Rules and regulations around key employment law issues continued to evolve this year. Here’s a look at the new California employment laws going into effect in 2020, along with an HR Compliance Checklist to help your business maintain compliance.
Independent Contractor Law Addresses the “Gig Economy” and Beyond
By far, the most high-profile employment law signed by Governor Gavin Newsom in his first year in office was AB 5, setting forth California’s independent contractor law. The new law largely codified the California Supreme Court’s 2018 opinion in Dynamex Operations West, Inc. v. Superior Court, which I wrote about here.
Whereas the Dynamex decision applied to the wage orders of the California Industrial Welfare Commission, AB 5 applies more broadly to the California Labor Code and Unemployment Insurance Code definitions of an “employee.”
AB 5 provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity can prove that the following conditions are satisfied:
(A) the person is free from the control and direction of the hiring entity regarding how the work is performed;
(B) the person performs work that is outside the normal course of the hiring entity’s business; and
(C) the person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
It further provides that if a court rules that the “ABC” test cannot be applied to a particular context then the determination of independent contractor status shall be governed by the California Supreme Court’s decision in S.G. Borello & Sons, Inc v. Dept. of Industrial Relations (1989). Borello applies a flexible 10-factor test, which is typically referred to as the “economic realities” test, with the most significant factor being whether the person to whom service is rendered has control or the right to control the worker both as to the work done and the manner and means in which it is performed.
The new independent contractor law exempts various occupations from the “ABC” test, although the Borello test must nonetheless be met for each independent contractor. These include licensed insurance agents, certain licensed health care professionals, persons practicing licensed professions (attorneys, architects, engineers, private investigators and accountants), registered securities broker-dealers or investment advisors, direct sales salespersons, commercial fishermen, and construction subcontractors.
Various “professional services” are subject to the Borello test if the workers meet certain threshold requirements, such as having a business license and negotiating their own rates of pay. These service providers include travel agents, graphic designers, certain human resources and marketing professionals, certain photographers, freelance writers, licensed barbers and cosmetologists among others. The exemptions for fishermen and manicurists are temporary with established expiration dates.
Real estate licensees and repossession agencies are subject to the requirements of the Business & Professions Code rather than the “ABC” test. The new independent contractor law further sets out requirements for bona fide business to business contracting relationships, as well as for referral agencies which connect clients with service providers who provide graphic design, photography, event planning, minor home repairs, moving, home cleaning, errands, dog walking, and other services.
Employers may not reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to these exemptions. However, AB 5 applies retroactively in the event that a contractor is covered by one of the bill’s exemptions.
In addition to other remedies already available, AB 5 authorizes the California Attorney General and certain city attorneys to pursue actions for injunctive relief to prevent employee misclassifications.
AB 170 provides that, until January 1, 2021, newspaper carriers and distributors are exempt from the “ABC” test, meaning that the Borello standard applies.
The California Trucking Association recently filed a lawsuit challenging the validity of AB 5. Uber and other “gig economy” companies will likely do the same. However, as with any statute, until it is found to be invalid, it must be followed.
Strict Limitations on Arbitration Agreements (For Now)
AB 51 prohibits employers from requiring employees and applicants to arbitrate claims under the Fair Employment and Housing Act (FEHA) and the Labor Code, which will encompass discrimination, harassment, retaliation, and various wage and hour disputes. It also prohibits class action waivers and arbitration programs requiring employees to opt out if they do not wish to be subject to arbitration. AB 51 was prompted primarily over concerns with the one-sided nature of employers requiring employees to waive their jury trial rights.
Limited exceptions are mandatory arbitration provisions in settlement agreements and negotiated severance agreements, as well as arbitration agreements sanctioned by the Securities Exchange Act.
Although the law goes into effect January 1, 2020, arbitration agreements signed prior to that date will be subject to the prohibition. However, AB 51 provides that it is not intended to invalidate arbitration agreements that are otherwise enforceable under the Federal Arbitration Act (FAA). Various United States Supreme Court decisions have sanctioned arbitration of employment disputes under the FAA and as such, it is expected that litigation will quickly ensue challenging the validity of AB 51.
Another arbitration bill, SB 707, addresses the payment of arbitration fees. Employers have long been required to pay certain arbitration fees. This new law rectifies the scenario of an employer that refuses or fails to pay such fees in order to thwart the arbitration. Should this occur, the employer will be considered to be in material breach of the arbitration agreement, and the employee may withdraw the arbitration claim to pursue a lawsuit in court.
Harassment Prevention Training Requirements for 2020
SB 778, which went into effect on August 30, 2019, extended the deadline for employers to provide harassment prevention training. The new deadline is January 1, 2021 for employers with five or more employees to provide two hours of harassment prevention training to supervisors and one hour of training for all nonsupervisory employees in California. Thereafter, this training must be provided every two years. New hires must receive this training within six months of hire or promotion to a supervisory position. Current law contains various requirements regarding the content of the training.
Another new law, SB 530, extends the timeline for employers to provide harassment prevention training for seasonal, temporary, or other employees that are hired to work for less than six months. The deadline is now January 1, 2021 for employers with five or more employees to provide this training to these types of employees within 30 calendar days after their hire date or within 100 hours worked, whichever occurs first. In the case of a temporary employee employed by a temporary services employer, as defined in Section 201.3 of the Labor Code, the training is to be provided by the temporary services employer, not the client.
Hairstyle Discrimination Prohibited
SB 188 expands the definition of “race” under the Fair Employment and Housing Act (FEHA) to include “traits historically associated with race, including, but not limited to, hair texture and protective hairstyles,” including “braids, locks, and twists.” The new law’s legislative intent states that workplace dress code and grooming policies that prohibit natural hair, including afros, braids, twists and locks, have a disparate impact on black individuals. It further states that hair has historically been one of the determining factors of a person’s race and thus, hair discrimination targeting hairstyles associated with race constitutes racial discrimination.
Organ Donor Time Off Expanded
Under current law, employees who work for an employer with 15 or more employees may take a paid leave of absence for up to 30 business days in a one-year period for the purpose of being an organ donor. AB 1223 provides that employees may take an additional 30 business days of leave for this purpose on an unpaid basis. As with the current law, this time off may run concurrently with an employee’s leave of absence rights under the Family Medical Leave Act and the California Family Rights Act.
Additional Lactation Accommodation Requirements
Employers’ obligations to provide lactation accommodations are expanded under SB 142. Employers will be required to provide employees the use of a room or other location that is in close proximity to the employee’s work area and that is free from intrusion, which cannot be a bathroom. The location must be safe, clean and free of hazardous materials with a place to sit, a surface to place a breast pump and personal items and access to electricity. A sink and refrigerator (or other cooling device) must also be available.
Employers may use the lactation space for other purposes so long as employees who need to use it for expressing milk have priority. The new law addresses compliance for agricultural employers and those with multi-employer worksites such as general contractors.
Employers with less than 50 employees may be exempt from these specific requirements if they can demonstrate undue hardship, meaning compliance would create significant difficulty or expense in light of the employer’s size and financial resources. Even if an employer believes it can demonstrate this, it is nonetheless required to provide employees with a private location, other than a toilet stall, as a lactation accommodation.
Current law requires reasonable break time to be provided for lactation. This new law provides that failure to provide this break time or a compliant location is deemed to be a failure to provide a rest break as required, thus triggering the Labor Code penalty provision of one additional hour’s pay per violation.
SB 142 also requires employers to implement a written policy describing the process for requesting lactation accommodation and informing employees of their right to file a complaint with the Labor Commissioner. In addition to being part of an Employee Handbook or other manual, this policy is to be provided to new hires and to employees who inquire about or request parental leave.
Paid Family Leave and San Francisco Paid Parental Leave Expansion
Effective July 1, 2020, Paid Family Leave wage replacement benefits through the Employment Development Department will increase from six to eight weeks, pursuant to the passage of SB 83. These benefits are available to employees who need to take time off to care for an ill family member (as defined) or for new child bonding. The Paid Family Leave program is funded by employee taxes.
The San Francisco Paid Parental Leave Ordinance requires employers to pay San Francisco-based employees for baby bonding time off (i.e., parental leave) in conjunction with employees’ receipt of Paid Family Leave from the State. Thus, this obligation will extend to eight weeks effective July 1.
Settlement Agreements Cannot Include a No-Rehire Provision
Settlement agreements involving employment law claims frequently include a provision in which the plaintiff-employee agrees to refrain from seeking employment with the defendant-employer in the future. These provisions typically include the employer’s affiliated and parent companies. AB 749 prohibits settlement agreement provisions which include such “no-hire” agreements beginning January 1, 2020. This includes a settlement following an internal complaint, that is, it is not limited to settlements of litigation matters.
This new law further clarifies that the parties may agree to end a current employment relationship or restrict the plaintiff-employee from obtaining future employment if the employer made a good faith determination that the employee engaged in sexual harassment or sexual assault. It provides that an employer is not required to continue to employ or rehire a person if there is a legitimate nondiscriminatory or nonretaliatory reason for terminating or refusing to rehire the person.
Statutes of Limitations Expanded for Fair Employment & Housing Act Claims
The statute of limitations for employees in California to file complaints with the Department of Fair Employment and Housing for harassment, discrimination and retaliation under the Fair Employment and Housing Act has been one year. AB 9 extends the statute of limitations to three years. The proponents of this bill cited the #MeToo movement as highlighting the fact that victims do not always realize that they have claims right away. They also pointed out that the statute of limitations for various other legal wrongs are longer than one year.
Wage and Hour Penalties for Late Paychecks
The California Labor Code dictates the frequency of issuing paychecks for different categories of employees, for example, bi-weekly, semi-monthly, etc. AB 673 addresses penalties when employers are late in paying wages according to these requirements or fail to pay them at all. Current wage and hour law provides that the penalty is to be collected by the Labor Commissioner following a hearing or by an independent civil action. The other avenue currently for an employee is to pursue a lawsuit under the Labor Code Private Attorneys General Act (PAGA), which allows an employee to act as the Labor Commissioner to enforce a civil penalty. The new law authorizes employees (rather than the Labor Commissioner) to recover a penalty following the wage claim process. The law further clarifies that employees can pursue either a wage claim for this purpose or a PAGA suit, but not both.
Flexible Spending Account Notices
AB 1554 requires employers to notify employees who participate in a flexible spending account, including a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account of any deadline to withdraw funds before the end of the plan year. Notice must be in two different forms, one of which may be electronic. Other forms of notice may be by telephone or mail.
Federal law requires that employees use all of the funds in their account by the end of the enrollment year and any unused funds are then forfeited to the administrator of the account. The current law requires that funds forfeited are applied towards paying administrative costs or they are divided up among all enrolled employees. The proponents of AB 1554 expressed a concern that employers would be less incentivized to remind employees of the “use it or lose it” requirement given the upside of offsetting administrative costs. The new law’s additional notification requirements are designed to encourage employees to fully utilize these flexible savings accounts.
New California Minimum Wage and Salary Requirements for Overtime Exemptions
On Jan. 1, 2020, the California minimum wage will increase to $12 an hour for employers with less than 26 employees, and $13 an hour for employers with 26 or more employees.
In California, the Administrative, Executive and most Professional overtime exemptions require the payment of a monthly salary at the minimum rate of two times the California minimum wage times 2,080 hours. This means that beginning January 1, 2020, the minimum salary threshold is $49,920 per year for employers with less than 26 employees and $54,080 per year for employers with 26 or more employees.
The California computer software overtime exemption’s minimum thresholds are tied to the Consumer Price Index and thus are adjusted each year. For 2020, the minimum hourly rate of pay to qualify for this exemption is increasing to $46.55, the minimum monthly salary will increase to $8,080.71, and the minimum annual salary will be $96,968.33.
Your 2020 HR Compliance Checklist
- Determine which standards apply to independent contractors and have your legal counsel analyze whether they meet the applicable test. If contractors need to be reclassified as employees, explore the implications such as payroll taxes and overtime which may be owed.
- For employers who have mandatory arbitration agreements with any California-based employees, seek legal counsel to determine how best to comply with AB 51, including whether to re-issue the contracts as “voluntary” agreements to arbitrate. Employers will also need to determine whether new hires will be provided “voluntary” agreements.
- Make a plan to provide harassment prevention training in 2020 for all non-supervisory staff.
- For employers with less than 50 employees, roll out harassment prevention training for supervisors in 2020.
- Update the Employee Handbook (or other personnel manual) to reflect the prohibition of hairstyle discrimination, and the expansion of organ donor time off and lactation accommodations. Determine if any other changes are needed to comply; for example, do you need to educate supervisors regarding hairstyle discrimination? Does your lactation location meet the requirements?
- Update the Leave of Absence policy and applicable forms to reflect the expansion of Paid Family Leave benefits and ensure that Payroll is aware of this change, which goes into effect on July 1.
- Review settlement and severance agreement templates and ensure that “no-hire” provisions are inserted only when permissible.
- Ensure the notice requirements are met regarding Flexible Spending Accounts.
- Review the salaries of all overtime exempt employees and ensure that the new minimum salary thresholds are met. Keep in mind that if an employee’s salary is below the minimum, the employee is automatically non-exempt and eligible for overtime pay.
For more information or assistance with employment law compliance matters, please contact Ms. Topliff at firstname.lastname@example.org.