With summer upon us, the California legislature is busy working on bills that could impact employers.  Here are five employment bills being considered by the state legislature that California employers should keep an eye on:

1. SB 3 – Increase in minimum wage and indexing to inflation

Currently, California minimum wage is set to increase from $9.00 per hour to $10.00 per hour on January 1, 2016.  This bill proposes to increase the minimum wage to $11 per hour on January 1, 2016, and then again to $13 per hour by July 1, 2017.  Then, beginning on January 1, 2019, minimum wage would be indexed to inflation and would be adjusted upward every January 1 thereafter.

2. SB 406 – Broadening scope of employees and employers covered by California Family Rights Act

Currently, the California Family Rights Act requires employers with 50 or more employees within a 75 mile radius to provide up to 12 workweeks of unpaid leave for certain medical issues.  This leave is job protected leave, so the employer must provide the same job to the employee upon their return from leave.  This bill would expand coverage of the law to employers with 25 or more employees.  It would also expand the employees covered and purposes for which leave is required to be provided (for example, removing any restrictions on age or dependent status in the definition of “child”).

3.  AB 359 – Employee retention mandate for grocery stores

This bill would require any purchaser of an existing grocery store to hire the employees of the previous owner and employ them for 90 days.  The bill prohibits the new owner from terminating any employees without cause during the 90-day period, and then “consider offering continued employment to those workers.”

4.  AB 465 – Prohibiting mandatory employment arbitration agreements

This bill would prohibit “any person from requiring another person, as a condition of employment, to agree to the waiver of any legal right, penalty, forum, or procedure for any employment law violations.”  The bill also shifts the burden of proof onto the employer enforcing the waiver to show that the waiver was “knowing and voluntary.”  The bill is seeking to limit the use of arbitration agreements in the employment context.  Should an employer violate this bill, the penalty is set at $10,000 per violation plus attorney’s fees to the prevailing employee.

5.  AB 67 – Double pay required on holidays

Bill would require an employer to pay at least two times the regular rate of pay to specified employees for work during Thanksgiving.

Earlier this week Uber appealed a California Labor Commissioner ruling against it holding that a driver was misclassified as an independent contractor.  In this video, I briefly discuss the ruling and the lesson it holds for employers.

Misclassification of employees as independent contractors can carry many damages and penalties.  For example, Sections 226.8 and 2753 of the Labor Code impose a civil penalty of $5,000 to $25,000 depending on whether the misclassification is willful.  In addition, the misclassified worker can recover back unpaid overtime wages, unpaid minimum wages, and expense reimbursement.  Therefore, employers need to be extremely cautious in classifying workers as independent contractors.

For more information about the factors that differentiate an employee from an independent contractor click here.

The Labor Commissioner’s can be viewed here:

This Friday’s Five article is busting its own rule with a list of ten rules (it is California, and I should have realized the limitations of lists of five).  While there are many aspects of the new law that I cannot cover in a short article like this, here is a general checklist of ten items to keep in mind when preparing to comply with California’s Healthy Workplaces, Healthy Families Act of 2014 and its July 1, 2015 deadline:

1.     Employees can use their accrued sick days beginning on the 90th day of employment.

2.     Employers may limit the amount of sick leave used to 24 hours or 3 days per year.  Note that the employer must notify the employee of any caps imposed prior to implementation.

3.     Employers may also set a minimum increment not to exceed two hours for use of paid sick leave.  For example, if the employee needs to go to the dentist for a one hour appointment, the employer can only require that the employee use 2 hours of paid leave.

4.     Employers are not required to provide compensation to an employee for accrued, unused paid sick days upon separation of employment.

5.     Employers cannot require employees to find a replacement worker in order to take paid sick leave.

6.     Leave must be the greater of 3 days or 24 hours per year.  Therefore, a part-time employee who works 4 hour shifts will be entitled to 6 days off, and a full-time employee who usually works 10 hour shifts will be entitled to 3 days off (which is 30 hours).

7.     Employers cannot require a doctor’s note in order for the employee to qualify for paid sick leave.

8.     Employees with fluctuating pay rates, the regular rate of pay use to pay an employee using sick leave is calculated by dividing the employee’s total earnings by their total hours worked for the previous 90 days.

9.     Payment for sick leave must be made no later than the payday for the next regular payroll period after the sick leave was taken.

10.  Employers must show the amount of sick leave available on the employee’s pay stub or other writing given to the employee at the time of pay and should already be using the revised Notice to Employee for all non-exempt employees hired in 2015 and going forward.  Therefore, employers should be working with their payroll companies to ensure the paystubs issued to employees show the required information.

Employers should also review the DIR’s frequently asked questions page setting forth details of the law and compliance considerations.

Is your company in an industry that is likely to be targeted by the Department of Labor (DOL) for FLSA violations, or by the California Labor Commissioner for California Labor Code violations? A review of the Department of Labor’s Wage and Hour statistics for fiscal year 2014, in connection with California’s Division of Labor Standards Enforcement most recent reporting for 2012-2013, establishes a clear pattern of industries that are targeted for wage and hour violations:

  1. Restaurants
  2. Garment manufactures
  3. Guard services
  4. Car washes
  5. Agriculture

Here is a summary of the DOL’s statistics:

DOL 2014 Statistics

Here is a summary of California’s DLSE’s most recent statistics:

DLSE 2012-13 wages collectedWhile there are some differences between the two agencies’ statistics, restaurants lead both lists. It is also important to note that not every business can fit into these predetermined categories (note that the “other” category in the DLSE’s lists is very large), so there are many other industries affected.

It is also important to note the amount collected from the various industries that the DLSE found was due. According to the DLSE, the worse collection efforts was in the garment industry, with only 2.8% of the wages found to be due were actually collected. The next lowest collection rate per industry was in the car wash industry at only 10% collection rate. It is important to review these collection rates, because it is informative about how the DLSE or DOL will view your particular establishment when investigating potential claims. The lower collection rates are probably due to the result of the employer’s simply going out of business or taking other steps to avoid collections of the penalties and fines, or what I refer to as the bad actor presumption (rightly or wrongly).

Bad actor presumption (rightly or wrongly)
Imagine if you were in charge of collecting the penalties issued by the DLSE or DOL, these collection figures would color your view of employers operating in these industries. Going into the investigation, the government already has a predisposition that certain employers are more likely to have violations, and then when told they must pay fines, the employer likely to still simply refuse to abide by the determination. I’m not making a presumption that these penalties and fines were rightly or wrongly issued, but am only commenting about how these numbers skew the view from the perspective of the governmental agency. The agencies go through the process of making a determination and issue a citation, and then even after the determination has been made and the employer had an opportunity to appeal the agencies’ determination, the employer still refuses to pay the citation. In effect, employers therefore are harming the reputation of every business operating in that industry, and make it more difficult to overcome the predisposition the investigator has about the particular industry.

This illustrates the importance of companies operating in these targeted industries to be especially vigilant about compliance with Federal and California employment laws. An employer can gain a higher level of credibility with the investigator if they can show compliant policies, good record keeping, and proper payment of wages. Next week I will discuss violations most likely to be assessed by the DOL or the DLSE.

The Los Angeles Times is reporting that a panel of city lawmakers approved a draft of the ordinance that would raise the Los Angeles-2minimum wage in Los Angeles to $15 per hour by 2020, moving the ordinance one step closer to passage.  There was a backlash this week against the labor unions that were pushing hard for the minimum wage increase, but at the last minute this week are seeking to have organized labor excluded from the increase.

In addition to having union members excluded from the minimum wage increase, there are still additional proposals that may also become law.  For example, late this week, a change was proposed to the ordinance to require Los Angeles employers to provide 12 paid days off each year.  It is unclear if the 12 paid days off would be for sick leave, or even vacation, but the council is considering this addition. Apparently this paid time off has been taken out of the proposed ordinance for now, but the council will send the proposal to the chief legislative analyst for review, and the ordinance could still be amended to add this requirement at a later date.  For now, the union exemption and the paid time off has been removed from the ordinance, and the city council is set to vote on the ordinance next week.

Many open questions still exist about the ordinance:

  • What rate must employees be paid who are traveling though or temporarily working in Los Angeles?  The LA Times reports that at today’s hearing, the city lawyers said that the law would apply to workers working at least two hours in a workweek in Los Angeles.
  • What about workers who split their time in Los Angeles and outside of Los Angeles?
  • What agency would enforce the city’s super-minimum wage?  Because it is a city law, the state labor commissioner would have no jurisdiction to enforce the law.  The city council believes that the enforcement unit would be comprised of five people, costing the city about $500,000 per year.  No doubt this enforcement arm would have to increase in order to have any potential way to enforce the new law.

The city is also considering the possibility of restricting restaurants from imposing mandatory service charges on customers.  Legally, when a restaurant imposes a service charge on a customer, that service charge becomes the property of the restaurant, unlike a tip left for the service staff.  The restaurants could prohibit tipping and simply charge the mandatory service charge.  By doing this, restaurants could then use the service charges as they wanted to, they could use this money to pay the higher minimum wage rates, distribute more of the service charge to the back of the house employees, or use it to off-set other costs.

It will be interesting to see what is passed next week by the city council, stay tuned.

If they have not already done so, employers need to start planning and putting a plan into action in order to ensure full July 1 2015-1compliance by the July 1, 2015 compliance deadline set by California’s Healthy Workplaces, Healthy Families Act.  As I’ve set forth before, many deadlines for the Healthy Workplace Healthy Family Act have already passed, and the primary compliance deadline of July 1 is looming.  Here are some considerations employers should begin resolving right now in order to ensure compliance by July 1.

 1.      Begin a dialogue with payroll company

Make a determination if your payroll company, or possibly some other vendor, will track the necessary accrual of paid sick time and the other data points needed to comply with the law.  Some payroll companies are charging to add this component to the payroll process.  Do not assume that the solution your payroll company is offering complies with the law, and employers need to manage this process very closely to ensure compliance.  Also, the law requires that the employer set out the amount of paid sick leave available on the employee’s pay date with the employee’s payment of wages.  This notice can be made on the employee’s pay stub or some other writing at the time the employee is paid, and a sample from the company’s payroll processing company should be reviewed prior to July 1, 2015 to ensure it meets the legal requirements.

 2.      Begin a dialogue with temporary staffing agents

If your company uses any outside staffing firms, there needs to be a discussion about compliance with the paid sick leave requirements.  It should be carefully spelled out in the contract with the staffing firm about who will be tracking the paid sick leave for the employees and meeting the other requirements of the law.  If the staffing firm is handling this issue, there should be an indemnity clause protecting the client as there could be joint employer liability for missteps in complying with the act.

 3.      Decide what data needs to be tracked and who will track it

There are surprisingly many dates and data points that need to be tracked under the new law.  For example, employees are not eligible to use any accrued sick leave until their 90th day of employment.  Therefore, employers will need to be able to track this deadline in order to ensure the employee qualifies for paid sick leave before receiving pay for the time off.  In addition, employers may cap employee’s use of paid sick leave to 24 hours or 3 days “in each year of employment.”  However, this “use cap” will need to be tracked according to each employee’s anniversary date with the company.  Employers may have multiple vendors who have access to the data necessary to track and calculate the eligibility of employees to use paid sick leave, and there needs to be one point of contact designated to ensure the information necessary is being tracked.

 4.      Provide notice to employees

Employers need to provide non-exempt employees already employed as of January 1, 2015, information about the paid sick leave law and the employer’s policy as soon as possible.  While the notice to employee published by the Labor Commissioner is only required for non-exempt employees, employers should consider communicating its paid sick leave policy and any revised policies to comply with the law (see below) to all employees given that the paid sick leave law covers all employees, exempt and non-exempt.

 5.      Review and decide if your other policies need to be revised to comply with the law.

Employers need to review other policies such as vacation, sick leave, kin care leave, and attendance policies to ensure they comply with the requirements of the new sick leave law.  For example, the act presumes that an employer retaliated against an employee “if an employer denies an employee the right to use accrued sick days, discharges, threatens to discharge, demotes, suspends, or in any manner discriminates against an employee” within 30 days of the employee taking leave or opposing an employment practice prohibited by the law.  With this strong presumption build into the law, employers need to review their attendance policies to ensure that the employees will not be adversely affected if they do take paid time off covered by the act.

Today’s Friday’s Five article is a bit different in that it focuses on the attorney –Abraham Lincoln client relationship.  Here are five recommendations to get the most out of your relationship with your lawyer:

1. Ask a lot of questions.

No question should be off limits with your lawyer. Ask questions about litigation issues, billing issues, what legal terms mean. Very few clients routinely deal with litigation and understand the legal process or legal terms. Your lawyer should be able to explain these issues in a manner you understand. If your lawyer is put off by your questions, it is probably time to look for another lawyer that is actually going to help you understand your options. This is especially true about bills from your lawyer: if he is put off by questions about a bill, it is time for a different lawyer.

2. Respond quickly to your lawyer’s requests.

It will save you time and money if you respond quickly to requests for information or documents from your lawyer. Your case is not the only case your lawyer is working on, and to the extent he has to wait a week or two for your response and then pick back up where he left off, it is inefficient. Furthermore, you do not want to pay your lawyer’s hourly rate for him to follow-up with you to receive information needed for the case. This will increase your legal bill, and forces your lawyer to spend time thinking about other issues than the case.

Your lawyer should understand that you have a business to run and that you are dealing with other pressing issues. It is important to communicate with your lawyer that you received the request, are busy, but will respond by a certain time or date.

With this said, the rule is mutual. If your lawyer is not timely responding to your requests, it is time to think about changing lawyers.

3. Work with your lawyer before the need arises.

You are engaging a lawyer only for serious issues facing your company, and the attorney you chose to work with should not be taken lightly. I do not think many clients spend the required time to find the right lawyer for them, and simply use the lawyer that someone in their network referred to them. I highly recommend that clients start using an attorney and develop a relationship with their attorneys before the legal need actually arises. This gives the client an opportunity to work with the lawyer and evaluate the relationship, without having the additional stress of pending litigation. Engage a lawyer you were referred to on simple matters, such as helping out on an employee handbook or policy revision. See if the lawyer responds quickly, bills efficiently, and treats you with respect.

4.  Don’t kill the messenger.

Litigation sucks and almost no one likes it (only litigation attorneys like litigation and they are a strange group of people). Every client needs to vent to their lawyer every now and then, and I think a good lawyer should help the client work through the stresses of litigation. However, remember that your lawyer is on your side, and don’t take the stresses of litigation out on the person (or people) trying to help resolve the situation.  Don’t take this to mean that you cannot question your lawyer’s strategy.  If there is something you do not agree with the case strategy or other legal issue, do not be afraid to voice your difference of opinion. Your lawyer needs to have your feedback to develop the best case possible.

5. Be adaptable.

Litigation is uncertain and fluid. If a lawyer could predict the outcomes of litigation, they would be very wealthy. Strategies change as the case develops. Just as running a business, have a plan, but be ready to disregard the plan and change strategies if needed. Understanding this and analyzing the different strategies with your lawyer throughout the course of litigation will result in the best outcome. Also be flexible on how you negotiate. Negotiation styles must change based on where the case is.

Photo: Juan Garcia

As the July 1 deadline for employees to begin accruing paid sick leave, employers are wrestling with some of the ambiguitiessick created by the law.  The legislation left many unanswered questions for employers to grapple with.  Some of the more common questions employers have had deal with how to calculate the accrual rate for part-time employees and employees working alternative work schedules (such as a 4 day 10 hour schedule), and how to calculate the amount owed to employees paid by piece rate or commissions when they utilize paid sick leave.  As set forth below, the Department of Industrial Relations (DIR) has attempted to explain some of these issues.

 Accrual Rate For Part-time employees

It is important to note that the law allows employers to limit the employee’s accrual of sick leave to 24 hours or three days.  Therefore, if an employee only works six hours per day, and are sick for three days, they have only used 18 hours of paid sick leave.  The DIR has taken the position in its FAQs that the three day limitation cannot “be used to prohibit a part-time employee from using at least 24 hours of accrued leave in a year.”  Therefore, part-time employees must be allowed at least 24 hours of accrued leave even if this is more than three days off of work, according to the DIR’s interpretation of the statute.

 Accrual Rate For Employees Working Under Alternative Work Schedules

If the employer has taken the proper steps to establish an alternative workweek schedule (such as having employees work four days at 10 hours per day), the employer needs to be aware of some potential issues in calculating the amount of leave available for these employees.  The DIR’s position appears to be that employees working a 4-10 schedule actually accrue, and can take, 30 hours of paid sick leave, not 24 hours.  The DIR states that the “minimum requirements of the statute are 3 days or 24 hours” and therefore the employee working a 4-10 schedule is entitled to 30 hours of paid sick leave.

 Calculating Amount Owed For Piece Rate, Commissioned Based Or Other Employees With Fluctuating Pay

In order to determine how much the employer must pay the employee during sick leave, the employer must calculate the employee’s regular rate of pay.  If the employee’s pay fluctuates, such as being paid commissions or by piece rate, the employee’s regular rate of pay is calculated by dividing their total compensation for the previous 90 days by the number of hours worked.  The DIR provides the following example:

If an employee is paid commission or piece rate, then divide total compensation for previous 90 calendar days by number of hours worked and pay this rate. Employee was paid a piece rate of $0.36 per square foot for 16,500 square feet during 400 hours of work in a 90 day period. He earned $5,940:

•His hourly rate for paid sick leave is $5,940 ÷ 400 hours = $14.85 per hour

Employee is paid on commissions only. In a 90 day period, she worked 480 hours and earned $9,000:

•Her hourly rate for paid sick leave is $9000 ÷ 480 hours = $18.75 per hour

Photo: Alexandre Normand

While July 1, 2015 is the primary date making most headlines for the new sick leave requirement in California, and is when in fact employees begin to accrue and will be eligible to take paid sick leave, there are many other deadlines employers should keep in mind:

1.      January 1, 2015:

Required poster “Healthy Workplaces/Healthy Families Act of 2014 – Paid Sick Leave” must be displayed.

Employers must start using revised Notice to Employee for all new non-exempt employees hired.

If an employer takes any adverse employment action against an employee within 30 days of an employee: (1) filing a complaint with the Labor Commissioner or in court alleging violations of the law; (2) cooperating with an investigation or prosecution of an alleged violation of the law; or (3) opposing a policy, practice, or act that is prohibited under the law.  Even though the accrual of the paid sick leave does not begin until July 1, 2015, this protection of employees and the creation of a rebuttable presumption is effective January 1, 2015.

2.      April 2, 2015:

The 90 day period for calculating employees with fluctuating wages begins.  If an employee’s pay fluctuates (e.g., if they are paid commissions or on a piece rate basis) the employer must divide the employee’s total compensation for the previous 90 days by the number of hours worked to determine the hourly rate that must be paid for the employee on sick leave.  Therefore, since employees begin accruing paid sick leave as of July 1, 2015, employers should be able to track the amount of pay and hours worked 90 days prior to July 1, 2015 and on a rolling basis going forward.

3.      July 1, 2015:

Employees have the right to accrue and take sick leave as set forth under the law.

4.      First pay period after July 1, 2015:

Employers must provide employees with a written notice that sets forth the amount of paid sick leave available on the employee’s wage statement or in a separate document that is provided to the employee on the employee’s pay date with the employee’s payment of wages.  The employer must continue to report this information to the employees each pay period going forward.

5.      Written notice to employees of new or changed paid sick leave policy – Seven days after implementation of policy or by July 8:

The revised Notice to Employee form (available to employers for download at DLSE’s website) must be used for non-exempt employees hired after January 1, 2015.  For employees hired prior to January 1, 2015, the employer is required to provide a revised Notice to Employee or otherwise inform each employee of the information regarding paid sick leave within 7 days of the change, using any of the alternative methods specified in Labor Code section 2810.5(b).

Based on last week’s post about the lawsuit filed against LinkedIn alleging that it violated the federal Fair Credit Reporting Act (FCRA), I thought it would be good to point out a few issues the arise when employers conduct background checks.  This article is not comprehensive, and this area of the law is very detailed, but the article is to remind employers to use caution when implementing these policies, as the exposure for violations could be huge.

1.      Treat everyone equally.

If an employer makes the decision to obtain background reports for applicants or employees, the practice of obtaining the reports needs to be uniformly applied.  Simply by complying with the federal and state requirements for background reports and credit checks does not shield an employer from discrimination claims or other claims that the practice used by the employer is illegal.

2.      California employers can only conduct credit checks (which are different from background checks) for certain types of employees.

Since 2012, California employers can only perform credit checks on employees who meet very specific categories.

 3.      If using a third-party to perform the background check, federal and state law must be complied with. 

Generally speaking, three applicable laws apply to California employers who perform background checks: the federal Fair Credit Reporting Act (FCRA), California Investigative Consumer Reporting Agencies Act (ICRAA), and the California Consumer Credit Reporting Agencies Act (CCRAA).  Just as the three names of the statutes indicate, the laws are complex and are very detailed.  For example, the FCRA defines a “consumer report” as “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for…employment purposes….”  Alternatively, California’s ICRAA uses the term “investigative consumer report”, and this pertains to generally the same items as the FCRA but not credit reports.  California’s CCRAA applies to credit reports, and defines the term “consumer credit report” to refer to credit reports and credit worthiness of an employee.  As one can easily see, the interaction of these three laws becomes very complex, and is not an area that most employers feel comfortable wading into without experienced legal counsel.

The laws generally require employers to:

  1. Obtain written authorization from the employee to conduct the background check
  2. Provide notice about background checks
  3. If taking an adverse employment action based on the information obtained through the background check, additional notices must be provided to the employees.

For example, before the employer takes an adverse employment action, they must provide the employee with a notice that includes a copy of the consumer report being relied upon in the decision.  The employer must also provide a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act”.

After the adverse employment action has been taken, the employer must provide certain information to the employee, such as:

  • The employment decision was taken because of the information in the report
  • The name, address, and phone number of the company that compiled the report
  • The company that compiled the report did not make the hiring decision, and
  • That the employee has the right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

As explained above, California employers can only perform credit checks for a very limited set of positions, and cannot perform a credit check on every employee.  In addition, the CCRAA requires additional disclosures to the employee if a credit check is performed.  See Cal. Civ. Code section 1785.20.5.

4.      Even if conducting a background check in-house, if an employer searches public records, these records must be disclosed to the employee within seven days.

Generally, if the employer conducts the background checks itself, the FCRA, ICRAA and CCRAA do not apply to the process.  One exception to this rule is that the ICRAA requires that if the employer searches “public records” the employer must produce a copy of the public record to the employee within seven days of receiving the information (this applies to records received either in written or oral form).  “Public records” are defined as “records documenting an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment.”

 

5.      Employers are required to provide certain notice to the third-party conducting the background check.

Employers using outside credit reporting agencies must provide a certification to the reporting agency that the employer obtained the permission from the applicant/employee to obtain a background report, complied with the FCRA, and does not discriminate against the applicant or employee or otherwise use the information for an illegal purpose.

This is a very brief and general introduction to the laws that apply to background checks in the employment setting.  Here are some resources for employers to learn more about their requirements under federal law:

The Fair Credit Reporting Act & social media: What businesses should know (FTC)

Background Checks: What Employers Need to Know (FTC)

The interaction between the federal FCRA, and California’s own requirements under the ICRAA and CCRAA adds another level of complexity to the analysis.  It is important for employers to review these laws closely to ensure compliance, and it is highly recommended to have experienced legal counsel review the practices.