California is at it again – adopting a host of new labor and employment laws that will further regulate and complicate business operations in the Golden State.  Littler’s Workplace Policy Institute has been tracking these bills as they worked their way through the legislature and been signed into law by Governor Newsom.  The new California laws are summarized briefly below.  Also, please join us at our annual webinar on October 19, 2022, in which members of WPI will discuss these new laws in further detail, along with strategies and options for future compliance.

These new California employment laws become effective on January 1, 2022, unless otherwise noted.

New Employment Laws Generally Applicable to All Employers

Wage Theft Is “Grand Theft”

AB 1003 adds section 487m to the California Penal Code, and “grand theft” will be defined to include intentional theft of wages, including gratuities, in excess of $950 from any one employee, or $2,350 from a group of employees.  The law defines an “employer” to include the “hiring entity of an independent contractor.”  Under existing California law, grand theft may be either a misdemeanor or a felony, and carries potential time in the county jail of up to one year (misdemeanor), or 16 months to three years (felony).

Currently, violations of several provisions of the Labor Code are classified as misdemeanors.  Actual prosecutions are rare, however.  But now, with the passage of AB 1003, an employment law can be found in the California Penal Code.  It is unknown at this time whether this change, which appears dramatic on its face, will in fact represent much of a change in the way that employment laws are enforced in the Golden State.

Inclusion of wage theft in the Penal Code may implicate settlement of claims for alleged violations of wage and hour laws.  There are ethical issues presented when a civil matter is settled and criminal prosecution is also possible based on the same events.  Generally speaking, it is not permissible to require that an individual forego the pursuit of criminal charges as a condition of reaching a settlement of a civil claim.  It is unknown whether AB 1003 will have much of an impact in this area, as well.

Employment Discrimination Litigation Settlement Agreements

Several laws adopted in 2019 in California restricted non-disclosure provisions in settlement agreements.  Those laws, passed in the wake of the “me too” movement, limited non-disclosure provisions in settlement agreements for lawsuits and administrative agency charges involving allegations of sexual harassment.  They also limited the use of non-disclosure provisions in exchange for a raise or a bonus, or as a condition of employment or continued employment.

Now, SB 331 broadens those restrictions to prevent the use of non-disclosure provisions in any case involving employment discrimination of any type prohibited by the Fair Employment and Housing Act, not just sexual harassment.¹  This would include allegations of discrimination on the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or veteran or military status.

In a settlement agreement involving a previously-filed lawsuit or charge, SB 331 still allows for the identity of the claimant and all facts that could lead to the discovery of the claimant’s identity to remain confidential, at the request of the claimant. The law does not prohibit parties from agreeing to keep confidential the amount paid in settlement of a claim.

Under SB 331, any provision in a settlement agreement entered into on or after January 1, 2022 contrary to these restrictions is void as a matter of law and against public policy.  (Note that the restriction of non-disclosure agreements in sexual harassment cases became effective on January 1, 2019.) 

Employment Severance Agreements

SB 331 also limits the use of non-disclosure agreements in employment severance agreements, even where no litigation or claim has been filed.

The law makes it an unlawful employment practice for an employer to include in any severance agreement any provision that prohibits the disclosure of information about unlawful acts in the workplace.  The law specifies that “information about unlawful acts” includes, but is not limited to, information pertaining to harassment or discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.

SB 331 requires that, when offering an employee a severance agreement, an employer must notify the employee that they have the right to consult with an attorney.  The employer must provide a reasonable time period (not less than five business days) for consultation.  An employee may decide to sign such an agreement prior to the expiration of the consultation period, as long as the employee’s decision is knowing and voluntary and is not induced by the employer through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the consultation period, or by providing different terms to employees who sign such an agreement prior to the expiration of such time period.

The law states that the provisions relating to severance agreements do not apply to a negotiated settlement agreement to resolve a claim filed in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.

SB 331 provides sample language allowing for a “carve out” to be used in connection with a general confidentiality clause in any agreement between an employer and employee, as follows:  “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

Leaves of Absence

Under the California Family Rights Act (CFRA), eligible employees may take 12 weeks of leave per year to provide care to family members, including parents.  AB 1033 expands the definition of “parent” under the CFRA to include parents-in-law.

Historically, the CFRA had a “small employer” exception.  When first passed in 1994, the law applied only to businesses with 50 or more employees.  Parts of the CFRA (baby bonding leave) were modified in 2018 to cover businesses with 20 or more employees.  Last year, SB 1383 (2020) made the entirety of the CFRA applicable to businesses with five or more employees. 

In conjunction with that expansion, a mediation program was set up for employers with between 5 and 19 employees. AB 1033 provides further information and procedural details for the implementation of the small employer mediation program.

Record Retention

Under current law, employers are required to maintain personnel records for two years.  This requirement is lengthened to four years by SB 807.  Where litigation has been filed, such records must be maintained until the applicable statute of limitations has run, or until the conclusion of the litigation, whichever occurs later.

Department of Fair Employment and Housing Authority and Procedures

SB 807 also makes several structural changes to the methods and processes used by the California Department of Fair Employment and Housing in investigating and prosecuting complaints of employment discrimination.

Workplace Safety

SB 606 will expand the authority of Cal/OSHA in a few important ways.  The law establishes two new types of violations:  enterprise-wide violations, and egregious violations. 

For employers with multiple worksites, a rebuttable presumption that a violation is enterprise-wide will exist if the employer has a written policy or procedure that violates Cal/OSHA rules or the law, or if Cal/OSHA has evidence of a pattern or practice of the same violation or violations committed by that employer involving more than one of the employer’s worksites. If an enterprise-wide violation is found, Cal/OSHA may issue citations and remedial orders for the entire enterprise of the employer – including work locations where no specific violation was found.

An egregious violation may be found in a number of different circumstances.  A violation may be egregious if, for example, the employer intentionally, through conscious, voluntary action or inaction, made no reasonable effort to eliminate a known violation, or if a violation results in worker fatalities, a worksite catastrophe, or a large number of injuries or illnesses.  Egregious violations also may be found if the violations resulted in persistently high rates of worker injuries or illnesses, or if the employer has an extensive history of prior violations.  They may arise where the employer has intentionally disregarded its health and safety responsibilities, or where the employer’s conduct, taken as a whole, amounts to clear bad faith in the performance of its duties under the law.  Conduct may be deemed egregious also if the employer has committed a large number of violations so as to undermine significantly the effectiveness of any safety and health program that may be in place.

For egregious violations, penalties may be assessed on a “per employee” basis, rather than a per incident basis. 

Notification of COVID-19 Exposure

Also in the realm of workplace safety, AB 654 amends existing provisions requiring employers to provide notification to employees who may have been in close contact at work with a person infected with COVID-19. This law took immediate effect when approved on October 5, 2021.

The new law clarifies that employers must notify “all employees who were on the premises at the same worksite as the qualifying individual within the infectious period” (not “employees who may have been exposed”) about the exposure and also about any applicable benefits to which they might be entitled as well as about the cleaning and disinfection plan that the employer has implemented under Cal/OSHA standards.

The law specifically identifies a number of industries that are not subject to the reporting requirement, including, for example, home health agencies and certain residential care facilities.

These notice provisions are scheduled to sunset on January 1, 2023.

Independent Contractors

Last year, in AB 2257, the California legislature undertook a substantial reform of its then one-year old independent contractor law, AB 5.  This year’s package of amendments are far less sweeping.

By way of background, under AB 5, for a worker to be classified as an independent contractor, the “putative employer” has the burden of proving all three prongs of the “ABC test”:  (1) that the worker is free from control; (2) that the worker performs work outside the usual course of hiring entity’s business; and (3) that the worker is engaged in an independently established trade, occupation, or business.  However, the law provides for numerous complicated “exceptions,” which, if shown, allow for the use of the former test – the Borello test – to determine status.  Borello focuses primarily on the right to control, along with consideration of several other factors, and is more likely to lead to a finding of contractor status than is the ABC test.

In its original form, AB 5 provided for an exception for newspaper carriers, but that exception was set to sunset on December 31, 2020.  Last year, AB 2257 extended that provision for another year.  Now, AB 1506 puts this exception into place until December 31, 2024.

Similarly, AB 1561 provides further extensions for licensed manicurists and construction trucking industry contractors/subcontractors. Those exceptions were set to expire at the end of this year but have been extended to December 31, 2024.

AB 1561 also amended the “data aggregators” exception to AB 5.  Data aggregators are businesses that conduct market research.  In the industry, it is typical for participants to be given a gift card of somewhat nominal value for participating/completing a survey.  Last year, AB 2257 inserted a requirement that survey participants be paid at least the state or local minimum wage for their time spent participating in market research.  Now, AB 1561 removes this requirement.  The amendment also clarifies several definitions relating to data aggregators and research subjects. 

Finally, AB 1561 adds insurance claims adjustors and insurance third-party administrators to the list of occupations subject to the Borello test.

Sub-Minimum Wages for Individuals With Disabilities

When the federal Fair Labor Standards Act was passed in 1934, there was concern that persons with disabilities would be disadvantaged by the new federal minimum wage and thereby experience high rates of unemployment.  Lawmakers thus included an exception in the federal law allowing for payment of a sub-minimum wage to persons with disabilities.  California law has long contained a similar exception, allowing for persons with disabilities to be granted a “license” to work for less than the minimum wage at rate set by the Industrial Welfare Commission.

Now, with the enactment of SB 639, the use of sub-minimum wages will be phased out over time.  New licenses will not be issued starting in 2022, and existing licenses will no longer be renewable after 2025.

Industry-Specific Laws

Hospitality Industry: The Right of Recall

SB 93, an urgency statute that took effect on April 16, 2021, imposes certain “recall” obligations on employers. It applies to hotels, private clubs, event centers, airport hospitality operations, and airport service providers, along with janitorial, building maintenance, and security services provided to office, retail and other commercial buildings.

The law affords rights to “qualified laid-off employees” of such businesses — those who were employed by the employer for six months or more in the 12 months preceding January 1, 2020, and whose most recent separation from active service was due to a reason related to the COVID-19 pandemic.

If a covered employer is going to hire a worker, it must first offer the position to its laid-off employees who are “qualified” for the position.  A laid-off employee is qualified for a position if the employee held the same or a similar position at the business at the time of the employee’s most recent layoff from the employer.  Laid-off employees must be offered the position in order of seniority with the employer, and are given five business days to consider an offer.

The obligations to recall laid-off employees survive various types of changes in business structure and operations, and generally apply to successor business entities.  The law also contains anti-retaliation provisions and recordkeeping requirements; detailed records relating to offers of recall must be kept for three years.

The California Division of Labor Standards Enforcement administers the new law; remedies include reinstatement with back pay and benefits, injunctive relief, and civil penalties.  Note that several cities in California also adopted right-to-recall ordinances, and SB 93 does not preempt those laws.  Perhaps in a nod to the hope that COVID-19 pandemic will not be with us indefinitely, the new law has a sunset date: December 31, 2024.

Warehouse Distribution Centers: Employee Production Quotas

AB 701 regulates the use of employee production “quotas” in warehouse distribution centers, as defined by specified North American Industry Classification System (NAICS) codes, excluding farm product warehousing and storage.

The law provides a broad definition of a warehouse worker “quota,” as follows: “a work standard under which an employee is assigned or required to perform at a specified productivity speed, or perform a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period and under which the employee may suffer an adverse employment action if they fail to complete the performance standard.”

AB 701 requires that employers provide to employees a detailed written description of any quota.  A covered employer may not take adverse employment action against an employee for failure to meet any quota that has not been disclosed in writing to the employee as required by the law.

AB 701 also makes unlawful any quota that prevents an employee from taking a meal or rest period, prevents the use of bathroom facilities, including reasonable travel time to and from bathroom facilities, or infringes on California occupational health and safety laws.  A covered employer may not take adverse employment action against an employee for failure to meet such an unlawful quota.

Employees have the right to request a copy of any quota, as well as the most recent 90 days of the employee’s own personal “work speed data.” 

A rebuttable presumption of unlawful retaliation will arise if an employer in any manner discriminates, retaliates, or takes any adverse action against any employee within 90 days of either: the employee’s making the first request in a calendar year for information about quotas or work speed data, or the employee’s making a quota-related complaint to the employer or to a government agency.

Retail and Garment Industry:  Joint Liability For “Brand Guarantors”

SB 62 provides that “brand guarantors” will be liable for wage and hour violations committed by their garment manufacturing vendors.  The law creates such joint liability even where the brand guarantor was unaware of the violation(s).  The new law appears to mean that clothing brands, holding companies, and even retailers may be jointly liable for wage and hour law violations of the contractors from whom garments were purchased.  The reach of this law is potentially sweeping.  It seems likely that future clarification will be needed, particularly with regard to whether the law can reach out to impose liability for wage and hour law violations that occur in other states or even other countries.

Construction Industry: Joint Liability for Penalties/Liquidated Damages

Currently, Labor Code section 218.7 provides that for private construction contracts, direct contractors (as defined) must assume and are liable for unpaid wages and benefits of the employees of subcontractors. The liability attaches to wages and benefits owed by any subcontractor in any tier of subcontractors for labor connected to the contract.  The liability of the direct contractor does not extend to penalties or liquidated damages, however.

SB 727 amends the law to impose joint liability for a direct contractor for such penalties and liquidated damages, as well as liability for the failure of a subcontractor to make payments to the California unemployment insurance fund or for failure to provide workers’ compensation benefits.

For public works contractors, current law requires that certain records be submitted to the Labor Commissioner on a monthly basis.  AB 1023 defines the term “monthly” to mean every 30 days and within 30 days of the final day of work on the project.  The law also requires that the records be submitted in an electronic format, on the department’s website.  Failure to provide the records as required subjects an employer to monetary penalties, not to exceed $5,000 per project.

Janitorial Employers: Collective Bargaining Agreement Exemption from PAGA

California’s Private Attorneys General Act (PAGA) allows “aggrieved employers” to bring claims on behalf of other employees for wage and hour law violations.  Essentially, the employee becomes an enforcer of the state’s labor laws.  If penalties are awarded based on violations, then 75% of those penalties go to the state Labor and Workforce Development Agency (LWDA). 

The law has been widely criticized in the business community as subject to abuse, leading to the threat of excessive penalties where the actual harm to employees has been minimal.  Calls for reform have been largely unsuccessful, and a ballot initiative is pending seeking to repeal PAGA and replace it with a different system of enhanced enforcement of employment laws.

Meanwhile, not all employers have been subject to the law.  A “carve out” has existed for several years for unionized employers in the construction industry (AB 1654 (2019)).  Now, with the adoption of SB 646, a similar exception is provided to janitorial employers.  Such employers will not be subject to PAGA claims if they enter into a collective bargaining agreement with a labor union that expressly provides for the wages, hours of work, and working conditions of employees, provides premium wage rates for all overtime hours worked, and provides for a pay rate of at least 30% more than the state minimum wage.  The union contract must contain a grievance procedure, culminating in binding arbitration.  The arbitrator must be empowered to award the same penalties are as allowed under the Labor Code, except for those penalties that would be payable to the LWDA – presumably the 75% of penalties that go to the state in a PAGA action or settlement.

Janitorial employers are required to inform the LWDA of the existence of any such collective bargaining agreement.  The law contains a sunset date of July 1, 2028.

Port Drayage Motor Carriers

Since 2019, the California Division of Labor Standards Enforcement has maintained on its webpage a list of “Port Drayage Motor Carriers” that have been found to have violated wage and hour laws.  Port drayage companies that engage motor carriers on the list can be held jointly liable for the labor law violations of those motor carriers.

This year, SB 338 amends this law to include joint liability for employment tax assessments and failure to comply with health and safety laws.  SB 338 also provides additional details as to the Division’s webpage of prior offenders.

For employers in this industry, if SB 338 was the stick, AB 794 could be seen as somewhat of a carrot.  The law provides financial incentives for port drayage motor carriers, and others, to move to electric vehicles.  That being said, in order to participant, this law requires a port drayage motor carrier to meet certain “labor standards,” including not being listed on the webpage of prior offenders.

Health Care Employers

AB 1407 requires that hospitals and nursing education programs implement implicit bias training as part of the training regimen for new nurses.

Similar to AB 701 for warehouse distribution center employees, SB 362 restricts the use of quotas by chain community pharmacy companies.  Restricted quotas include those which require a fixed number, or formula, for number of prescriptions filled, number of services offered, revenue obtained, and so on.

Public Sector Employers

Currently, public sector employers are required to provide to labor unions representing their employees with employee demographic information, including name, job title, department, work location, work, home, and personal cellular telephone numbers, personal email addresses on file with the employer, and home address.

SB 270 allows unions representing public sector employees to file an unfair practice charge alleging a failure to provide such information.  After receiving written notice of an alleged violation, public sector employers are given 20 calendar days to cure any such violation prior to the filing of such a charge.

SB 270 also creates a unique civil penalty, up to $10,000, for failure to provide the required information.  This penalty may be one of the first such provisions in a U.S. labor relations law, which traditionally have a remedial, rather than a punitive, focus.

Household Domestic Services

SB 321 creates an advisory committee to develop voluntary guidance and make recommendations to the Department of Industrial Relations and the legislature on policies that the state may adopt to protect the health and safety of privately-funded household domestic service employees.

Agricultural Employers

AB 73 requires that the Occupational Safety and Health Standards Board update its training with regard to exposure to wildfire smoke by agricultural employees.

Other Notable Nuggets

Two other new laws are worth noting here, although they are not what one might traditionally consider employment laws.

AB 570, a first-of-its-kind law in the U.S., provides that people purchasing individual medical insurance plans (as opposed to group plans, such as those provided by employers) may add their dependent parents to their health plans.  The law becomes effective in 2023.

The law does not apply to employer-provided plans today, but this is an area to watch in the future, as California continues to experiment with new ideas and approaches to social issues.

Finally, AB 1084 requires that retail stores devote sufficient space to “gender neutral” toys for children.  We believe that this is another first-of-its-kind law in the country, and it will be interesting to see if this trend catches on elsewhere.

Notable Vetoes

Governor Newsom vetoed AB 865, which would have based the pay for child care workers on enrollment, rather than actual attendance.  Such an arrangement was in place last year as a result of the COVID-19 pandemic.  AB 865 would have made this change permanent.  The governor indicated that budgetary concerns were the primary reason for his veto.

The governor also vetoed AB 1074, which would have required successor employers in the hotel industry that purchased the business or property to retain the employees of the predecessor for a 60-day transition period.  In his veto message, the governor noted the overlap between this bill and SB 93 (discussed above), providing for the right of recall of hospitality industry employees. 

Also vetoed was AB 616, which would have allowed for union recognition by card check (as opposed to secret ballot election) for agricultural workers.

Finally, and again citing budgetary concerns, Governor Newsom vetoed AB 123, which would have increased the weekly benefit amounts payable under California’s Family Temporary Disability Benefit program. 

A Notable Measure That Did Not Pass: Supplemental Paid Sick Leave

Toward the end of the session, legislators expended much effort in attempting to extend California’s COVID-19 supplemental paid sick leave law.  At one point, a bill included both an extension of the leave, as well as liability protections for businesses.  In the end, the bill did not make it out of the legislature, and the state supplemental paid sick leave program expired.  Note, however, that several California local ordinances providing for COVID-19 supplemental paid sick leave remain in effect.

Conclusion

2021 was an active year for the California legislature, especially in the area of employment and labor law.  The debate continues over whether such new laws provide an overall economic benefit to the state.  For example, a recent working paper by the Hoover Institution at Stanford University analyzed companies’ relocation of corporate headquarters out of California and movement to other, more business friendly states.  The study noted that, as a result of California’s stringent regulations, “companies have reported in confidence that their legal costs in California are disproportionate to the number of employees they have in the state.”

With this new crop of laws, the Golden State seems destined to stay on the path of robust regulation of the workplace.  Littler’s Workplace Policy Institute will continue to keep the business community advised of additional developments in California and beyond.