Practical Answers to Employment Law Issues
December 18, 2019 - Legislation, PAGA

California Issues A New Round Of Employment Laws

California Issues A New Round Of Employment Laws

California employers will be impacted by several new laws signed by Governor Newsom during this past legislative session. Employers should review their policies and procedures in light of these developments, most of which will be effective January 1, 2020. Minimum wages will also increase for California employers to $13.00 per hour for employers with 26 or more employees and $12.00 per hour for employers with 25 or fewer employees. 

A. AB 5 Codifies the “ABC Test” Set Forth in the Dynamex Decision

AB 5 codifies the 2018 decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Prior to Dynamex, California courts analyzed independent contractor misclassification under the test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. Under the Borello test, whether an individual is properly classified as an independent contractor turns on various factors that focus primarily on whether the entity engaging the individual exercised control over the manner and means by which the work was performed.

In Dynamex, the California Supreme Court announced a new “ABC Test” for determining whether workers were properly classified as independent contractors in claims under California wage orders. Under the test, employers must prove that workers meet all three of the following factors to classify workers as independent contractors:

1. The worker was free from the control and direction of the hiring entities’ business in connection with the performance of the work, both under the contract for the performance of such work and in fact;

2. The worker performed work that was outside the usual course of the hiring entity’s business; and

3. The worker was customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

AB 5 codifies the “ABC Test” and makes that test applicable to claims under California wage orders, unemployment insurance, and workers compensation. Given incorporation of the ABC Test into the California Labor Code, employers may now be subject to the Private Attorney General Act of 2004 (PAGA) representative actions brought by independent contractors claiming to be misclassified under the new law. Notably, workers in several industries, such as investment advisors, lawyers, and certain professional service providers are exempt from the reach of AB 5. Instead, those industries will remain subject to the Borello factors and other criteria included in the statute.  Claims under the California wage orders and unemployment insurance will be subject to AB 5 starting on January 1, 2020. Workers’ compensation claims will be covered by the new law starting on July 1, 2020. 

Businesses engaging independent contractors in California should review those relationships in light of this new law.

B. SB 688 Expands the Labor Commissioner’s Authority on Unpaid Wages

SB 688 expands the California Labor Commissioner’s authority to issue citations to an employer to recover restitution for failing to pay wages set by contract in excess of the minimum wage. Previously, the California Labor Commissioner could only cite employers for failing to pay at least the minimum wage set by law. As a result, employers should notify employees of any change in their compensation. 

C. AB 673 Permits Employees to Bring Actions for Statutory Penalties for Late Payment of Wages

AB 673 provides employees with a private right of action to recover civil penalties for unpaid wages that were previously recoverable only by the California Labor Commissioner. Employees, however, are not permitted to recover civil penalties under both AB 673 and under PAGA for the same violation. Instead, employees can recover only under one of the statutes for a particular violation. Penalties under AB 673 include initial fines of $100 for each failure to pay each employee and fines of $200 and 25% of the amount unlawfully withheld for each subsequent violation or any willful or intentional violation.

D. AB 51 Bans Employers From Requiring Arbitration of Employment Disputes as a Condition of Employment

AB 51 seeks to ban employers from requiring applicants or employees to enter into mandatory arbitration agreements for employment claims under the California Fair Employment and Housing Act (FEHA) and the California Labor Code. Employers will no longer be able to require applicants or employees as a condition of employment, continued employment, or the receipt of any employment-related benefit to agree to waive any right, forum, or procedure, including the right to file or pursue a claim in court, for a violation of FEHA or other specific California statutes governing employment claims. An agreement requiring employees to opt out of a waiver or take any other action to preserve their rights is still deemed “a condition of employment.” Employers can face claims if they threaten, retaliate or discriminate against, or terminate “any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation” of FEHA or the California Labor Code. In addition to other available remedies, plaintiffs who enforce their rights under AB51 can obtain injunctive relief and reasonable attorneys’ fees. A violation of AB 51 will also constitute a misdemeanor under Labor Code section 433.

The law will not apply retroactively to existing arbitration agreements. Instead, it is limited to agreements entered into, modified, or extended on or after January 1, 2020. Post-dispute settlement agreements or negotiated severance agreements are also exempted from this new law. So AB 51 will not prohibit employers from having settlement or severance agreements with employees that require arbitration of employment claims. 

While AB 51 expressly states that it does not invalidate any agreement governed by the Federal Arbitration Act, a business coalition led by the U.S. Chamber of Commerce and the National Retail Federation filed a declaratory judgment action on December 6, 2019 seeking to invalidate the law on preemption grounds, arguing that the law penalizes employers by exposing them to criminal liability. Employers with mandatory arbitration programs will need to consider whether to suspend those programs in 2020 and wait until the current lawsuit is resolved or scale back their arbitration programs to exclude FEHA and Labor Code claims.

E. SB 707 Treats an Employer’s Failure to Timely Pay Arbitration Fees as a Waiver of the Right to Compel Arbitration

SB 707 requires employers who draft arbitration agreements to pay the costs and fees associated with arbitration of employment claims. An employer’s failure to pay those costs and fees within 30 days of the due date constitutes a “material breach” and “waives its right to compel arbitration.” In addition, an employee can withdraw the claim from arbitration and file his or her claim in court. 

F. AB 749 Prohibits No-Rehire Provisions in Settlement Agreements

AB 749 provides that settlement agreements with employees entered into on or after January 1, 2020 can no longer prohibit the employee from working for the employer in the future. The law includes some notable exceptions, including where the employer has made a good faith determination that the individual engaged in sexual harassment or assault or “if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.”

G. AB 9 Extends the Statute of Limitations for FEHA Claims

AB 9 extends the time an employee has to file an administrative complaint with the California Department of Fair Employment and Housing (DFEH) from one year to three years. Under current law, an employee seeking to bring an action against his or her employer for harassment, discrimination, or retaliation in violation of FEHA has one year to file a complaint with the DFEH. Although this law significantly extends the time limit for employees to file their administrative complaints, it will not revive claims that have lapsed under the current law. Employers should keep in mind that employees will continue to have one additional year to file a civil action in court after receipt of a right-to-sue letter from the DFEH. 

H. SB 188 Clarifies Race Discrimination Protections Include Hairstyles

SB 188, also known as the CROWN Act,[1] clarifies that the definition of “race” under FEHA is inclusive of traits historically associated with race, including, but not limited to, hair texture and “protective hairstyles,” which include hairstyles such as braids, locks, and twists. Employers should review their workplace dress code and grooming policies in light of this new law. 

I. SB 778 Establishes Harassment Training Requirements

SB 778 provides that employers with five or more employees (including temporary and seasonal workers) will now have additional time to comply with the statutory requirements under SB 1343 regarding bi-annual sexual harassment prevention training. Under SB 1343, the initial compliance deadline was January 1, 2020. SB 778 gives covered employers until January 1, 2021 to provide two hours of sexual harassment prevention training to supervisors and one hour of sexual harassment prevention training to other employees. 

Note that under current law, employers with 50 or more employees are already required to provide supervisors with two hours of sexual harassment prevention training. The new law does not extend the compliance deadlines for those obligations. However, the law clarifies that supervisors who were provided training in 2018 do not need to be trained again until 2020. 

J. SB 142 Expands Employer Lactation Accommodation Requirements

Employers with 50 or more employees will have new obligations under SB 142 for providing lactation accommodations to employees. Employers were previously required to make reasonable efforts to provide employees with the use of a lactation room or other location (other than a bathroom) close to the employees’ work area to express breast milk in private. Under the new law, employers are required to provide a lactation room or other location for expressing breast milk that complies with the following requirements:

1. Is safe, clean, and free of hazardous materials, as defined in Section 6382;

2. Has a surface to place a breast pump and personal items;

3. Has a place to sit; and

4. Provides access to electricity or alternative devices, including, but not limited to, extension cords or charging stations, needed to operate an electric or battery-powered breast pump.

Employers are also required to provide access to a sink with running water and a refrigerator suitable for storing milk close to the employees’ workspace. If a refrigerator cannot be provided, employers are permitted to provide another cooling device suitable for storing milk. Employers with fewer than 50 employees may be granted an exemption if they are able to show that they would suffer an undue hardship.  

The new law also provides for additional penalties in the event of violations. For example, employers could be subject to a civil penalty of up to $100 per day for each day an employee is denied adequate space to express milk. Previously, the law permitted a $100 penalty per violation. 

[1] The Create a Respectful and Open Workplace for Natural Hair Act.