Employers have the burden to record and maintain accurate time records under California law. If the employer knows employees are not properly recording their time, the employer needs to enforce a policy to have employees accurately record their time, even if it requires disciplinary action. In addition, employers need to review their time records to ensure employees are following proper procedures.  Here are five reminders of best practices for time records for California:

1. Ensure the time records are accurate.

It goes without saying that the time records need to be accurate in the time that is being recorded for the employees.  For the employer, this means reviewing the use of electronic time keeping systems.  However, if an employer is relying upon the employee to record their time manually, or in a spreadsheet, these records must be audited to ensure that the employee is being accurate in the time they are recording.  For example, the employer needs to prevent an employee manually recording their start and stop time and the same time every day without any variations.  More information about electronic time records and storage requirements is available here.

2. Storing time records for the required amount of time.

The statute of limitations can reach back four years in wage and hour class actions under California law, and time records will be the primary evidence in most of these cases.  California law requires employers to track start and stop times for hourly, non-exempt employees, and record meal breaks as discussed below.  Employers need to ensure they are keeping these critical records for the amounts of time required under the law, and also long enough to defend against wage and hour claims.

3. Must record all required information.

Employers need to ensure their timekeeping system is recording the required information.  For example, while employers are not required to record 10-minute rest breaks, employers are required to record employee’s meal periods under the IWC Wage Orders (requirement is found section 7 – Records).

4. Maintaining time records in a usable format.

Maintaining records in a form that makes reviewing the records almost impossible is almost equivalent to not maintaining them in the first place. Some thought should be put into how an employer is storing time records and understanding how that data could efficiently be reviewed in the future if needed.  Electronic time records are easiest to analyze given that the data is digital.  However, employers should consider where the records are stored (electronic or paper), and how easy is it to pull information for individual employees, and for all employees, if needed.

5. Tracking employees’ signed waivers, acknowledgments, and time card adjustments.

Just like time records, employers need to consider a system for storing, indexing, and retrieving records related to the employee’s time records, such as any time adjustments, employee signed waivers (more information about meal break waivers is available here), and signed acknowledgments.  Documentation is critical but being able to track and retrieve documents for specific employees or for the workforce over a period of time is just as important.  Employers need to put just as much thought into this aspect as they do in training managers and supervisors to document issues in the first place.

Hope you are having a great summer.  As many employees take (or consider taking) vacation during this summer, employers in California must be aware of unique rules that apply to vacation time. This Friday afternoon, I thought it was an appropriate time to review five potential vacation policy traps for California employers:

1. No use-it-or-lose-it policies permitted.
Under California law, vacation is treated the same as earned wages and vest as the employee performs work. Because vacation is earned proportionally as the employee works, policies requiring employees to lose vacation already earned is illegal under California law.

2. Reasonable caps are allowed.
While employers cannot implement “use-it-or-lose-it” policies, they can place a reasonable cap, or ceiling, on vacation accrual. The DLSE explains:

Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a forfeiture of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.

3. Vacation is a form of earned wages that must be paid out on the employee’s last day of work.
An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination. See Labor Code Sections 201 and 227.3.  More information about the timing and payment of final wages can be read here.

4. Deductions are not permitted from employee’s final wages for use of vacation that was not accrued.
Vacation is treated as a form of wages under California law, and by permitting an employee to take vacation time before it is earned is similar to providing a loan to the employee.  However, employers may not utilize self-help remedies to recover debts from the employee’s final pay check, including deducting wages owed to an employee to cover vacation that time was used but had not yet been accrued by the employee.

5. “Cliff vesting” policies are problematic.
Employers may set probationary periods or waiting periods during which employees do not accrue vacation time. However, the DLSE maintains that employers may not have a policy that grants employees a lump sum of vacation upon reaching certain dates (for example, a policy granting the employee five days of vacation at the employee’s one year anniversary of work, but not permit the employee to take any vacation prior to the anniversary date).

The DLSE’s view on this type of “cliff vesting” is that the employer is attempting to provide for accrued vacation, but at the same time is attempting to limit its liability of having to pay out a pro rata share of the accrued vacation if the employee does not work until the date the vacation is granted to the employee.  Many employers avoid these potentially problematic lump sum grants of vacation by setting a time period (i.e., the employee’s first six months of employment) that the employee does not accrue vacation.

California law on vacations is vastly different than Federal law and other states. It can be a trap for employers, but with some understanding of the obligations created under the law it can easily be managed.

Hope you are enjoying your summer.

Instead of relying on the old job offer letter you had a lawyer review in the 1990’s for your next new hire, it is recommended to review the offer letter to ensure it is up to date with current law. Here are the five terms employers should consider to include in job offer letters:

1. At-will designation

An offer letter should clearly set forth that the employee is being hired as an at-will employee, and that employment may be terminated by either party with or without notice at any time. Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. Even though the law presumes all employment is at-will, it should be clearly set out in the offer letter as well.

2. Description of the job

It is a good practice to have job descriptions for all positions in a company. If the company does not have a job description, be as detailed as possible about the duties of the position the applicant is being hired for in the offer letter. This will help avoid potential disputes about whether certain duties are essential functions of the position for reasonable accommodation purposes, and could also be evidence in defending claims that the employee was misclassified as exempt. The job offer could also set forth whether the position is non-exempt or exempt, and have the duties reflect the designation.

3.  Integration Clause

Place language into the offer letter that the terms set forth in the letter supersede any other offers or promises. This type of term is referred to as an integration clause. Including an integration clause into the offer letter will assist in countering any claim later on that other promises were made to the employee at the time of hire and the employer failed to comply with those promises.

4.  Set forth commission terms if employee is eligible for commissions

Since January 1, 2013, all commission agreements must be in writing and must be signed by the employer and employee. Employers should review the offer letter to see if the offer letter meets these requirements. If it does not, or the commission structure is too complex to include in the offer letter, commission agreements still must be set out in a separate writing and signed by the employer and the employee. Employers should approach the issue of commissions carefully to ensure that the agreement defines key terms. In addition, in the case of non-exempt hourly employees, employers must be careful on how the commissions could affect the calculation of the regular rate of pay for overtime purposes.

5.  Confidentiality provisions

Set forth if your company will require the employee to enter into a confidentiality agreement. If possible, attach the confidentiality agreement and have the applicant sign the agreement at the same time the job offer is accepted. The offer letter should also contain language to the effect that the applicant does not have any agreements with prior employers that would interfere with their duties and that the applicant will not use any confidential information learned at prior positions.

I have published this post since 2015 recognizing the Fourth of July (one of my favorite holidays).  Hopefully I’ll be able to keep publishing it for many years to come.  Wishing you a great Fourth, and hope you have some time to put aside your work for a bit and enjoy some time with your family.  Happy Fourth of July!

Five things I’m thankful for this Fourth of July:

1.     For the great risk and sacrifice our Founding Fathers took to establish the country. 

When learning about the Founding Fathers in high school history class I did not have a perspective about the risks the Founders took in establishing the country.  Only now that I have a business, a family, and am relatively successful, can I realize the huge risks the Founders took.  By all means, they were the establishment, the elite of the American society, and if anyone had an interest in preserving the status quo, it was them.  Their sacrifices of life (theirs and their family members) and their fortunes helped build the foundation we benefit from today.

2.     The ability to speak freely and practice or not practice any religion I want.

It is great being able to freely speak your mind and believe in whatever you want.  It is also great be free to practice (or not) any religion you want.  We live in a very tolerant society, and it is even better when the government is not telling you how to live your life.  It is important to remember that throughout history, this is the exception for how a government normally behaves.

3.     Our Country’s ability to attract creative people.

People that like creating things and being productive want to practice their trade where the government will basically leave them alone and provide a good environment to protect their gains derived from their hard effort (see item #5 below).  The U.S. provides this environment, and that is why so many people come to the U.S. to create a business or to practice their trade.  It is also important to recognize how lucky we are to be in the U.S.

4.     My right to practice any profession and access to unlimited resources to learn the required skills.

No one is dictating what students need to be after they graduate high school or college.  Everyone is free to pursue their interest, and the market decides the value of the effort.  With basically any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history individuals have an almost free method to sell their services or products over the Internet.  In your mid-40’s and want to make a career change?  Perfect, and you don’t even need to go back to school as the information is freely available on the Internet.  Didn’t finish college and are 20 years old with an idea?  Perfect.  Venture capitalists don’t care about your pedigree, they are only interested if you work hard and don’t give up.

5.     Our legal system.

Yes, it sounds trite.  But while I don’t think our legal system is perfect by any means, it is the best system established in the history of mankind.  Everyone living in the U.S. presently is very lucky to have this benefit.  It is a foundation for many of the items I mentioned above.  Because people have a good basis for predicting the outcomes of their actions, such as being able to retain property legally obtained, and knowing if someone breaches a contract there will be repercussions, it creates an environment that attracts hard effort and the best talent from around the world.  This is why the U.S. has been the leader in ideas and new businesses.  However, just because the system is established does not mean our work is done.  We have to be vigilant not to lose the fairness, reasonableness, and lack of corruption in the legal system.

Happy Fourth of July!

The last two weeks have been busy on the California employment law front, and California employers must remain vigilant about new employment law developments still going forward this summer.  As we enter the second half of 2022, here are five issues California employers need to pay attention to:

1. IRS mileage rate increases July 1, 2022 to 62.5 cents per mile.

On June 9, 2022, the IRS announced that it will be raising the mileage rate effective July 1, 2022.  The IRS mileage rate will increase from 58.5 cents per mile to 62.5 cents per mile from July 1, 2022 to December 31, 2022.

As gas prices continue to rise to historic highs, employers with employees driving for work purposes, need to ensure their mileage reimbursement polices are current.  More information about California employers’ obligation to pay for mileage reimbursement, and the seminal California Supreme Court decision on the issue, Gattuso v. Harte-Hanks Shoppers, Inc., see our prior post here.

2. Deadline for small employers to register for CalSavers is June 30, 2022.

California employers are required to register for the CalSavers retirement savings program, if they have 5 or more employees and do not sponsor a retirement plan.  Employers with 5 or more employees must register for the program by June 30, 2022.  Employers with over 100 employees were required to register by September 30, 2020, employers with more than 50 employees were required to register by June 30, 2021.  The state has begun to issue citations, which start at $250 per employee, and can increase to $750 per employee.

3. Many local minimum wage increases effective July 1, 2022.

As we have previously written about here, many local cities and counties throughout California are raising their minimum wages on July 1, 2022.  Employers need to review their jurisdictions to ensure compliance with the applicable minimum wage.

In addition, the City of West Hollywood is also increasing the amount of paid leave required to be paid to employees.  The City’s website explains, “Beginning July 1, 2022, full time employees for all businesses are to be provided at least 96 compensated hours and 80 uncompensated hours per year for sick leave, vacation, or personal necessity. Part-time employees are to be provided compensated and uncompensated hours in increments proportional to that accrued by someone who works 40 hours in a week.”  More information about West Hollywood’s minimum wage and paid leave is provided on the City’s website here.

4. Responsible Beverage Service (RBS) training required for alcohol servers starting July 1, 2022.

The RBS “training teaches servers to responsibly serve alcoholic beverages for on-premises consumption and mitigate alcohol-related harm in California communities”.  The Alcoholic Beverage Control requires that beginning July 1, 2022, any ABC licensee who has an “ABC On-Premises License” will be required to ensure specific staff (alcohol servers and managers of alcohol servers) have received training from an ABC approved RBS Training Provider within 60 days of employment. This includes staff employed prior to July 1, 2022.  More information can be found at the ABC’s website here.

5. Bill proposed to create council to regulate California “fast food restaurants” continues in California Legislature.

AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act, proposes to establish a Fast Food Sector Council within the Department of Industrial Relations is making it way through the California Legislature.  If passed, the bill would create a council composed of 11 members appointed by the Governor.  The council would define which fast food restaurants it would regulate, and would set standards for minimum wages, working hours, “and other working conditions related to the health, safety, and welfare of” fast food establishments.  In addition, the bill also creates joint liability for franchisors and provides a private right of action for employees to sue for discrimination or retaliation.

Moreover, as drafted, the bill defines “fast food chain” as “a set of restaurants consisting of 30 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.”  The bill would add another layer of complexity for these restaurants in addition to the existing Labor Code and is a proposed law restaurant operators of all types should closely monitor this summer.

In Viking River Cruises, Inc. v. Moriana, plaintiff worked for Viking as a sales representative in Los Angeles.  Plaintiff sued Viking alleging various Labor Code violations and sought to recover PAGA penalties on a representative basis.  However, when she started working for Viking, she agreed to resolve all employment issues with Viking in arbitration, and the parties would use individual procedures rather than class or representative action procedures such as PAGA.  Viking sought to compel Moriana’s individual claims to arbitration, but the trial court and the California Court of Appeal denied Viking’s request, citing the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles, LLC. The California Court of Appeal noted that it “must follow the California Supreme Court, unless the United States Supreme Court has decided the same question differently.” Therefore, Viking petitioned the United States Supreme Court to review the case, arguing that Iskanian is preempted by federal law under the Federal Arbitration Act (FAA) and the U.S. Supreme Court holdings in AT&T Mobility v. Concepcion and Epic Systems Corp. v. LewisAs we reported earlier, the U.S. Supreme Court issued its decision on June 15, 2022, finding that the FAA preempts California’s prohibition on the employer’s ability to implement arbitration agreements with PAGA waivers.  Here are five issues California employers need to know about the Viking decision:

1. Arbitration agreements containing class action and PAGA waivers are enforceable by California employers.

In this case, Viking River Cruises implemented an arbitration agreement that was signed by the plaintiff, Angie Moriana.  The agreement contained a “Class Action Waiver,” setting forth that the parties could not bring any class, collective, or representative PAGA actions in arbitration.  The agreement also contained a severability clause, stating that if any portion of the class action waiver was found to be invalid, that portion of the agreement would not be enforceable, but the remainder of the agreement would be “enforced in arbitration.”  As discussed below, the U.S. Supreme Court upheld the PAGA waiver found in the arbitration agreement implemented by Viking.

While arbitration agreements can be enforeable, California employers must be aware that arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies.  In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.  Challenging the enforceability of arbitration agreements in California courts will likely increase give the U.S. Supreme Court’s holding in Viking.

2. The U.S. Supreme Court noted PAGA’s unique nature.

In the decision, the U.S. Supreme Court noted how PAGA departs from the normal rules “by granting the power to enforce a subset of California public law to every employee in the State.  This combination of standing to act on behalf of a sovereign and mandatory freeform joinder allows plaintiffs to unite a massive number of claims in a single-package suit.”

The Supreme Court noted that, “[a]rbitration is poorly suited to the higher stakes of massive-scale disputes” created by PAGA.  For example, arbitration does not offer “multilayered review”, and there are risks of “in terrorem” settlements (similar to class actions).

3. The U.S. Supreme Court found that PAGA conflicts with the Federal Arbitration Act given the PAGA waiver in the arbitration agreement implemented by Viking.

The U.S. Supreme Court held that PAGA’s “procedural structure” conflicts with the FAA because of PAGA’s “built-in mechanism of claim joinder.”  Because PAGA “permits ‘aggrieved employees’ to use the Labor Code violations they personally suffered as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding.”  Next, the Court explained that the California Supreme Court’s holding in Iskanian, “prohibits parties from contracting around this joinder device because it invalidates agreements to arbitrate only ‘individual PAGA claims for Labor Code violations that an employee suffered.”  Therefore, the Supreme Court held that, “This prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’ and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent.”  The Supreme Court concluded that “[f]or that reason, state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”

4. Enforceability of arbitration agreements will be challenged going forward.

Employers implementing arbitration agreements must be careful to utilize agreements that fall within Viking’s holding and comply with California law as well.  For example, as we have written about previously, California courts have routinely found that arbitration agreements contained in employee handbooks are not enforceable.  Moreover, simple technical details such as having a clear signature by the employee on the agreements, and if there is a signature line for the company to counter sign the agreement, it should be fully completed by the company.

5. This may not be the last PAGA decision – watch for developments from California courts or from the California Legislature.

Justice Sotomayor’s concurring opinion in Viking made it clear that this is not likely the last decision regarding PAGA.  Justice Sotomayor stated that “[o]f course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.  Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.”

Today, June 15, 2022, the U.S. Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana, holding that the FAA preempts California’s prohibition on the employer’s ability to contract with employees to bring only their individual claims in arbitration and not a representative Private Attorneys General Act (PAGA) claim.  This is a big win for California employers in their ability to limit their exposure to PAGA representative claims through use of arbitration agreements.

California’s PAGA was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws by recovering certain civil penalties.  Aggrieved employees can seek recovery of civil penalties for Labor Code violations they suffered, in addition to penalties for all Labor Code violations by the employer in a representative action, as long as the employee suffered by at least one violation. 75% of the collected penalties must be distributed to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations, and a prevailing plaintiff is entitled to their fees and costs.  PAGA claims are representative actions, which are distinct from class actions in a number of ways, and PAGA claims can be brought by one employee but seeking penalties for all employees.

At issue in Viking was whether a California employer may enter into an arbitration agreement with an employee whereby the employee agrees to only bring his or her individual claims in an arbitration proceeding and not bring any class or representative claim under PAGA.  The decision provides employers relief from PAGA if the employer implements compliant arbitration agreements that preclude employees’ ability to file PAGA claims.  As we digest the opinion, we will publish more analysis on our blog.  Also, be sure to subscribe so that you will receive a notification on our upcoming webinar on how the Viking decision impacts California employers.

There are certain rights provided by the California Labor Code that employees cannot waive, including some of the following:

1. Minimum wage
Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws. That statute clearly voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime.

2. Overtime
In Gentry v. Superior Court, the Supreme Court explained:

[Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.

By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’”

3. Expense reimbursement
Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, clearly provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

4. Right to receive undisputed wages
Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.”

5. Right to participate in Private Attorneys General Act (PAGA) representative actions?
The California Supreme Court held that employees may not waive their right to bring a representative action under the PAGA (even though the Court held that class action waivers in arbitration agreements are enforceable). The Court held in Iskanian v. CLS Transportation that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

However, the U.S. Supreme Court is reviewing this issue in Viking River Cruises, Inc. v. Moriana, (our analysis on Viking River Cruises is here) which will decide if a California employer may enter into an arbitration agreement that requires the employee to only bring his or her individual claims and cannot bring any representative claims under California’s Private Attorneys General Act (PAGA) on behalf of other employees.  The decision is likely to be issued within the next month.

A number of California companies, especially in the tech industry are facing increased scrutiny over equal pay issues in recent years.  While these types of claims have been hard to have certified as a class action on the federal level, some claims under California’s recent Equal Pay Act are seeing success.  Here are five reminders that employers need to understand about California’s pay discrimination laws and the potential liability they carry:

1.  The technology industry has been especially targeted in California for pay discrimination claims.

In June of 2021, a class action against Google alleging pay discrimination was granted class certification, and the case is likely to go to trial by the end of 2022.  In 2020, a case against Oracle was also granted class certification.  In May 2022, LinkedIn reached a settlement with the U.S. Department of Labor for $1.8 million for 686 female workers in California.  The settlement covered LinkedIn’s engineering and marketing positions in San Francisco and its engineering and product positions in Sunnyvale.

Plaintiffs filed a class action and PAGA lawsuit against Sony Interactive Entertainment LLC, which produces the PlayStation, in May 2022.  The lawsuit alleges that female employees were not equally compensated, were held back from promotions, or were denied promotions based on their gender.  The lawsuit alleges violations of California’s Equal Pay Act, California’s Fair Employment and Housing Act (FEHA), failure to prevent and investigate discrimination, violation of California’s Business & Professions Code section 17200 (Unfair Competition), and claims under the Private Attorneys General Act.

2.  California’s Equal Pay Act.

California’s Equal Pay Act, Labor Code section 1197.5, is directed at ensuring equal pay across genders and race.  The law became effective January 1, 2016.  While it was illegal to pay employees different wages based upon their gender or race already under California law, this law expanded the protection to workers who do “substantially similar” work.  If challenged, employers can justify different pay if the employer can show it is based on one or more of the following factors:

  1. A seniority system
  2. A merit system
  3. A system that measures earning by quantity or quality of production
  4. A bona fide factor other than sex, such as education, training, or experience.

The law also prohibits employers from restricting employees from disclosing their wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging others to exercise their rights under the new law.

3.  Equal Pay Act claims do not require plaintiffs to prove discriminatory intent.

In granting class certification, the court in the Google case noted that the “EPA provides that ‘[a]n employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions[.]’” Plaintiffs contend in the case that employees in the same job code perform substantially similar work, women in the same job codes are paid less, and Google does not have an affirmative defense to justify the pay discrepancy.

As the court noted in the opinion, “Since intent is not an element of a prima facie case under the EPA or a disparate impact theory under FEHA,” the evidence submitted by Google’s managers that they did not discriminate in their pay decisions “is irrelevant.”

4.  California has many other laws prohibiting pay discrimination.

Effective on January 1, 2018, Labor Code section 432.3 prohibits California employers from relying on salary history information of an applicant in determining whether to make an offer to the applicant, and in determining the pay to offer.

Fair Employment and Housing Act (FEHA) applies to public and private employers.  FEHA prohibits discrimination of applicants and employees for employers with five or more employees based on a protected category, such as race, religion, or gender.  Any pay discrepancies based on gender violates FEHA.

In addition, employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages under Labor Code Sections 232(a) and (b). In addition, employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions under Labor Code Section 232.5.

5. New proposed legislation: AB 1162 for pay transparency.

As discussed above, Labor Code section 432.3 became effective on January 1, 2018, and prohibits California employers from asking applicants about prior salary history.  Section 432.3 currently requires employers to provide applicants a pay scale “upon reasonable request.”  It defines “pay scale” as “a salary or hourly wage range.” More information about Labor Code section 432.3 can be read here.

AB 1162 is a bill currently under consideration by the California state legislature that would amend Labor Code section 432.3 to, among other proposed changes, require employers who have 15 or more employees to publish a pay scale for a position in any job posting.  In addition, employers would be required to maintain “records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of employment” and must make these open to inspection by the Labor Commissioner.

As we end May 2022 and break for Memorial Day weekend, there were some major case develops within the last week for California employers.  Here are five key highlights California employers need to know about:

1. Naranjo v. Spectrum Security Services, Inc. – Penalties just increased for non-compliant meal and rest breaks. 

This week, the California Supreme Court decided the issue of whether premium wages owed to employees for meal and/or rest break violations that are not paid when the break was missed, would also trigger penalties for wage statement violations under Labor Code section 226 and for waiting time penalties for unpaid wages for employees who leave employment under Labor Code section 203.  The Supreme Court held that the premium wages owed to employees also trigger these derivative penalties under the Labor Code.

Takeaway for California employers:  Ensure proper meal and rest break policies are established because the employees are not only entitled to the premium wages, but if the premium wages were not paid to employees when they did not receive a compliant meal or rest break, the employer will be liability for additional penalties under Labor Code section 226 and waiting time penalties under Labor Code section 203.

2. Pineda v. Sun Valley Packing, L.P. – Another decision invalidating arbitration agreements placed in employee handbooks.

Another California court refused to enforce an arbitration agreement contained in the employee handbook.  In Pineda v. Sun Valley Packing, L.P., the U.S. District Court for the Eastern District of California held that an employer could not enforce an arbitration agreement contained in the employee handbook.   In its ruling, the court quoted Sparks v. Vista Del Mar Child & Fam. Servs. (2021) explaining that:

[t]o support a conclusion that an employee has relinquished his or her right to assert an employment-related claim in court, there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees. At a minimum, there should be a specific reference to the duty to arbitrate employment-related disputes in the acknowledgment of receipt form signed by the employee at commencement of employment.

The court ultimately held that, “Here … there was no such reference to the arbitration provision in the acknowledgment form that plaintiff signed, and there was no indication in the handbook itself that by commencing and continuing employment, plaintiff was agreeing to be bound to arbitrate disputes.”

Just another reminder after the Mendoza ruling in February 2022, that California employers must be very careful when placing arbitration agreements in employee handbooks.  Handbooks are not the best mechanism for creating binding contracts with employees, and often times they have language setting forth that the handbook and nothing contained in the handbook creates a binding contract with the employer.

3. Morgan v. Sundance, Inc. – U.S. Supreme Court issues decision on standard to determine if an employer has waived its right to enforce an arbitration agreement by litigating the case too long before moving to compel arbitration. 

 On May 23, 2022, the U.S. Supreme Court issued a decision, Morgan v. Sundance, Inc., regarding the enforceability of arbitration agreements in the employment context (the opinion can be read here).  At issue in the case was the legal standard to decide if an employer has waived its right to compel arbitration if it litigates the case for too long.  In the case, the employer defended the initial lawsuit in court, filing a motion to dismiss and participated in a mediation.  After the motion to dismiss was unsuccessful and the mediation failed, eight months after the lawsuit was filed, the employer brought a motion to compel arbitration.  The employee argued that the employer had waived its right to compel arbitration by participating in the litigation and waiting for so long.  The Supreme Court held that in determining whether a defendant waived its right to compel arbitration, there is no need for the court to find that the actions of the defendant “prejudiced the other party by its inconsistent actions.”  All that would be required to establish waiver is that the party knew of its right to arbitration and acted inconsistently with that right.

The takeaway for employers is that if an arbitration agreement exists with an employee who files a lawsuit, it the employer should take action to enforce the arbitration agreement early in the lawsuit in order to avoid a potential argument that it waived its rights to do so by willingly participating in the lawsuit.

We are still awaiting the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, (our analysis on Viking River Cruises is here) which will decide if a California employer may enter into an arbitration agreement that requires the employee to only bring his or her individual claims and cannot bring any representative claims under California’s Private Attorneys General Act (PAGA) on behalf of other employees.  The decision is likely to be issued in June or July of this year.

4. AB 257  – Bill proposed to create council to regulate California “fast food restaurants.”

AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act, proposes to establish a Fast Food Sector Council within the Department of Industrial Relations.  The council would be composed of 11 members appointed by the Governor.  The Council would define which fast food restaurants it would regulate, and would set standards for minimum wages, working hours, “and other working conditions related to the health, safety, and welfare of” fast food establishments.  As drafted, the bill defines “fast food chain” as “a set of restaurants consisting of 30 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.”  The bill would add another layer of complexity for these restaurants in addition to the existing Labor Code.

5. AB 2188 – Bill being considered by California legislature that would make it illegal for California employers to discriminate against employees for using of cannabis.

AB 2188 proposes to amend Government Code section 12945 to make it illegal for employers to discriminate against employees who use cannabis off the job and away from the workplace.  The bill states that it does not create the right for the employee to be impaired while at work, does not apply to the building and construction trades, and does not preempt state or federal laws requiring employees to be tested.  If passed, this would change the current status of California law.

In 2016, California passed Proposition 64 legalizing marijuana.  Proposition 64 expressly provides that employers may prohibit marijuana in the workplace, and will not be required to accommodate an employee’s use of marijuana.  This is also consistent with the California Supreme Court’s holding in Ross v. Ragingwire Telecommunications, Inc.  In that case the court examined the conflict between California’s Compassionate Use Act, (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and Federal law (which prohibits the drug’s possession, even by medical users).  The court held that the Compassionate Use Act did not intend to address the rights and obligation of employers and employees, and further noted that the possession and use of marijuana could not be a protected activity because it is still illegal under federal law.

If the bill makes it to the Governor’s desk, he will have until the end of September to sign or veto the bill. Be sure to subscribe to receive updates on this and other bills – we will have a webinar towards the end of the year summarizing the new California laws for 2023.

Have a great Memorial Day weekend!