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2017 Legislative Update for California Employers

The California 2016 legislative session produced an array of new laws, although most were overshadowed by the presidential election.  Other overshadowing events included the federal Department of Labor’s regulations increasing the minimum salary for overtime exemptions and California’s voter proposition legalizing marijuana.

1.  Impact of California’s Legalization of Marijuana on the Workplace

Voter Proposition 64 decriminalized certain usage of marijuana while creating considerable confusion for employers and employees.  Many questions have arisen as to whether a positive drug test for marijuana would have any impact on a going forward basis given that it could have been ingested legally, at least according to state law.

Employers should keep in mind that federal law continues to classify marijuana as an illegal drug.  Although not well-publicized, the new California law specifies that the rights and obligations of employers to maintain a drug free workplace, as well as policies prohibiting the use of marijuana by employees and prospective employees, continue as before.  Thus, ingesting marijuana on the job or being under the influence or otherwise impaired by it may be prohibited by employers.  Indeed, most “drug free workplace” policies contain (or should contain) reference to impairment via prescription and other legal over-the-counter medications.

2.  Minimum Wage in California

SB 3 provides that California’s minimum wage will increase as of January 1, 2017 to $10.50 per hour for employers who have more than 25 employees.  For those with 25 or less employees, the minimum wage will remain $10 per hour until January 2018.  SB 3 further provides that future increases to the minimum wage will be based on the Consumer Price Index.

According to AB 2899, if the Labor Commissioner issues a ruling that an employer has failed to properly pay the minimum wage, the employer must post a bond in order to appeal.  The bond must be in an amount equal to the unpaid wages.  Employers should note that complaints filed with the Labor Commissioner (i.e., the Division of Labor Standards Enforcement) frequently include claims for failure to pay minimum wage when the allegations include some portion of unpaid time.

3.  Minimum Salary Levels for Overtime Exempt Employees

Following the federal Department of Labor’s regulations increasing the minimum salary required for overtime exemption classifications under the Fair Labor Standards Act (FLSA) to $47,476 per year, employers have been busy planning how best to comply.   Then, a few weeks ago, a federal district court in Texas issued a preliminary injunction which, in effect, puts on hold the FLSA regulations that were to go into effect on December 1, 2016.  This is not yet a permanent overturning of the regulations, although regardless of the court’s decision, the current President-elect’s administration is expected to take action to “un-do” them.

Employees in California are nonetheless covered by California law regarding overtime exemption classifications.  The minimum salary for most California exemptions will be $43,680 per year as of January 1, 2017 for employers with more than 25 employees (due to the new minimum wage as described above).  The minimum salary threshold for California employers with 25 or less employees will remain $41,600 per year for 2017.  In order to maintain overtime exemption status, employees must be paid at least this minimum threshold, along with performing duties that qualify under one of the exemption classifications.

In order to qualify for the California computer professional exemption as of January 1, 2017, employees must be paid at least $42.35 per hour, $7,352.26 per month or $88,231.36 per year.

California law currently provides an overtime exemption for certain teachers at private elementary and secondary schools that requires a minimum salary of two times the state minimum wage.  A new law (AB 2230) goes into effect July 1, 2017, with the intended effect of lowering the threshold salary requirement.  The new law ties the minimum salary to salaries paid to public school teachers in the same county.

4.  Fair Pay Requirements for All Employees

Last year, the California legislature passed the California Fair Pay Act, requiring that male and female employees be paid the same for substantially similar work.  This year, SB 1063 extended this requirement to employees of different races and ethnicity.  Employers should not be surprised by this extension since federal and California law, e.g., the Fair Employment and Housing Act, already prohibit race and national origin discrimination on the basis of all terms of employment, including compensation.

Another related bill, AB 1676, prohibits employers from defending a pay differential solely with evidence that the pay was based on the employee’s prior employment.   Many employers pay new employees whatever they were making at their prior employment, which can end up creating pay differentials between new hires and incumbents in the same (or substantially similar) positions.  This new law should serve as a cautionary note for any employer that has used a compensation strategy of paying employees whatever they said they were paid at their prior place of employment.

5.  Payroll Record and Notice Requirements

The various technical requirements for paycheck stubs (or wage earning statements) have bee a challenge to employers, sometimes resulting in the payment of penalties.  AB 2535 provides a welcome clarification.  One of the technical requirements has been that the total hours worked and hourly rate must be reflected on the paycheck stub, so a question has been how this is accomplished for salaried, overtime exempt employees.  This bill clarifies that the paycheck stubs do not need to reflect the actual hours worked for employees who are exempt from the minimum wage and overtime pay requirements.

Employers are currently required to notify employees of their eligibility under the federal Earned Income Tax Credit.  AB 1847 extends this notification requirement to include employees who may be eligible for the California Earned Income Tax Credit.

6.  Hiring Requirements

AB 1843 adds juvenile convictions to the list of applicant background items that may not be inquired about or taken into consideration for hiring.

Federal law currently prohibits employers from requiring applicants and employees to provide more or different documentation to verify their eligibility to work in the United States than what is described on the federal Form I-9.  Employers may not refuse to accept documents that appear to be genuine.  SB 1001 makes these actions unlawful under California law.  This new law also creates specific monetary penalties.

7.  Employment Contract Limitations

Common contractual provisions specify the applicable law to be used to enforce the agreement (e.g., the law of the State of California) and the venue for a lawsuit (e.g., San Francisco Superior Court).  Some contracts have attempted to impose the law of a more favorable jurisdiction or venue.  SB 1241 prohibits employers from imposing provisions on employees who primarily work and reside in California that apply the law of another state when the claim arose in California or that require such claims to be adjudicated in another state.  This new law pertains to arbitration, nondisclosure, confidentiality and any other employment contract.

8.  Laws with Future Impact/Effective Dates

AB 2337 requires the Labor Commissioner to develop and publish a form on or before July 1, 2017, which describes employees’ existing rights under the Labor Code to take time off due to domestic violence, sexual assault or stalking.  When the form has been published, employers with 25 or more employees will be required to provide it to new hires and to current employees who request it.

In a similar vein, Cal-OSHA is tasked with proposing heat illness and injury prevention standards for employees who work inside.  SB 1167 requires these standards by January 1, 2019.

The Paid Family Leave weekly benefit amounts payable by the State will increase on January 1, 2018 and will eliminate the current seven-day eligibility period.

9.  Proposed Regulations for San Francisco’s Paid Parental Leave Ordinance

The San Francisco Paid Parental Leave Ordinance will go into effect January 1, 2017, for employers with 50 or more employees, requiring eligible San Francisco employees to be paid during new child bonding leave in conjunction with the State’s payment of Paid Family Leave (PFL) benefits.  See my Workplace Wave article, posted on June 26, 2016 (at www.joblaw.com).

On December 1, 2016, the City of San Francisco published proposed regulations that describe how to administer this new ordinance.  There is presently a public comment period and presumably, the final regulations will be issued prior to January 1.

The main import of the proposed regulations is that they require employees to complete a form and provide information to their employer that establishes that they have been approved for Paid Family Leave benefits by the State and the specific amount of the weekly benefit that they will receive.  This triggers the employer’s obligation to pay the “supplemental compensation” of making up the difference in the employee’s regular pay and the amount of PFL received.  If the employee fails to provide this information, the employer would have no such obligation.

A Workplace Wave article will be published with more information after the final regulations are issued.

10.  Employer “To Do” Items

* Review base pay amounts for all employees to ensure the proper minimum wage and minimum salary requirements are met.

* Audit total compensation amounts for employees by gender, race and national origin to ensure that employees are paid the same for substantially similar work.

* Review and edit as necessary your Drug-Free Workplace policy.

* Review your employment application and hiring process to ensure juvenile convictions are not taken into account.

* Review all employment-related contracts and edit as necessary to ensure that the proper choice of law and jurisdiction clauses are present.

For more information or assistance with employment law compliance matters, please contact Ms. Topliff at topliff@joblaw.com.

Mary L. Topliff, Esq. ©2016 Mary L. Topliff. For more information, contact Mary at topliff@joblaw.com. This article may not be copied or reproduced without the express permission of Mary L. Topliff.