By:  Laura Wolfe and Jim McDade

As they ring in the new year (and decade), California Employers must also be aware of the new laws taking effect.  Below are some of the most notable changes which may significantly affect California businesses.  With the passage of these new laws and regulations, employers should consult with legal counsel on any questions they may have and the potential impact these laws may have on their current employment practices.

Independent Contractor Classification

A.B. 5 adds Section 2750.3 to the Labor Code and amends Labor Code Section 3351, which is part of the Workers’ Compensation Act. It also amends Sections 606.5 and 621 of the Unemployment Insurance Code, relating to unemployment benefits.

The new law redefines the standard for determining whether a person providing labor or services for payment may be classified as an independent contractor or an employee. A.B. 5 means that for most companies to legally continue contracting with workers in California, they must satisfy the onerous “ABC” test, which originated from the California Supreme Court’s April 2018 decision in Dynamex Operations West, Inc. v. Superior Court (4 Cal. 5th 903 (2018)).  Under the ABC test, the following criteria must be met in order for a person to be an independent contractor:  

(A)  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.

(B)  The person performs work that is outside the usual course of the hiring entity’s business.

(C)  The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

There are several exemptions for which the ABC test would not apply, and instead, the traditional analysis set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 will determine if the person is an independent contractor.  Some exceptions are as follows, but employers should consult with counsel to determine all the requirements for being exempt from the ABC test:  (1) a person or organization who is licensed by the Department of Insurance; (2) a licensed physician and surgeon, dentist, podiatrist, psychologist, or veterinarian; (3) a licensed lawyer, architect, engineer, private investigator, or accountant; (4) a registered securities broker-dealer or investment adviser; (5) a direct sales salesperson as described in Section 650 of the Unemployment Insurance Code; (6) a commercial fisherman; (7) a person providing services under a contract for “professional services,” as defined by Labor Code 2750.3 (c), for the following:  marketing services, administrator of human resources, travel agent, graphic design, grant writer, fine artist, licensed enrolled agent, payment processing agent through an independent sales organization, still photographer or photojournalist, freelance writer, editor, or newspaper cartoonist, licensed esthetician, licensed electrologist, licensed manicurist (until January 1, 2022), licensed barber, or licensed cosmetologist; (8) a real estate licensee; (9) a licensed repossession agency; (10) services provided under a bona fide business-to-business contracting relationship as defined by Labor Code 2750.3; (11) construction industry relationships if the requirements of Labor Code 2750.3 are met; (12) referral agency and a service provider relationships as defined by Labor Code 2750.3; (13) services provided by a motor club holding a certificate of authority issued pursuant the Insurance Code.

With numerous exceptions, A.B. 5 applies for purposes of California’s:

Industrial Welfare Commission’s Wage Orders.

Labor Code.

Unemployment Insurance (UI) Code (Cal. Unemp. Ins. Code §§ 606.5 and 621 and Cal. Lab. Code § 2750.3(a)(1).)

Workers’ compensation laws, effective July 1, 2020 (Cal. Lab. Code § 3351(i)).

Mandatory Employment-Related Arbitration Agreements

A.B. 51 adds Section 12953 to the Government Code and Section 432.6 to the Labor Code. The new law prohibits requiring any job applicant or employee, as a condition of employment, continued employment, or employment-related benefit, to waive any right, forum, or procedure for a violation of the California Fair Employment and Housing Act (FEHA) or other specific statutes, such as the Labor Code.

The bill also prohibits an employer from threatening, retaliating, or discriminating against, or terminating any job applicant or employee for refusing to consent to waive any right, forum, or procedure for a violation of specific statutes governing employment.

The new law applies to contracts for employment entered into, modified, or extended on or after January 1, 2020. The law also specifies that:

1.   It is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (FAA).

2.   It does not apply to post-dispute settlement agreements or negotiated severance agreements.

If you are currently using arbitration agreements, the arbitration agreement should be reviewed before new ones are signed or existing ones are renewed after January 1, 2020.  

Note: As predicted, AB51 has not gone unchallenged.  The US Chamber of Commerce and other business groups filed a lawsuit arguing that AB 51 was preempted by the Federal Arbitration Act and should be ruled invalid. On December 30, 2019, Judge Kimberly Mueller of the US District Court for the Eastern District of California granted a temporary restraining order, blocking AB 51 from taking effect until the court’s next hearing on January 10, 2020.  At that hearing, the court will consider whether to grant a preliminary injunction that would block implementation of AB 51 until the case is fully resolved.  Employers should work with counsel to closely monitor the progress of AB 51’s implementation.

Payment of Arbitration Fees

S.B. 707 amends Sections 1280 and 1281.96 of the Code of Civil Procedure and also adds Sections 1281.97, 1281.98, and 1281.99. The law requires the drafting party (typically the employer) to pay certain fees and costs before the arbitration can proceed. If the employer does not pay the fees or costs to initiate an arbitration proceeding within 30 days after the due date, the employer drafting party: 

1.   Is in material breach of the arbitration agreement.

2.   Is in default of the arbitration.

3.   Waives its right to compel arbitration under Section 1281.2.

No Re-Hire Provisions

A.B. 749 adds Section 1002.5 to the Code of Civil Procedure. The new law prohibits settlement agreements from containing a provision that prohibits, prevents, or otherwise restricts a settling party from working for the employer against whom the settling party has filed a claim or any parent company, subsidiary, division, affiliate, or contractor of the employer (no re-hire provisions).

Exceptions exist if the employer has made a good faith determination that the settling party engaged in sexual harassment or sexual assault. The law specifies that an employer is not required to continue to employ or rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating or refusing to rehire the person.

Any provision in a settlement agreement entered into on or after January 1, 2020 that violates this prohibition is void as a matter of law and against public policy.

California Consumer Privacy Act of 2018

A.B. 25 amends Sections 1798.130 and 1798.145 of the Civil Code.  Employers are exempted from the privacy provisions of the California Consumer Privacy Act of 2018 (CCPA) as it relates to employment-related information of employees and job applicants, until January 1, 2021.

Penalties for Unpaid Wages

A.B. 673 amends Section 210 of the Labor Code. The new law authorizes an employee who has filed a claim with the Labor Commissioner to bring an action to recover specified statutory penalties against the employer as part of a hearing held to recover unpaid wages.  The penalty can be $100 for the initial violation and $200 for each subsequent violation, plus 25% of the unpaid wages.

The law specifies that an employee may either recover statutory penalties under these provisions or enforce civil penalties under the Private Attorneys General Act (PAGA), but not both, for the same violation.

FEHA Statute of Limitations

In perhaps one of the biggest changes, A.B. 9 amends Sections 12960 and 12965 of the Government Code.  The new law extends the statute of limitations for filing an employment discrimination claim under the FEHA from one year to three years from the date on which an alleged unlawful practice occurred.  Because an employee has one year after receiving a right to sue letter to file a lawsuit in civil court, it could be 4 years after the last act of discrimination or harassment before a claim is filed in civil court.  More than ever, it is important to document the non-discriminatory, legitimate business reason for taking an adverse action against an applicant or employee, and properly documenting the response to and the investigation of any complaint of discrimination or harassment.  Employers should also review their document retention policies to make sure they are not destroying documents too soon.

Civil Actions by the DFEH

A.B. 1820 amends Section 12930 of the Government Code. It authorizes California’s Department of Fair Employment and Housing (DFEH) to bring civil actions for violations of specified federal civil rights and anti-discrimination laws, including:

1.  Title VII of the Civil Rights Act of 1964.

2.  The Americans with Disabilities Act of 1990, as amended.

3.  The federal Fair Housing Act.

Citations by the Labor Commissioner

S.B. 688 amends section 1197.1 of the Labor Code to allow the Labor Commissioner to issue a citation to an employer to recover restitution for amounts owed where the employer paid a wage less than the wage set by contract in excess of minimum wage.

Expanded Lactation Accommodation Requirements

S.B. 142 adds Section 1034 to the Labor Code and also amends Sections 1030, 1031, and 1033. In addition to existing accommodation requirements, the new law requires employers to provide a location that:

1.  That is private and shielded from view.

2.  Is safe, clean, and free of hazardous materials.

3.  Contains a surface to place a breast pump and personal items.

4.  Contains a place to sit.

5.  Has access to:

a.  electricity or alternative devices, such as extension cords or charging stations, needed to operate an electric or battery-powered breast pump and

b.  a sink and refrigerator in close proximity to the employee’s workspace. 

An employer with less than 50 employees may be exempt from these requirements if it can demonstrate undue hardship.

Prohibition Against Racial Discrimination Based on Hairstyle

S.B. 188 amends Section 12926 of the Government Code and Section 212.1 of the Education Code. The law clarifies that the definition of race as a protected category includes traits historically associated with race, including hair texture and protective hairstyles. Examples are hairstyles such as braids, locks, and twists.  Employers should ensure their dress and grooming policies comply with this amendment.  

Extended Deadline for Sexual Harassment Training

S.B. 778 amends section 12950.1 of the Government Code. The law provides that employers with five or more employees have until January 1, 2021 to provide the required sexual harassment training to all employees.

Unemployment Insurance Code Definition of Employment

S.B. 271 amends Sections 602 and 603 of the Unemployment Insurance Code. The new law clarifies the definition of “employment” for purposes of determining eligibility for unemployment compensation benefits. It includes employment of a motion picture production worker whose residence is in California when they work out of state, but some of the service is performed in the state.

Workplace Safety Requirements

A.B. 1804 amends Section 6409.1 of the Labor Code to require an employer to immediately report a serious occupational injury, illness, or death to the Department of Industrial Relations’ (DIR) Division of Occupational Safety and Health by telephone or online.

A.B. 1805 amends Sections 6302 and 6309 of the Labor Code. The new law redefines “serious injury or illness” by:

1.  Removing the 24-hour minimum time requirement for qualifying hospitalizations, excluding those for medical observation or diagnostic testing, and including the loss of an eye as a qualifying injury.

2.  Deleting the loss of a body member from the definition of serious injury and including amputation.

This law redefines “serious exposure” to include exposure of an employee to a hazardous substance in a degree or amount sufficient to create a realistic possibility that death or serious physical harm in the future could result from the actual hazard created by the exposure.

It also establishes that a serious violation exists when the Division determines that there is a realistic possibility that death or serious injury could result from the actual hazard created by the condition alleged in a complaint.

Flexible Spending Account Notices

A.B. 1554 adds Section 2810.7 to the Labor Code. It requires an employer to notify an employee who participates in a flexible spending account of any deadline to withdraw funds before the end of the plan year.

Notice must be given in two different forms, one of which may be electronic, and includes:

Electronic mail communication.

Telephone communication.

Text message notification.

Postal mail notification.

In-person notification.

Living Organ Donation

A.B. 1223 adds Sections 10110.8 and 10233.8 to the Insurance Code and amends:

–  Sections 89519.5 and 92611.5 of the Education Code.

–  Section 19991.11 of the Government Code.

–  Section 1510 of the Labor Code.

The new law requires an employer to grant an employee an additional unpaid leave of absence of up to 30 business days in a one-year period for the purpose of organ donation.

Domestic Partnerships

SB 30 amends various provision in the Family Code starting with §297 to allow any two adults over the age of 18 to enter into a domestic partnership by filing the proper paperwork.  Formally domestic partnerships were reserved only for those of the same sex or two adults of the opposite sex who were over the age of 62.  This could affect who qualifies to be added onto employment benefits as dependents.  Employers should check their employee benefits and consult with their insurance brokers and plan administrators about this change.

CalSavers Retirement Program

California employers are required by state law to facilitate CalSavers if they don’t offer an employer-sponsored retirement plan and have five or more employees.  All eligible employers can register at any time prior to their registration deadline.  Registration deadlines are follows:

More than 100 employees: June 30, 2020

More than 50 employees: June 30, 2021

5 or more employees: June 30, 2022

More information, including form notices, can be obtained online at calsavers.com.

Phase-In Overtime for Agricultural Workers Act of 2016

On September 12, 2016, Governor Brown signed into law A.B. 1066 entitled “Phase-In Overtime for Agricultural Workers Act of 2016″.   Ultimately, the law will require employers to pay agricultural workers overtime after eight hours of work per day or 40 work hours in a workweek as any other non-agricultural employee.  Implementation of the new law is being phased in over time. and this is the second year the law will affect employers with 25 or more employees.  Overtime is as follows:

Year:     Daily Overtime Begins After:      Weekly Overtime Begins After:

2020:    9 hours                                            50 hours

2021:     8.5 hours                                        45 hours

2022:     8 hours                                           40 hours

Employers should be careful and note that the maximum weekly hours before overtime applies is less than six times the daily limit.  Six times 9, for example, is 54; but the maximum weekly hours before overtime applies is 50.  

Businesses with less than 25 employees will have to comply starting in 2022 as follows:

Year:      Daily Overtime Begins After:    Weekly Overtime Begins After:

2022:     9.5 hours                                       55 hours

2023:     9 hours                                          50 hours 

2024:     8.5 hours                                       45 hours

2025:     8 hours                                          40 hours

The law also eliminated the sentence in Labor Code §554 which previously exempted agricultural workers from the requirements of Labor Code §500, et. seq.  Thus, agricultural employees are no longer exempt from the requirements regarding wages, meal breaks, and other working conditions found in Labor Code Section §500, et seq.  For example, pursuant to Labor Code §512, a second meal period will be required for those who work more than 10 hours in a day.  Failure to provide the second meal period will subject the employer to paying an hour premium pay to the employee pursuant to Labor Code §226.7.  In addition, for employers with 26 or more employees, all employees subject to Wage Order 14 will also be entitled to double time for all work above 12 hours in a day beginning January 1, 2022.  This will be delayed for employers with 25 or less employees until January 1, 2025.

Note that an updated Wage Order 14 for agricultural occupations was recently issued and can be found here.   Wage orders must must be posted on the employee bulletin board and it is recommended that employers subject to Wage Order 14 update their handbooks and policies to conform to these new laws.  

California Minimum Wage Hike

On April 4, 2016, Governor Brown signed into law SB3, which, among other things, provided a schedule for California to eventually hit a minimum wage of $15 per hour.  The year the rate changes depends on how many employees a company employs.  The schedule is as follows:  

Rate (as of January 1)	26 Employees or More	25 Employees or Less
2020	$13.00	$12.00
2021	$14.00	$13.00
2022	$15.00	$14.00
2023	$15.00	$15.00
2024	Indexed*	Indexed*

*Once the minimum wage reaches $15 per hour for all businesses, wages can be increased each year up to 3.5 percent (rounded to the nearest 10 cents) for inflation as measured by the national Consumer Price Index.  

In addition, many cities have passed their own minimum wage rate ordinances, which may be higher than the state minimum wage rate.  Be sure to check city ordinances to make sure you are in compliance.

The DIR website contains an FAQ section to address situations where the employer has 26 employees for only part of a year or if the number of employees fluctuates over and under 26 employees.

The rise in minimum wage will affect such things as the following, which is only a partial listing of items linked to minimum wage:

1. Overtime rates.
2. Minimum salary required to meet the overtime exemptions.
3. Split Shift premium pay, i.e., the 1 hour of extra pay which must be given if an employee’s shift is divided by a period of no work longer than a normal meal period.
4. Tools and equipment, i.e., the requirement of the employer to pay for all hand tools unless the employee earns twice minimum wage.
5. Draws against commission (which must be equal to minimum wage and any overtime due unless the employee is exempt from minimum wage and overtime).
6. Meal and lodging credit towards minimum wage.
7. Wage rate for nonproduction time (i.e., rest breaks, cool down breaks, and non-piece rate work) for piece rate workers.

Employers must also update their wage rate posters.

Rounding Time

While not an amendment to the law, the case of Ferra v. Loews Hollywood Hotel (2019) 40 Cal.App.5^th 1239 confirms the ability of an employer to round time to the nearest quarter of an hour.  There, the employer’s rounding policy was found  neutral in that it was just as likely for rounding to be in favor of the employee as it was to be against the employee.  The employer should not have a policy that always causes the employee’s time to be shortened.  For example, the employer should not discipline the employee for clocking in a minute late while at the same time round time up if the employee clocks in early.  The employer should either pay by exact minutes worked or at least grant a 5 minute (or more, especially if rounding to the quarter of an hour) leeway for clocking in early and late before being disciplined or considered tardy.  It is safer to round to the nearest 5 minutes or nearest 10^th of an hour if rounding is used.  Remember that rest breaks must be a “net” 10 minutes and meal breaks must be a “net” 30 minutes at a minimum.  In other words, you cannot count the time it takes the employee to cleanup and get to the break areas as rest or meal periods.  Give employees time to get to the break area and to clock back in without eating into the minimum break times.  Either give the employee a 5 minute grace period to clock back in or give a 15 minute rest and 45 minute meal period at a minimum.  While we are on the topic of breaks, make sure the breaks are “duty free.”  This means employers should make sure their break policy does not require employees to remain on the premises (or truck or worksite) nor require employees to monitor phones, pagers, etc., while on breaks.  Review your time keeping and break policies.  

Regular Rate of Compensation for Break Violations

The case of Ferra v. Loews Hollywood Hotel (2019) 40 Cal.App.5^th 1239 also addressed the issue of what rate the employer must use when paying the hour premium pay for missed rest breaks and late or missed meal breaks.  The wage orders and Labor Code §226.7 state that the employer must use the “regular rate of compensation” for break violations.  The court ruled that the “regular rate of compensation” used in LC 226.7 is not the same as the “regular rate of pay” used in Labor Code §510.  The “regular rate of compensation” means the regular hourly rate that is paid to the employee without taking into consideration any bonuses or other remuneration.  But for overtime, reporting time pay, and even sick pay (depending on which sick pay formula is used), the employer must use the “regular rate of pay.”  The “regular rate of pay” must include non-discretionary bonuses and other cash and non-cash items of value, such as free housing, free utilities, free services like dental or veterinary care, free food, etc.  Employers must review the regulations to see what items do and do not have to be included in the “regular rate of pay.”  They must also use the proper formula for calculating the “regular rate of pay” if the employee receives more remuneration in addition to a simple hourly rate of pay.  Read the wage orders carefully to determine when the “regular rate of pay” applies versus the “regular rate of compensation.

Reporting Time Pay

Pursuant to the case of Ward v Tilly’s (2019) 31 Cal.App.5th 1167 an employee must be paid reporting time pay if the employee is required to call in to see if the employee is needed to work the employee’s scheduled shift.  Tilly’s would schedule employees to work, but then have them call in two hours prior to the shift to confirm if they are needed or not.  The employee is then unable  to schedule the employee’s time for other activities, including other work.  This is the same as if the employee physically reported to work and  was then sent home without working at least ½ of the scheduled shift.  Employers must read applicable wage orders carefully for the reporting time rules, and reporting time pay must be paid at the employee’s “regular rate of pay,” which must include all remuneration, including non-discretionary bonuses, etc.

De Minimus Work Time

In the case of Troester v Starbucks (2018) 5 Cal.5^th 829 the court ruled that California does not have a de minimus rule per se.  Hence, an employer will be responsible for paying for all time worked by the employee, no matter how small, especially when the work is reoccurring, such as opening up the business at the start of the day and closing the business at the end of the day.  In that spirit, we want to remind employers to pay new employees for all on-boarding activities and pay employees to read the employee handbook, notices, and other training materials, especially when the employee must read the materials in order to know the employer’s rules and procedures for performing the job in a manner desired by the employer.