The California legislature and Governor Gavin Newsom considered and ultimately passed a number of significant laws in 2019 that will affect California employers beginning January 1, 2020. The new laws – some of which were signed into law just weeks ago – address several topics, including:
- Worker classification.
- Discrimination, harassment and retaliation.
- Wage and hour issues.
- Leaves of absence and workplace accommodation.
- Workplace training and safety.
- Flexible spending accounts.
- Limitations on arbitration agreements.
- Settlement agreements.
All employers with operations in California should be aware of these new laws, understand how these laws may affect their operations and consult with counsel to address any compliance questions.
All laws included in the summary below, which addresses the key employment-related bills passed and signed into law in 2019 but does not identify every law passed in 2019 that may impact California employers, are effective January 1, 2020, unless otherwise noted.
Codifying the Dynamex ABC Test for Classifying Independent Contractors
- AB 5 – which amends section 3351 of the Labor Code, adds section 2750.3 to the Labor Code, and amends sections 606.5 and 621 of the Unemployment Insurance Code – imposes sweeping amendments to the California Labor Code and the Unemployment Insurance Code. Most significantly, the law expands and codifies the presumption that workers are “employees” and expressly adopts the “ABC” test for classifying independent contractors that the California Supreme Court articulated in 2018 in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.
- The new law applies much more broadly than Dynamex, which limited the classification of independent contractors under the Industrial Welfare Commission (IWC) Wage Orders of the Industrial Welfare Commission, and effectively replaces the control factors previously identified by the California Supreme Court in 1989 in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which continued to be applied by courts and California agencies to determine independent contractor status under other California labor laws after Dynamex.
- Under the multi-factor Borello test, the primary factor to determine worker status is the degree of control exercised by the hiring entity over the manner and means of the worker’s performance, with secondary factors including whether the worker purchases their own equipment, sets their own hours, hires their own employees or contractors, contracts for discrete units of work rather than an indefinite time, performs services for companies other than the hiring entity, and assumes risk for profit and loss.
- Under Dynamex, now codified by AB 5, a worker is presumed to be an employee rather than an independent contractor unless the hiring entity can establish the following conditions are satisfied:
- The person 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 person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
- Although the law does not automatically change workers’ status when it goes into effect on January 1, 2020, companies should evaluate their workforce and reclassify workers as appropriate. If, after January 1, an employer fails to appropriately classify workers, the employer faces potentially significant consequences from the various enforcement mechanisms included in the bill. In addition to claims from individual workers or through California’s Private Attorneys General Act (PAGA), the new law empowers the State Attorney General and certain city and district attorneys to seek injunctive relief on behalf of workers.
- Businesses that have relied on an independent contractor worker model are likely to feel the greatest impact from the new law. Although AB 5 carves out exemptions for approximately 50 industry-specific job categories – including insurance agents, physicians and certain other medical professionals, architects and securities broker-dealers (which will continue to be subject to the Borello factors and other independent contractor classification standards) – many other industries that have relied on independent contractors as part of their business structure, including those utilizing on-demand and gig workers, truck drivers, janitorial service workers and musicians, do not have an exemption under the new law.
- The ABC test will also apply to the Workers’ Compensation Code, effective July 1, 2020, but AB 5 does not apply to other claims outside of those covered by the California Labor Code and the Unemployment Insurance Code, such as claims under the Fair Employment and Housing Act (FEHA).
- All California businesses that engage, or plan to engage, independent contractors should carefully consider such engagements in light of the limited circumstances under which a worker may be appropriately classified as an independent contractor under California law.
Discrimination, Harassment and Retaliation
Expanding the Definition of Race to Address Hairstyles
- SB 188 amends the definition of race under section 212.1 of the Education Code and section 12926 of the Government Code and, in doing so, amends the FEHA to protect against discrimination in employment based on traits historically associated with race, including, but not limited to, “…hair texture and protective hairstyles” (which are defined to include, but not be limited to, “such hairstyles as braids, locks and twists”). Therefore, hiring, promotion, termination of employment and other employment practices must not be made based on such hairstyle traits unless based on a bona fide occupational qualification or applicable security regulation. Employers should review workplace dress codes and grooming policies to ensure such policies do not include language inconsistent with the new law and therefore do not create the opportunity for disparate treatment or disparate impact claims.
Extending the Statute of Limitations for FEHA Claims
- AB 9, which amends sections 12960 and 12965 of the Government Code, extends the current period an employee has to file a verified complaint with the Department of Fair Employment and Housing (DFEH) for alleged FEHA violations, such as claims for unlawful discrimination, harassment and retaliation, from one year after the date on which the unlawful practice occurred to three years. If an individual fails to comply with this administrative requirement, then the person will be precluded from pursuing FEHA claims in court. Employers should review record retention policies and practices based on the extension of the filing period from one to three years and take appropriate steps to ensure employment-related documents are retained for an appropriate period of time in light of the longer filing period.
Administrative Review Amendments
- SB 229 amends section 98.74 of the Labor Code and expands the appeal and enforcement powers of the California Labor Commissioner and identifies the procedures for contesting the decision and order of the Labor Commission, including requiring an employer to post a bond.
Wage and Hour
Penalties for Failure to Pay Wages
- AB 673 amends section 210 of the Labor Code by giving employees who do not receive payment of their wages the ability to file a private action to: (1) recover statutory penalties against the employer in a hearing before the Labor Commissioner; or (2) seek to enforce civil penalties under PAGA. Aggrieved employees may not pursue both remedies for the same violation(s). These remedies are in addition to penalties an employee may recover through an action brought by the Labor Commissioner.
Labor Commission Citations
- SB 688 amends section 1197.1 of the Labor Code and authorizes the Labor Commissioner to issue citations and recover amounts owed by an employer who has paid less than the wages earned by an employee under a contractual arrangement, even if the wages paid exceeded the minimum wage requirements. The law also permits an employer to contest such a citation, subject to a bond posting requirement and the forfeiture of the bond amount to the Labor Commissioner if the employer does not prevail.
Increased Minimum Wage Rates and Salary Amounts
- Per legislation previously passed by the California legislature and signed into law by Governor Jerry Brown in 2015, effective January 1, 2020, the California minimum wage is increasing to $13.00 per hour for employers with 26 or more employees and $12.00 per hour for employers with 25 or fewer employees. In addition, beginning January 1, 2020, the minimum annual salary that must be paid to any exempt employee under one of the white-collar exemptions – those employees employed in administrative, managerial, executive or professional capacities – will be $54,080 for employers with 26 or more employees and $49,920 for employers with 25 or fewer employees. California employers should ensure their pay practices satisfy these minimum requirements.
Leaves of Absence and Workplace Accommodation
Paid Family Leave
- SB 83, which amends multiple sections of the Government Code, Labor Code and Unemployment Insurance Code, increases the maximum wage replacement benefits under California’s Paid Family Leave (PFL) program from six to eight weeks, beginning July 1, 2020. Employers should review policies and notices addressing PFL benefits and update those documents to address this change, effective July 1, 2020.
Leave for Organ Donation
- AB 1223 – which amends multiple sections of the Education Code, Government Code and the Labor Code, and adds sections to the Insurance Code – expands employee protection for organ donation by requiring employers with 15 or more employees to provide an additional unpaid leave of absence (up to 30 business days per year) to an employee donating an organ (following the 30 business days of paid leave for organ donation required under current California law). Employers should determine whether any existing written policies addressing organ donation leave need to be updated to address this change in the law.
- SB 142 – which amends sections 1030, 1031 and 1033 of the Labor Code, and adds sections 1034 to the Labor Code – expands the requirements of AB 1976 (passed in 2018), which requires employers to provide a room or location, other than a bathroom, in close proximity to the employee’s work area, to express breast milk.
- Under the new law, a lactation room or other location the employee may use to express breast milk must be close to the employee’s work area, shielded from view and free from intrusion, and comply with all of the following requirements: (1) be safe, clean and free of toxic or hazardous materials (as defined in the law); (2) contain a surface to place a breast pump and other personal items; (3) contain a place to sit; and (4) have access to electricity.
- The employer must also provide access to a sink with running water and a refrigerator (or other device suitable for storing breast milk) in close proximity to the employee’s workspace.
- SB 142 also requires employers to provide a reasonable amount of break time (running concurrent with other break time) to accommodate an employee desiring to express breast milk each time the employee needs to express breast milk, and to create and implement a lactation accommodation policy, including publishing the policy in the employee handbook and providing the policy when an employee asks about or requests parental leave.
- The new law also limits the undue hardship exemption established by the 2018 law – available if an employer can demonstrate that having to provide the employee with the use of a room or other location, other than a bathroom, would impose an undue hardship when considered in relation to the size, nature or structure of the employer’s business – to employers with fewer than 50 employees.
- Finally, SB 142 permits an employer in a multi-tenant building or multi-employer worksite to comply with the law by providing a space that otherwise meets the code requirements shared among multiple employers within the building or worksite if such employer cannot provide a lactation location within the employer’s own workspace.
- Employers should review their current lactation accommodation policies and procedures to ensure compliance with the expanded legal requirements under the new law.
Workplace Training and Safety
Sexual Harassment Training
- SB 778, which amends section 12950.1 of the Government Code, extends the original compliance deadline associated with SB 1343 (passed in 2018), which requires all employers with five or more employees to provide two hours of sexual harassment training to supervisory staff and one hour of such training to nonsupervisory staff within six months of hire or promotion into a supervisory role, and every two years after that, from January 1, 2020 to January 1, 2021.
- In addition, the new law clarifies that an employer who provided sexual harassment training in 2019 need not provide such training again until 2021 (and then every two years thereafter).
- SB 778 does not change the training timeline for seasonal and temporary workers, which must be provided to such workers within 30 days or 100 hours of employment beginning January 1, 2020. However, a separate bill, SB 530, has also pushed the beginning of this training requirement for seasonal and temporary workers to January 1, 2021.
- SB 530 also requires the Division of Labor Standards and Enforcement (DLSE) to develop training standard recommendations to be used by employers in the construction industry and clarifies how employers in the construction industry with workers under a multi-employer collective bargaining agreement can satisfy the legal training requirements.
- Finally, AB 547 requires the Director of Industrial Relations (DIR) to establish a training advisory committee to assist in identifying and publishing a list of qualified organizations and trainers that employers of janitorial employees will be required to use to provide biennial sexual violence and harassment prevention training.
Valley Fever Awareness Training
- AB 203, which adds section 6709 to the Labor Code, requires construction industry employers working in counties where Valley Fever is highly endemic to provide awareness training on the fungal infection annually and before an employee begins work that is “reasonably anticipated” to expose the employee to the fungus. Work that is reasonably anticipated to create exposure includes digging, grading or other earth-moving operations, as well as vehicle operation on dirt roads, or in high winds, in one of the counties specifically identified in the new law. Training is not required during a county’s first year being listed as highly endemic, but training is required in all subsequent years. Any required training must cover certain specific topics and may be included in the employer’s injury and illness prevention program or as a standalone training.
Reporting of Occupational Injuries and Illnesses
- AB 1804 amends section 6409.1 of the Labor Code and requires that employers report any serious occupational injury, illness or death to the Division of Occupational Safety and Health (Cal OSHA) through an online platform to be created by Cal OSHA. Until such platform is available, employers may continue making these reports by telephone or email.
Cal OSHA Definition Revisions
- AB 1805 amend sections 6302 and 6309 of the Labor Code and changes the definitions of “serious injury or illness” and “serious exposure” to align with the federal Occupational Safety and Health Administration (OSHA) standards.
- Specifically, the new law removes the requirement of inpatient hospitalization for more than 24 hours for reasons other than medical observation or tests to qualify as a “serious injury or illness” (which must be reported to Cal OSHA). As a result, employers will have to report all inpatient hospitalizations.
- The law also explicitly identifies the loss of an eye and amputation as a serious injury that must be reported.
- In addition, the new law updates the definition of “serious exposure” to mean exposure to a hazardous substance that has a “realistic possibility” of death or serious physical harm (rather than requiring “substantial probability” of death/serious harm).
- Employers should understand the implications of these changes, including the fact that reported injuries, and resulting Cal OSHA investigations and citations, could increase.
Gun Violence Restraining Orders Against Employees
- AB 61, which amends, repeals and adds sections to the Penal Code, expands existing California law permitting family members and law enforcement officers to petition courts to issue a “gun violence restraining order” prohibiting an individual from having in their custody or control, owning, purchasing, possessing or receiving, or attempting to purchase or receive, a firearm or ammunition. This expansion is contingent upon showing a substantial likelihood of significant danger or harm to themselves or others by permitting employers and co-workers (with employer approval) who regularly interact with a person (in addition to teachers of a secondary or postsecondary school, with school administration approval) to file a petition for a gun violence restraining order. Employers should consider this new law’s impact on workplace violence prevention and response policies and strategies.
Flexible Spending Accounts
- AB 1554 adds section 2810.7 to the Labor Code and requires an employer to notify employees who participate in flexible spending accounts of any deadline to withdraw funds before the plan year’s end in two different prescribed forms, which may include email, telephone, text message, postal mail and in-person notification. California employers should ensure they are ready to comply with these new notification requirements.
Limitations on Arbitration Agreements Addressing Employment Discrimination Claims
- AB 51, which adds section 12953 to the Government Code and section 432.6 to the Labor Code, effectively bans mandatory arbitration agreements and prohibits employers from requiring applicants or existing employees to waive any right, forum or procedure for any employer violations of the FEHA, Labor Code or other statutes governing employment as a condition of employment, continued employment or the receipt of employment-related benefits.
- The law also prohibits retaliation and discrimination against an applicant (e.g., refusing to hire) or employee (e.g., terminating employment) who refuses to sign an arbitration agreement that waives any right, forum or procedure for a violation of specific statutes governing employment.
- Significantly, AB 51 does not apply to agreements entered into, modified or extended prior to January 1, 2020; does not apply to post-dispute settlement agreements or negotiated severance agreements; and does not invalidate any written arbitration agreement entered into on or after January 1, 2020 that is otherwise enforceable under the Federal Arbitration Act (FAA). Despite the inclusion of these carve-outs, it is expected that AB 51 will be ultimately challenged in court on grounds that it is preempted by federal law (the FAA).
- California employers utilizing, or planning to utilize, arbitration agreements should carefully consider the use of such agreements, and the language to include in such agreements, in light of this new law.
Enforcement of Arbitration Agreements
- SB 707, which amends and adds multiple sections of the Code of Civil Procedure, requires the employer (for an employment-related arbitration agreement) to pay certain fees and costs before an arbitration may proceed. If the employer fails to pay such fees and costs within 30 days after they are due, then the employer is in material breach of the agreement, in default of arbitration and waives its right to compel arbitration. If that occurs, then the employee may withdraw from the arbitration process and proceed in court or compel arbitration in which the employer will be required to pay reasonable attorney’s fees and costs.
- The law also requires the court or arbitrator to impose monetary sanctions on an employer who breaches an arbitration agreement and authorizes the imposition of additional sanctions. Finally, the new law requires a private arbitration company to collect and report certain aggregate demographic data related to all arbitrators.
Prohibition on “No Rehire” Restrictions in Settlement Agreements
- AB 749 adds Chapter 3.6 to Title 14 of Part 2 of the Code of Civil Procedure and specifically “prohibits an agreement to settle an employment dispute from containing a provision that prohibits, prevents, or otherwise restricts a settling party that is an aggrieved person, as defined, from working for the employer against which the aggrieved person has filed a claim or any parent company, subsidiary, division, affiliate, or contractor of the employer.”
- The new law defines an “aggrieved person” as someone “who has filed a claim against the person’s employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.” Therefore, settlement agreements between employers and employees can no longer contain “no rehire” clauses, unless such a clause is included in a settlement agreement with an employee who was found by the employer to have engaged in sexual harassment or sexual assault.
- In addition, AB 749 allows an employer to decide not to hire a former employee if the employer had a legitimate non-discriminatory or non-retaliatory reason for terminating the employee’s employment.
- Employers should avoid including provisions in settlement agreements that violate the new law.
California Consumer Privacy Act
- AB 25, which amends certain sections of the Civil Code, confirms that the California Consumer Privacy Act (CCPA), which takes effect January 1, 2020, protects all individuals that a business collects personal information from, including personal information collected in the course of an individual acting as a job applicant, employee, owner, director, officer, medical staff member or contractor, and therefore such personal information a business maintains that can identify these individuals is subject to CCPA. But AB 25 also exempts such employee information from the definition of personal information for one year, until January 1, 2021. The one-year exemption also covers employee emergency contact information and information used to administer benefits, but it does not apply to a business’ obligation to provide notice to employees about its collection practices or employees’ eligibility for the data breach provision’s private right of action, and therefore California employers should be prepared to provide such notices.