within San Francisco, who have been employed for six months or more, and who work at least eight hours per week with the right to request flexible work arrangements to assist with caregiving responsibilities. Such requests may include but are not limited to modified work schedule, changes in start and/or end times for work, part-time employment, job sharing arrangements, working from home, telecommuting, reduction or change in work duties, and predictability in the work schedule. The employee may request the flexible or predictable working arrangement to assist with care for a child or children under the age of eighteen, a person or persons with a serious health condition in a family relationship with the employee, or a parent (age 65 or older) of the employee. Within 21 days of an employee’s request for a flexible or predictable working arrangement, an employer must meet with the employee regarding the request. The employer must respond to an employee’s request within 21 days of that meeting. An employer who denies a request must explain the denial in a written response that sets out a bona fide business reason for the denial and provides the employee with notice of the right to request reconsideration. The ordinance also has posting and recordkeeping obligations and prohibits retaliation for exercising rights protected by the ordinance. Employers with any San Francisco based employees (whether they telecommute or otherwise) should consider revisions to employee handbooks, comply with posting obligations (in English, Spanish, Chinese and any language spoken by at least 5% of the employees the workplace or job site), and establish a procedure to timely handle written requests for flexible work arrangements under the FFWO.
Employers throughout California (whether in San Francisco or not) should also be aware of possible discrimination against workers with caregiving responsibilities, as this might constitute employment discrimination based on sex, disability or other protected characteristics. Some of these issues are summarized in the EEOC's guidance entitled "Employer Best Practices for Workers With Caregiving Responsibilities."