WSGR ALERT

New Changes to California Employment Laws Signed by Governor Brown

October 14, 2011

Governor Jerry Brown has been busy in the last few weeks signing into law a number of bills that will have significant impact on California employers. In light of the new laws, California employers will need to take prompt action to revise a number of their employment policies and practices. Specifically, employers should consider reviewing and revising their hiring and compensation practices, employee handbooks, posters, leave of absence administration, and healthcare coverage.

The sweeping changes to California employment laws are summarized briefly below. Except as indicated, the new laws will take effect on January 1, 2012.

Wilson Sonsini Goodrich & Rosati will be hosting a webinar to further discuss these changes in the near future.

Pay Rate Notices Required for New Hires/AB 469

The Wage Theft Prevention Act of 2011 amends the California Labor Code by adding a section that requires employers to provide employees with a written notice at hiring (in English or the employee's primary language) containing all of the following:

  • The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime
  • Any allowances claimed as part of the minimum wage, including meal or lodging allowances
  • The regular payday designated by the employer
  • The name of the employer, including any "doing business as" names used by the employer
  • The physical address of the employer's main office or principal place of business and a mailing address, if different
  • The telephone number of the employer
  • Any other information the labor commissioner deems material and necessary. The labor commissioner will provide a template of the notice, which may include additional material.

If the information contained on the notice provided at the time of hiring changes, employers must provide an additional notice within seven days unless all of the information already is included on the employee's paystub.

This notice must be provided to non-exempt employees unless they are covered by a collective-bargaining agreement that provides an hourly rate exceeding 30 percent of the state minimum wage. Public employees and exempt employees are specifically excluded. However, given the significant number of wage and hour class actions focused on exemption misclassification, private employers may want to consider providing such notices as a matter of course to all employees.

Additional Penalties Added for Misclassification of Independent Contractors/SB 459

Following the Department of Labor's (DOL's) "get serious" approach to the misclassification of employees as independent contractors, Sections 226.8 and 2753 have been added to the California Labor Code authorizing the Labor Workforce Development Agency to assess civil penalties of not less than $5,000 and not more than $15,000 for each violation in addition to those already permitted by law.1 The civil penalties increase to between $10,000 and $25,000 for each violation if the person or employer has engaged in a pattern or practice of willful independent-contractor misclassifications. Additionally, employers or persons who are licensed contractors under the Contractors' State License Law could be subject to disbarment if they are found in violation.

The new law also will have particular significance to California professionals who assist companies in making classification determinations. The new legislation makes such individuals jointly and severally liable with the employers if they knowingly advise employers to misclassify employees as independent contractors. As a result, many professionals may be unwilling to assist employers in their efforts to properly determine classification status. The provision does not apply to licensed attorneys, human resources employees, or other employees providing advice to their employer. Notably, consultants and tax advisors are not excluded.

Any employer found to have willfully misclassified employees as independent contractors may be required to post a notice regarding the violation on their websites or in an area accessible by all employees and customers for up to one year following the violation. Such postings likely will be reviewed by attorneys seeking targets for wage and hour class actions.

In view of the foregoing changes, employers promptly should undertake comprehensive and privileged reviews of the classification of their independent contractors and consultants with the assistance of WSGR or licensed in-house attorneys.

California Employers Must Continue Existing Health Benefits During All Pregnancy Leaves/SB 299

On October 6, 2011, Governor Brown signed SB 299, which prohibits an employer from refusing to maintain and pay for health insurance for an employee taking pregnancy disability leave (PDL). Companies that employ five or more employees must allow a female employee who is disabled by pregnancy, childbirth, or a related medical condition to take an unpaid job-protected leave for a reasonable time of up to four months. Prior to the passage of SB 299, employers were not required to provide health insurance to employees on PDL unless either (1) the employer provided benefits for other temporary disabilities leaves and/or (2) the employee was also eligible for leave under FMLA. Under the new statute, an employer must continue to provide an employee's existing group health insurance coverage while on the employee is on PDL. The coverage must remain at the same level and under the same conditions that would have been provided if the employee had not taken the leave.

Gender Identity and Gender Expression Added as Protected Classifications/AB 887

The Gender Nondiscrimination Act amends the state's Fair Employment and Housing Act, the Unruh Civil Rights Act, and other nondiscrimination laws to include "gender identity" and "gender expression" as distinct protected categories. While California anti-discrimination laws already define "gender" to include a person's gender identity and gender expression, their enumeration as protected categories clarifies that gender identity and expression are included in the definition of gender and sex in all California codes.

In addition to reviewing and editing their uniform and dress, grooming, and appearance policies, employers should tread carefully with respect to areas that may relate to gender in the absence of additional clarification or regulations providing compliance guidance. Such areas include, but are not limited to, enforcement of sexual harassment policies, administration of employee benefit plans, and policies regarding restroom usage, as well as any other policies that might be related to gender identity or gender expression.

Employers changing their health plans should also note that Section 10121.7 of the California Insurance Code has been amended to require that "a policy of group health insurance that provides hospital, medical, or surgical expense benefits shall provide equal coverage to employers or guaranteed associations. . .for the registered domestic partner of an employee, insured, or policyholder to the same extent, and subject to the same terms and conditions, as provided to a spouse of the employee, insured, or policyholder, and shall inform employers and guaranteed associations of [such] coverage."

Background Credit Reports No Longer Broadly Permitted/AB 22

In addition to the wage notice requirements referenced above, new legislation adds additional burdens on employer hiring practices. Employers typically use background credit reports during the hiring process to narrow the pool of applicants who will be considered for a position, believing that access to credit information provides valuable insight into an applicant's trustworthiness and ability to manage their personal finances. Under previous California state law, an employer could request a credit report for these purposes as long as the employer provided prior written notice. The law only required the notice to state that such a report was being gathered, name the source of the report, and provide a way for the individual to request a copy of the report. Many employers developed extensive materials to comply with these requirements and to undertake background checks, including credit reports.

The new law significantly limits an employer or prospective employer's ability to collect such information. Under the new rule, employers or prospective employers are prohibited from obtaining a consumer credit report for employment persons unless the position of the person for whom the report is being sought is: (1) a position in the state Department of Justice; (2) a managerial position; (3) that of a sworn peace officer or other law enforcement position; (4) a position for which the information contained in the report is required by law to be disclosed or obtained; (5) a position that involves regular access to specified personnel information for any purpose other than the routine solicitation and processing of credit-card applications in a retail setting; (6) 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; (7) a position that involves access to confidential or proprietary information; or (8) a position that involves regular access to $10,000 or more of cash. The new law also requires that the written notice informing the person for whom a consumer credit report is sought include the applicable reason for obtaining the report.

As a result, unless the job for which an applicant is applying meets one of the exceptions, employers will no longer be able to obtain a consumer credit report to assist in evaluating candidates. Furthermore, even if the position does meet one of the exceptions, employers likely will need to revise their job application forms to include the specific reasons for obtaining the report.

Commissions Plans in California Must Be in Writing/AB 1396

Effective January 1, 2013, all employers of California employees must document commission agreements in writing. In particular, the contract must specify the method by which the commissions will be computed and paid. Employers must provide a copy of the contract to each employee and they must obtain receipts signed by the employees. Accordingly, employers should ensure that each employee's personnel file includes a copy of the signed agreement. Notably, the law also indicates that where a commission agreement expires, the agreement is presumed to remain in full force and effect until superseded or terminated. Given this presumption, employers should consider whether allowing a commission agreement to continue indefinitely addresses their business needs by filling the gap between plan years, or whether including a specific termination date is advisable. Finally, the definition of commissions excludes bonuses and profit-sharing plans unless "there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed." Employers with bonus or profit-sharing plans that include a fixed percentage based on sales or profits should examine their plans to determine whether they wish to retain that computation method and comply with these requirements, or revise their plans to adopt a different computation method.

Prohibition against Retaliation for taking Protected Leaves of Absence Clarified/AB 592

On October 9, 2011, Governor Brown signed AB 592 clarifying that employers who interfere with an employee's leave of absence under the Pregnancy Disability Leave (PDL) statute or the California Family Rights Act (CFRA) face significant potential liability. PDL and CFRA provide employees the right to take job-protected leaves when a woman is disabled by pregnancy or related conditions, or to care for the employee's serious health condition, among other reasons. Prior to the passage of AB 592, California law only expressly prohibited an employer from refusing to allow an employee to take PDL or CFRA leave. AB 592 clarifies that it is not making changes to the law, but is merely declaratory of existing law, which now makes it an unlawful employment practice to "interfere with, restrain, or deny the exercise or the attempt to exercise" rights under PDL or CFRA. This clarification brings California law into line with the federal Family Medical Leave Act.

E-Verify Not Required Under California State Law, Federal Law Not Impacted/(AB 1236)

The Employment Acceleration Act of 2011 prohibits California state or local government entities from requiring employers to use an electronic employment verification system, such as E-Verify2, except when required by federal law or as a condition of receiving federal funds. The Employment Acceleration Act specifically bars making the use of E-Verify a condition of receiving a California government contract or a California business license.

Accordingly, the Employment Acceleration Act nullifies several immigration enforcement ordinances that required employers to use E-Verify in several Inland Empire cities. However, the Employment Acceleration Act does not impact federal contractors or employers receiving certain types of federal funds. These employers still will be required to follow federal law and use E-Verify, as they have since 2009. Furthermore, federal legislation that conflicts with the Employment Acceleration Act is currently pending in Congress. If passed, the federal Legal Workforce Act could trump California's Employment Acceleration Act and force most employers nationwide to use a system similar to E-Verify.

For now, the Employment Acceleration Act guarantees many California employers the right to choose whether or not to use an electronic employment verification system. However, California employers should watch for updates, as the federal Legal Workforce Act could change that in the future.

Contact WSGR for More Information

The changes to the California employment laws listed above represent some of the most significant changes to California law in many years. Unfortunately, companies have very little time before the New Year to get their policies and practices into compliance. If you have any questions or need assistance in ensuring compliance with the statutes discussed, please consult a member of Wilson Sonsini Goodrich & Rosati's employment law practice.


1 For additional information regarding the DOL's approach, as well as additional incentives for the state of California to find violations, please see the WSGR Alert titled, "Feds Target Independent Contractor Misclassification" at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-independent-contractor-misclassification.htm.

2 Operated by the Department of Homeland Security in partnership with the Social Security Administration, E-Verify is an online system designed to confirm employment eligibility. The system attempts to match the information provided on an employee's I-9 Form with the employee's Social Security Administration record in order to verify that the employee is authorized to work in the United States.