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A slate of new legislation and court decisions will change the way California employers hire, fire, train, pay, classify and manage employees in 2019. Our round-up of key issues will get you up to speed, and help you navigate which decisions and laws will impact you in the coming year.
#MeToo Movement Hits California Employers
Upcoming 2019 laws significantly expand sexual harassment protections
No secret settlements. SB 820 prohibits any nondisclosure provision in settlements involving sexual misconduct, unless the claimant insists on the inclusion of a confidentiality provision. According to the bill’s author, Sen. Connie Leyva (D-Chino), this law “will finally lift the curtain of secrecy that has continued to protect these perpetrators by forcing their victims to remain silent.”
Female board members required. SB 826, the first law of its kind, mandates that all publicly held companies have at least one woman on their board of directors by the end of 2019. In 2021, the number of female directors must increase again, depending on the size of the board. From its author, Sen. Hannah-Beth Jackson (D-Santa Barbara): “With numerous independent studies showing that corporations with women on their boards are more profitable, SB 826 is a giant step forward for women, our businesses and our economy.”
No more nondisparagement clauses. SB 1300 bars companies from requiring workers to agree to nondisparagement clauses as a term or condition of employment or in exchange for a raise or bonus. The new law also establishes that a single incident of harassment creates a triable issue, and that harassment exists when the activity changes the workplace environment to the point where it becomes “more difficult” for the victim to do her or his job.
Workplace training. Effective January 1, 2020, SB 1343 will increase the number of employers that must provide sexual harassment prevention training to their workers. Since 2005, employers with at least 50 employees have been required to train and educate all personnel in supervisory positions in California in the prevention of sexual harassment with two hours of training every two years. SB 1343 lowers the number of employees to five and further mandates one hour of training to non-supervisors. Training must be provided within six months of the employee’s assumption of either a supervisory or non-supervisory position, although temporary employees who will work for less than six months must also receive training within 30 calendar days after their hire date or within 100 hours worked.
No block on testifying. AB 3109 bars the inclusion of any settlement provision that would purport to prevent someone from testifying about sexual harassment – or criminal conduct – in court or before a legislative governing body. The stated inspiration behind this law was U.S. Olympic gymnast McKayla Maroney, who risked a substantial monetary penalty – $100,000 – and potentially violating the terms of a settlement agreement to testify against now-disgraced team doctor Larry Nassar.
Key Expansions for Employment Arbitration Agreements
California laws permit the expanded use of arbitration agreements in workplace disputes
Supreme Court rules that class action waivers are enforceable. On May 21, 2018, the Supreme Court held that class action waivers in employment arbitration agreements are enforceable, resolving prior split circuit court decisions. Such waivers require that employees submit their employment claims to individual arbitration instead of as a class or collective action. These waivers are a powerful tool for employers who want to avoid costly class action litigation, typically involving wage and hour claims.
Beginning in 2013, the National Labor Relations Board began attacking class action waiver provisions in arbitration agreements, claiming that they violated the National Labor Relations Act by infringing on employees’ rights to engage in concerted activity. In the years that followed, a split among circuit courts left the validity of class action waivers in doubt.
Now, the Supreme Court’s long-awaited decision has confirmed that class action waivers do not violate the NLRA. While employers can now include class action waivers in their mandatory arbitration agreements, all employment arbitration agreements need to be carefully crafted to ensure legal compliance.
Mandatory arbitration agreements survive proposed legislative attacks. In recent years, we have seen an upswing in senate bills attacking mandatory employment arbitration agreements, coming on the heels of the #MeToo movement. Opponents to mandatory arbitration consider them a way to cover up claims of discrimination and harassment, despite California case law already prohibiting mandatory confidentiality provisions in employment arbitration agreements, especially if they require confidentiality of the underlying facts and allegations.
Many employment-related bills proposed in 2018 were vetoed by Governor Brown, most notably AB 3080 – which would have prohibited mandatory arbitration agreements for all Fair Employment and Housing Act (FEHA) and California Labor Code claims, and essentially gutted mandatory arbitration in employment. It’s highly unlikely that this is the last time we will see a bill of this sort; however, any similar bill will undoubtedly be attacked based on Federal Arbitration Act preemption.
Guidance for New Laws Banning Salary History Consideration
What employers can ask about salary expectations, and what they must disclose about pay scale
In 2017, California banned employers from asking job applicants about their salary history, and required employers to provide the position’s pay scale upon request. The governor has now signed AB 2282, which provides employers much-needed guidance about salary history considerations.
Employers are allowed to ask applicants about their salary expectations, and must provide a pay scale to an applicant only if the applicant is an external candidate and only after the applicant has completed at least one interview. That means employers don’t have to disclose position pay scales to applicants who are current employees.
Employers can use current employees’ salary history when making compensation decisions, but this is an area to tread carefully; disparity in wages between employees of a different sex, race, or ethnicity who perform substantially similar work is permitted only if it is due to certain defined factors, such as seniority or a merit system.
Industries Paying Bonuses of Lump-Sum Payments to Employees Must Review Calculations To Avoid Wage and Hour Violations
Using all hours worked to calculate regular pay rates could result in liability
In Alvarado v. Dart Container Corp. of California (decided March 5, 2018), the California Supreme Court ruled that total non-overtime hours actually worked during the pay period – not all hours worked, which is the federal calculation – would be the denominator when calculating the regular rate involving a flat sum bonus.
The plaintiff was a warehouse employee of Dart Container Corporation of California, a manufacturer of food service products. It was customary for Dart to pay a flat sum bonus of $15 a day to any employee who worked on a weekend. The bonus functioned as an incentive to fill unpopular weekend shifts. As state and federal law requires, Dart included this flat sum bonus when determining the regular rate, which is used to calculate overtime, meal and rest period penalties, and paid sick leave. Dart used all hours worked in the workweek when calculating the hourly impact this flat rate bonus had on the employee’s regular rate.
In the Alvarado v. Dart decision, the California Supreme Court held that only the employee’s non-overtime hours worked in the workweek – i.e., no more than 40 – must be used as the denominator, resulting in a higher regular rate and an underpay in any workweek in which the employee worked overtime. Adding to the impact of this decision, the Court determined that its ruling was both prospective and retroactive, meaning that employers are liable not only for miscalculations going forward, but also for their past practices.
The Dart decision is already having a significant negative impact on industries that typically pay lump sum bonuses, such as healthcare, hospitality, manufacturing, and many more, and any employer who pays bonuses should have their practices reviewed by experienced wage and hour employment counsel to ensure compliance with the law.
Use of Criminal History in Making Employment Decisions
Restrictions on using criminal history to screen and hire job applicants
Statewide Ban-the-Box. AB 1008 became effective on January 1, 2018, and added a section to the California FEHA containing new state-wide restrictions on California employers’ ability to make hiring and personnel decisions based on an individual’s criminal history.
The new law includes a statewide “ban-the-box” component that prohibits inquiries about criminal history until after a conditional job offer has been made. It is now unlawful for a California employer with five or more employees to:
- Include any questions that seek disclosure of an applicant’s conviction history on an employment application
- Inquire into or consider an applicant’s criminal history before the employer has made a conditional employment offer
- Consider, distribute or disseminate information relating to arrests that did not result in a conviction, referral to or participation in a diversion program, or convictions that have been sealed, dismissed, expunged or statutorily erased. California employers also may not consider non-felony marijuana convictions that are older than two years.
Further, once apprised of an applicant’s conviction history, California employers may rescind an employment offer based solely or in part on criminal history only after following a specified process that includes performing an “individualized assessment” to determine if the candidate’s specific offense is relevant to the job. The new law further imposes strict notice requirements.
Covered employers must make sure to amend any employment applications and other documents and policies to remove preliminary questions about criminal background. They will also need to navigate carefully between California’s statewide law and other federal, state and local laws, and local ordinances in the cities of San Francisco and Los Angeles to be sure their background screening policies and practices are compliant.
Conviction history. SB 1412, which was signed into law on September 30, 2018 clarifies what information employers may use when screening job applicants. Notably, it requires employers to consider only a “particular conviction” (as defined by the bill) relevant to the job when screening applicants using a criminal background check.
The existing language of the Labor Code prohibits both public and private employers from seeking information, or basing employment on: any arrests that did not result in a criminal conviction; information concerning a referral to or participation in a pretrial or post-trial diversion program; information concerning a conviction that has been dismissed or sealed; or information concerning any type of juvenile proceeding, with certain exceptions.
SB 1412 will revise these exceptions to allow employers to inquire into a job applicant’s “particular conviction,” regardless of whether that conviction has been judicially dismissed or sealed, under certain conditions: the employer is required by federal law, federal regulation, or state law to obtain information about the particular conviction; the job applicant would carry or use a firearm as part of the employment; the job applicant with that particular conviction is prohibited by law from holding the position sought; or the employer is prohibited by law from hiring an applicant who has that particular conviction. Under SB 1412, employers are still permitted to seek information concerning arrests that are pending.
This bill only impacts those circumstances where employers are obligated by state or federal law to consider criminal convictions that have been judicially sealed or expunged in making employment decisions. For employers not required by state or federal law to consider an applicant’s criminal convictions, they are still obligated to follow the restrictions in the Labor Code and to refrain from requesting criminal history information until a conditional offer of employment has been made as provided in AB 1008.
Employers should closely review their current employment applications and overall hiring practices with competent legal counsel to ensure compliance with these laws. SB 1412 is effective January 1, 2019.
California Courts Overturn the 30-Year Independent Contractor Test
Employers must meet a higher burden of proof to establish that a worker is a true independent contractor or be exposed to significant liability, taxes and penalties
In Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the California Supreme Court rejected the multi-factor test developed in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which had previously been applied to determine if a worker was an employee or independent contractor. Under Borello, courts would weigh multiple factors to determine whether a worker was properly classified as an independent contractor – the most important factor being the right to control.
The Dynamex court adopted a standard which presumes that a worker is an employee and places the burden on an entity classifying a worker as an independent contractor to prove the worker’s classification is proper. In evaluating claims under the IWC Wage Orders, the Dynamex court found that an “ABC” test was appropriate to determine whether an individual has been suffered or permitted to work, and therefore an employee.
The test examines whether:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
- The worker performs work that is outside the usual course of the hiring entity’s business
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed
Each factor needs to be met for the worker to be properly classified as an independent contractor. The “B” prong is new, and may be particularly problematic for businesses – potentially resulting in misclassification of individuals who were formerly properly classified as independent contractors. Misclassification could put employers at risk for significant liability, taxes and penalties under a variety of laws including wage and hour, workers’ compensation, unemployment insurance, and social security laws.
In Garcia v. Border Transportation Group, LLC, the California Court of Appeal differentiated between IWC Wage Order claims, and non-Wage Order claims. Specifically, the Garcia court applied the ABC test to the IWC Wage Order claims and the multi-factor Borello test to other wage and hour claims.
Employers are cautioned that individuals who are properly classified as contractors for purposes of tax and workers’ compensation laws may still be misclassified for purposes of compliance with CA Wage Orders and other employment law. Now is the time to reevaluate and audit classifications of contractors and seek the advice of experienced employment counsel as needed.
Retaliation: Expanding the Labor Commissioner’s Authority
New protections for whistleblowers
SB 306 became effective January 1, 2018 and adds further protections for whistleblowers facing employer retaliation when reporting illegal activity, such as health and safety violations, wage theft, minimum wage violations, or other crimes.
Prior law authorized the California Division of Labor Standards Enforcement (DLSE) to conduct an investigation into alleged retaliation only after receiving an employee complaint. Under SB 306, the DLSE is now authorized to investigate an employer, with or without a complaint being filed, if during a wage claim or other investigation the Labor Commissioner suspects retaliation or discrimination.
The Labor Commissioner also had the authority under prior law to seek any appropriate relief (including injunctive relief) in retaliation cases, but only after it had investigated a claim and determined that unlawful retaliation had occurred. SB 306 now authorizes the Labor Commissioner or an employee to petition a court for injunctive relief (i.e., reinstatement of the employee pending resolution of the claim) upon finding “reasonable cause” that a violation of the law has occurred, which is a much lower burden of proof than exists for any other form of injunctive relief.
This means that the Labor Commissioner can now go to court to obtain injunctive relief before an investigation has been completed and any finding of violation has been made. The new law further instructs the court to consider “the chilling effect on other employees asserting their rights under those laws in determining if temporary injunctive relief is just and proper.” That injunctive relief, however, will not prohibit an employer from disciplining or terminating an employee for conduct that is unrelated to the retaliation claim.
SB 306 also establishes a new citation process for when the Labor Commissioner determines that discrimination or retaliation has occurred, and increased penalties for noncompliance. The bill further provides that if the Labor Commissioner is a prevailing party in an enforcement action, the court shall determine the reasonable attorney’s fees incurred by the Labor Commissioner and enforce that amount against the employer.
Given the increased risks posed by SB 306, employers faced with Labor Commissioner investigations or an employee whistleblower claim should make sure to carefully document any lawful and legitimate business reason for taking adverse action against an employee who has engaged in protected activity, and seek advice from competent employment counsel before taking such action. Taking these precautions will increase the employer’s chance of convincing the Labor Commissioner and court that no “reasonable cause” exists to support an injunction pending investigation because the adverse action was taken for reasons unrelated to any protected activity.
California Courts Say Former Employees May Raid Workforce
Recent case holds previous agreements void under California Business and Professions Code
California employers should reconsider their contractual efforts to prevent former employees from soliciting their current employees to work for competitors, given an appellate court’s decision in AMN Healthcare, Inc. v. Aya Healthcare Services. In that case, the Court of Appeal of California, Fourth Appellate District, held that an agreement prohibiting former employees from raiding the employer’s workforce is void under the California Business and Professions Code Section 16600, when such agreements restrain an individual from practicing their chosen profession.
The two companies involved in the case, AMN and Aya, were competitors providing “travel nurses” to medical care facilities. The individual defendants in the case were former travel nurse recruiters of AMN who went to work as nurse recruiters for Aya. The individual defendants had each signed a confidentiality and nondisclosure agreement that included a provision that prevented them from raiding AMN by soliciting its employees to leave and work for another employer. AMN alleged that the individual defendants violated their obligation when they recruited several travel nurses away from AMN.
The case is remarkable because the court goes out of its way to suggest that any anti-raiding provision may be void, stating that it doubted the continuing viability of older case law that applied a reasonableness standard to anti-raiding agreements. In so doing, the Court of Appeal suggested that the anti-raiding provision at issue would have violated Section 16600 even if recruiting was not the chosen profession of the employees.
This case is significant for California employers because it calls into question the validity of the anti-raiding provision, a common employment agreement term. California employers have long relied upon the Loral v. Moyes decision, which established the enforceability of anti-raiding provisions; practitioners on both sides of the courtroom have assumed this reliance was justified. By going out of its way to question the court’s reasoning in Moyes, the Court of Appeals is signaling a further embrace of employee mobility as a primary public policy of the State of California.
A Single Incident of Harassment Could Mean a Jury Trial
Senate bill changes Fair Employment and Housing Act
One of the more substantive changes made to the FEHA by SB 1300 is the recognition that a single incident of harassing conduct is sufficient to create a triable issue, and the conclusion that harassment cases are rarely appropriate for disposition on summary judgment (e.g. the cases involve issues “not determinable on paper”).
Previously, when a plaintiff’s discovery or deposition testimony would identify a single incident of potentially harassing conduct, or if the alleged harassing conduct was so benign that it could not reasonably create offensive working conditions, defense counsel would file a motion for summary judgment to dismiss these claims. A successful motion for summary judgment prevents the claim from reaching a jury at trial.
The new legislation appears to preclude disposition of these claims by these types of motions, however, so there’s a risk these claims may have a jury trial more often in the future.
New Human Trafficking Training Requirements
Two new laws seek to combat trafficking through education
Hotels or motels with five or more employees. SB 970 requires qualifying hotels or motels to provide at least 20 minutes of classroom or other interactive training regarding human trafficking awareness to employees who are likely to interact or come in contact with victims of human trafficking (i.e. employees working reception area, housekeeping, employees who drive customers, and employees who help customers move their possessions).
The training needs to address several issues, including the definition of human trafficking and commercial exploitation of children, how to identify individuals who are most at risk for human trafficking, the role of hospitality employees in reporting and responding, and contact information for appropriate agencies.
The training must be completed by January 1, 2020 for workers employed as of July 1, 2019 and within six months of hire for workers employed after training must be provided every two years.
Transportation companies. AB 2034 requires intercity passenger rail, light rail, and bus stations to provide at least a 20 minute training to employees who may interact with, or come in contact with, a victim of human trafficking. The training needs to be completed by January 1, 2021, and should include the definition of human trafficking, including sex and labor trafficking, myths and misconceptions about human trafficking, how to identify individuals who are most at risk for human trafficking, and protocols for reporting human trafficking when on the job.
Employers should take these training requirements seriously. Those who fail to comply with AB 2034 may be subject to civil penalties of $500 for the first offense and $1,000 for each subsequent offense. For now, employers who violate SB 970 don’t face a fine, but the Department of Fair Employment and Housing may seek an order for the employer’s compliance.
California Curtails Public-Sector Unions’ Ability to Collect Fees
Janus decision and California’s subsequent legislation
In June this year, the United States Supreme Court issued its decision in Janus v. American Federation of State, County, and Municipal Employees. The Court ruled that public unions may no longer require that their nonmembers pay an agency fee in order to continue to receive the benefits of union representation.
Immediately following the decision, however, California passed legislation (SB 866) that set forth the following:
- Notwithstanding Janus, deductions for union dues from member wages and salaries may be requested by employee organizations and bona fide associations. Public employers must honor these requests.
- In requesting these deductions, an employee organization must certify it has and will maintain an authorization, signed by the employee taking the deduction.
- The employee organization certifying the deductions is required to indemnify the public employer for any claims made by employees regarding those deductions.
- Any requests for changes to, or revocation of, an employee’s individual authorization must be directed to the employee organization.
- Any mass communication from the public employer to employees regarding their rights to join or support an employee organization, or to refrain from doing so, must be preceded by meeting and conferring with the exclusive representative of that organization.
- Public employers are prohibited from deterring or discouraging employees from authorizing dues or fee deductions for an employee organization.
- Notice of new employee orientations cannot be disclosed to anyone other than the employees, the exclusive representative, or a vendor that is contracted to provide a service for purposes of the orientation.
California public employers should review these new requirements and ensure that their policies and procedures are in alignment with the new Supreme Court decision as well as the new state bill.
This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.
