This year was a fairly active one for the California Legislature on the employment law front. Furthermore, with the Jerry Brown administration now in charge, more employment legislation is being signed into law than in years past. In 2011, we saw the enactment of numerous new California employment laws with which all employers doing business in California should make themselves familiar. Following is a summary of the principal new employment-related laws, most of which go into effect on January 1, 2012.
AB 469 — Wage Theft Prevention Act
This new law, operative as of January 1, 2011, implements a raft of changes to California employment law. The more significant aspects of the law are the following:
New Disclosure Requirements
Employers will now be required to provide a notice to employees at hire. The notice must contain the following information: 1) the employee’s rate(s) of pay and the basis thereof; 2) any allowances claimed as part of the minimum wage (such as meal or lodging allowances); 3) the employee’s regular payday; 4) the employer’s name (including any "doing business as" names); 5) the physical and mailing address of the employer’s main office or principal place of business; 6) the employer’s telephone number; and 7) the name, address, and telephone number of the employer’s workers’ compensation carrier. The Labor Commissioner will be preparing a template for employers to use. The employer is required to provide additional notices (which may be contained in wage statements) to employees within seven calendar days if any of the above information changes. These requirements to not apply overtime exempt employees, employees of the state or its subdivisions, or employees covered by collective bargaining agreements meeting certain minimum requirements.
Minimum Wage Restitution
Employers who are found to have failed to pay employees the minimum wage will, in addition to paying civil penalties, now be required to pay restitution to employees for unpaid minimum wages.
Limitations Period for Penalty Collection
The time in which the state may seek to collect penalties from employers for violations of the Labor Code has been extended from one year to three years.
Extended Recordkeeping Requirements
Payroll records must now be maintained for three years (rather than two). Additionally, employers may not prohibit employees from keeping their own personal records of hours worked.
Attorneys' Fees for Enforcing Court Judgments
Employees may now recover attorneys’ fees and costs incurred to enforce a court judgment for unpaid wages.
Enhanced Bond Requirement
The Labor Commissioner will now be able to require an employer who is convicted of a wage violation to maintain a bond for two years (formerly six months). Failure to maintain the bond may result in an accounting of the employer’s assets and penalties.
An employer who willfully fails to timely pay a court judgment for wages will now be guilty of a misdemeanor and subject to fines and/or imprisonment.
SB 459 — Penalties for Misclassification of Independent Contractors
California is firing a shot across the bow of employers who are improperly classifying their employees as "independent contractors." Under this new law, which goes into effect on January 1, 2012, an employer who willfully (i.e., voluntarily and knowingly) misclassifies an employee as an independent contractor will be assessed a penalty of between $5,000 and $25,000 per violation. An employer found to be in violation also must prominently place a notice on its Web site (or in a prominent physical location if the employer has no Web site) reporting the violation for one year. The notice must include the following information: 1) that the employer was found to be in serious violation of the law by misclassifying employees as independent contractors; 2) that the employer has changed its applicable business practices; 3) that any employee who believes he/she is misclassified as an independent contractor may contact the Labor and Workforce Development Agency; and 4) that the notice is being posted pursuant to a state order. Licensed contractors will also be disciplined by the State License Board. Any person (other than attorneys or the employer’s own employees) who knowingly advises an employer to misclassify employees as independent contractors may be jointly liable for penalties.
Special Note Regarding IRS Amnesty Program for Misclassified Independent Contractors
State and federal authorities are shining an increasingly intense spotlight on misclassification of employees as independent contractors, chiefly because of lost revenue. Employers are not required to withhold payroll taxes from independent contractors and employers can expect cash-strapped governments to be highly motivated to recover unpaid tax revenue from employers who have not been withholding taxes for "independent contractors" who are actually employees. Employers who believe that they may have employees misclassified as independent contractors should be aware that the IRS has announced a Voluntary Worker Classification Settlement Program (VCSP) that would allow employers to voluntarily bring their misclassified employees onto their payrolls while paying only a small fraction of the back-taxes that would otherwise be owed and no penalties or interest. In return, the employer must agree to an extended statute of limitations on assessment of employment taxes for the following three years. To be eligible, an employer must have consistently treated the workers as non-employees in the past, must have filed all required Forms 1099 for the previous three years, and must not currently be under audit by the IRS or by the Department of Labor or a state agency concerning the status of the workers.
Participating in the VCSP may be an excellent way for employers to rectify a misclassification situation without incurring significant IRS liability. However, employers considering participating in the program should be aware of the potential risks involved. For example, while federal taxes may be largely avoided, a participating employer might expose itself to state tax liabilities and penalties such as those created by SB 459. Additionally, participating employers could still be sued by former independent contractors (now employees) for unpaid benefits and other compensation that should have been paid during the period when they were misclassified. For these reasons, employers who think they may have a misclassification issue should consult with legal counsel before taking action.
AB 22 — Prohibition on Use of Credit Report Information in Employment
California employers are already subject to state and federal laws that regulate the use of consumer credit reports for employment purposes and impose disclosure requirements. This new California law would prohibit employers (with the exception of certain financial institutions) from obtaining consumer credit reports for employment purposes with respect to most employees and applicants. Employers may continue to obtain consumer credit reports for the following employees/applicants:
The law also requires employers to inform employees for whom consumer credit reports are obtained of the specific reasons for obtaining the report.
AB 240 — Liquidated Damages in Minimum Wage Cases
Effective January 1, 2012, in cases of unpaid minimum wages brought before the California Labor Commissioner, employees will be able to collect "liquidated" damages equal to the amount of unpaid wages plus interest. These liquidated damages would be awarded in addition to the actual unpaid minimum wages. Previously, liquidated damages were available only in an action brought in court.
AB 887 — Gender Identity Discrimination
California law already prohibits discrimination based on an employee’s gender, including gender identity and gender-related appearance and behavior. This law makes technical changes to the Fair Employment and Housing Act and other anti-discrimination laws to more clearly state these prohibitions. "Gender expression" is defined as "a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth." Employees must be permitted to dress consistently with their gender expression.
AB 1396 — Commission Agreements to Be in Writing
This law is a fix for an existing California statute that was held unconstitutional. Existing California Labor Code § 2751 required employers with no permanent or fixed place of business in California to put commission pay agreements with California-based employees in writing. In 1999, a federal court ruled that this statute violated the U.S. Constitution by improperly burdening out-of-state employers. The new law amends Labor Code § 2751 by requiring all employers who enter into commission agreements for services to be rendered in California to put those agreements in writing. The agreement must set forth the contemplated method of commission payment, signed copies must be given to employees, and the employer must obtain signed receipts of the agreements from employees. If a written commission agreement expires, its terms are presumed to continue until the agreement is superseded or the employee is terminated. Finally, the law repeals a triple-damages provision that formerly applied to violations. Unlike most of the laws discussed here, employers have a grace period to update their policies – the law goes into effect on January 1, 2013.
SB 272 — Clarification of Bone Marrow and Organ Donation Leave
In 2010, California adopted two new unpaid leave entitlements for employees: 30 days for organ donors and five days for bone marrow donors in a one-year period. This new law makes clear that the "days" of leave to which donors are entitled are business days, rather than calendar days. Additionally, the one-year eligibility period begins to run when the donor’s leave begins. Finally, the law clarifies that an employer may require employees taking donor leave to exhaust unused sick, vacation, or paid time off (up to five days for marrow donors and up to two weeks for organ donors). Although leave is unpaid, employers are required to maintain paid health coverage during the leave. Because these are "clarifications" rather than changes in existing law, they took effect immediately.
SB 299 — Extended Health Coverage During Pregnancy Disability Leave
Effective January 1, 2012, employers must continue paid group health coverage for up to four months (rather than the 12 weeks required under the FMLA and CFRA) for employees on pregnancy disability leave (PDL) pursuant to the California Fair Employment and Housing Act, which covers employers with five or more full-time employees.
SB 559 — Genetic Information Discrimination Act
Federal law already prohibits employment discrimination based upon genetic information. This new law amends California law to also prohibit genetic information-based employment discrimination (as well as such discrimination in housing, mortgage lending, education, and public accommodation). However, the California prohibition is broader than federal law in that it applies to employers with a few as five full-time employees and allows for uncapped damages. This law takes effect in 2012.
SB 757 — Health Insurance Coverage for Domestic Partners
This law broadens the requirements placed on health insurance policies marketed, issued, or delivered to California residents, including employee benefit plans. Existing law requires such policies to provide the same coverage to registered domestic partners as is offered to spouses. However, currently, a policy issued outside of California to an employer whose principal place of business and a majority of whose employees are located outside of California is exempt from the this requirement. This law would eliminate this exception by providing that no policy or certificate of health insurance marketed, issued, or delivered to a California resident may discriminate between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex. This law does not place any requirements directly on California employers, but will place limitations on the types of policies that may be made available to them.
Minimum Salary Requirements for Exempt Computer Professionals and Physicians
California is raising the minimum salary required to qualify for the "computer professional" overtime exemption for the first time since 2009. Effective January 1, 2012, computer professionals must be paid a minimum of $38.89 per hour or $81,026.25 annually and not less than $6,752.19 per month, a 2.5 percent increase from the previous rate. Likewise, the minimum rate for exempt physicians is going up by 2.5 percent to $70.86 per hour effective January 1, 2012. Physicians and computer professionals must continue to meet the duties tests for their respective exemptions in order to qualify.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:
John H. Douglas
San Francisco, California
Scott P. Inciardi
San Francisco, California