10.19.2011

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Updates

Governor Brown recently signed several bills significantly impacting employers in California. These new laws were wide ranging and cover many diverse issues, including: limiting an employer’s use of consumer credit reports, barring discrimination on the basis of gender and sexual identity, imposing stiff penalties for employers who willfully misclassify employees as independent contractors, extending healthcare coverage to employees taking Pregnancy Disability Leave, and employment contract requirements for certain employees earning commission-based compensation.

Unless otherwise specified, all laws take effect January 1, 2012. California employers will want to familiarize themselves with these news laws and make appropriate revisions to policies and procedures.

Consumer Credit Reports (Read AB 22 here.) The new law restricts when employers (except financial institutions) can lawfully use consumer credit reports and further imposes notice and disclosure obligations on employers who intend to do so. Specifically under new Labor Code Section 1024.5, employers can use consumer credit reports only if an individual applies for work (or will work) in the following positions:

  • A managerial position (covered by the executive exemption);

  • A position in the state Department of Justice;

  • A sworn peace officer or other law enforcement position;

  • A position for which the employer is required to consider credit history information;

  • A position that involves regular access to bank or credit card information, social security numbers or date of birth; however, this does not involve merely routine solicitation and processing of credit card applications in a retail establishment;

  • A position in which the person is, or would be, a named signatory on the bank or credit card account of the employer or authorized to transfer money or enter into financial contracts on behalf of the employer;

  • A position that involves access to trade secret, confidential or proprietary information; or

  • A position that involves regular access to the employer’s, customer’s or client’s money totaling $10,000 or more in a workday.

Labor Code Section 1024.5 does not establish an independent remedy for a violation; however, a remedy may be provided under California’s Private Attorneys General Act (“PAGA”).

The law also imposes additional notice obligations on employers using consumer credit reports. Specifically, the employer must notify the applicant or employee in writing of the basis (under Labor Code Section 1024.5) upon which it relies in seeking the report.

Protection for Gender Identity and Gender Expression (Read AB 887 here.) This law defines “gender” under several existing laws, including the Fair Employment and Housing Act, to include gender identity and gender expression. It defines “gender expression” as “a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth.” More importantly, this law requires an employer to allow an employee to appear or dress consistently with the employee’s gender identity or gender expression.

No Discrimination in Healthcare Plan Coverage Between Spouses and Domestic Partners (Read SB 757 here.) This makes it unlawful for a health care plan or policy to discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.

Willful Misclassification of Employees as Independent Contractors (Read SB 459 here.) This law prohibits employers from willfully misclassifying employees as independent contractors. “‘Willful misclassification’ means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

The law also provides the Labor Workforce Development Agency (“LWDA”) with authority to assess civil penalties and take other disciplinary actions. A person or employer violating the law would be subject to a civil penalty of $5,000 to $15,000 for each violation. If the LWDA determines there is a pattern and practice of these violations, a civil penalty of $10,000 to $25,000 may be imposed. Lastly, anyone who knowingly advises an employer to improperly classify an employee could be found jointly and severally liable with the employer (excluding a person who provides advice to his/her employer and an attorney providing legal advice).

We anticipate this law will have significant repercussions. Mischaracterization of independent contractors has been the focus of enforcement by the U.S. Department of Labor and California’s Employment Development Department. A finding of mischaracterization usually results in payment of wages to which the individual would otherwise have been entitled, payroll taxes with interest, and multiple monetary penalties. Companies should regularly monitor the characterization of independent contractors. However, when undertaking an audit or examining payroll practices or pay differentials, companies should use counsel to establish and maintain the privileged nature of the audit or examination, together with the results. Failing to do so could make the audit or report discoverable should litigation thereafter ensue.

Health Plan Coverage Continued During Pregnancy Disability Leave (Read SB 299 here.) This law, related to AB 592 (prohibiting interfering with, restraining, or denying the exercise of rights under the California Family Rights Act (“CFRA”)), requires employers to continue group health coverage to employees on pregnancy disability leave for up to four months. Most California employers have long been required to comply with California law permitting employees disabled by pregnancy to take a leave of absence of up to four months for the disabling condition. This leave is in addition to traditional birth of a child leave, which separately provides the employee up to 12 weeks of leave for baby bonding (if the employer has 50 or more employees and is covered under the Family and Medical Leave Act (“FMLA”)/CFRA for family and medical leaves of absence). With the passage of SB 299, effective January 1, 2012, California employers must now extend the continuation period to four months for pregnancy disability leaves, where previously they were not required to do so. The law further provides that group health benefits must be continued as if the employee continued actively reporting to work. For example, if the employer pays the entire premium for health care benefits, it must continue to do so for up to four months of pregnancy disability leave. However, if the employee fails to return from pregnancy disability leave, the employer may recoup from the employee the premiums the employer paid to continue the employee’s coverage during the leave, unless the reason the employee did not return is a continuing disability or because the employee took a separate protected leave under the FMLA/CFRA. Employers should review their current policies for pregnancy disability leave and revise them to conform to this new law.

Mandatory Contract Requirements for Commissioned Workers in California (Read AB 1396 here.) This law requires that whenever an employer (whether or not California based) enters into a contract with an employee that involves commission-based compensation for services to be rendered in California the contract must be in writing and set forth the method by which the commissions will be computed and paid. Should the contract expire but the parties continue to work under its terms, the contract terms remain in effect until the contract is superseded or terminated by either party. The law specifically excludes (1) short-term productivity bonuses such as those paid to retail clerks; and (2) bonus 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. Failure to comply with the new law could subject an employer to penalties under PAGA. This law is effective January 1, 2013.

New Written Notice Required at the Time of Hire (Read AB 469 here.) This new law requires employers to provide written notice of the following to each employee at the time of hire: (1) pay rate and whether paid by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime; (2) allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances; (3) the regular payday designated by the employer; (4) the name of the employer, including any “doing business as” names used by the employer; (5) the physical address of the employer’s main office or principal place of business and a mailing address, if different; (6) the telephone number of the employer; (7) the name, address and telephone number of the employer’s workers’ compensation insurance carrier; and (8) any other information the Labor Commissioner deems material and necessary. Separately, within seven days of any changes to the above, the employer must notify employees in writing, unless the changes are reflected on a timely wage statement in accordance with Labor Code Section 226.

Less Stringent Restrictions on Farm Workers Organizing a Labor Union (Read SB 126 here.) This law makes it easier for farm workers to organize a labor union. Specifically, it deals with petitions objecting to the conduct of an election before the Agricultural Labor Relations Board (“ALRB”). It specifies that where the ALRB refuses to certify an election based on employer misconduct that, in addition to affecting the results of the election, would render slight the chances of a new election reflecting the free and fair choice of employees, the labor union shall be certified as the exclusive bargaining representative for the bargaining unit. Moreover, it specifies time limits pertaining to the scheduling of hearings on election objections and challenges to ballots and the issuance of decisions by the board with respect to those objections and challenges.

Lastly, the law specifies what courts may consider in determining whether temporary relief or a restraining order is just and proper – when the alleged unfair labor practice is such that, by its nature, it would interfere with the free choice of employees to choose or not choose an exclusive bargaining representative, appropriate temporary relief or a restraining order must issue on a showing that reasonable cause exists to believe that the unfair labor practice has occurred. Such an injunctive order would remain in place for 30 days or until an election has been held, whichever occurs first. The temporary relief or restraining order cannot be stayed pending appeal.

Farm Labor Contractor and Hiring Entity Must Both Be Listed on Wage Statement (Read AB 243 here.) This law requires an employer who is a farm labor contractor to disclose in an employee’s itemized wage statement under Labor Code Section 226 the name and address of the legal entity that secured the employer’s services. This potentially makes it easier to find joint liability for farmers and farm labor contractors.

No Requirement to Use E-Verify (Read AB 1236 here.) This law prohibits a state, city or county from requiring private employers to use E-Verify as a means of verifying that new employees are authorized to work in the United States.

© 2011 Perkins Coie LLP


 

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