California Businesses Cannot Let Guard Down

Almost one year ago, the voters in this state elected Governor Jerry Brown to serve his THIRD term as Governor of California.  This was after his prior stint as Governor from 1975-1983 – a gap of almost thirty years between service.  Since his re-election, businesses have been on edge wondering what type of anti-business measures he would sign into law.  The California Chamber of Commerce was also on edge and immediately started monitoring the laws that could be classified as “Job Killers.”  The Chamber did an excellent job opposing these identified bills and were successful on most counts.

At the start of the busy bill-signing cycle in October, 2011, the Governor appeared to have seen the light and was briefly characterized as being diplomatic in his approach to businesses – particularly in this economic climate.  He vetoed several of the laws that he reviewed first.  Most critics and the Chamber were pleased by the early victories.  However, towards the end of the cycle, Governor Brown did stay true to his roots and sign into law a few very terrible and expensive laws for employers that on one end, limits the ability of an employer to select a qualified candidate, and on the other end, increases the costs of doing business in this state.  This Jekyll & Hyde behavior should be a call to all California businesses to stay on guard throughout the legislative process.

The following are a sampling of provisions enacted by Governor Brown:

AB 22 – Mendoza (D-Artesia) – Credit Checks

California has now decided to follow a growing trend in other states by barring employers from obtaining credit reports during the application process for many job positions.  Currently, employers are required to inform the prospective employee that a credit check might be performed, and get written consent.  But now, thanks to AB 22, employers cannot obtain or use the credit reports of its prospective employees for many positions.

The new law prohibits employers from using a consumer credit report for “employment purposes” except for certain types of job classifications.  The positions for which a credit report can be obtained during the hiring process include:

  •  a managerial position;
  • a position for which credit information is required by law;
  • a position that requires regular access to bank or credit card account information, social security numbers, and date of birth;
  • a position in which the employee would be a signatory on the employer’s bank account, or authorized to transfer money on behalf of the employer, or authorized to enter into financial contracts on behalf of the employer;
  • a position that involves access to confidential or proprietary information, including trade secrets;
  • a position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday; or
  • certain financial institutions.

When an employer does intend to obtain a credit report during the hiring process, the employer must inform the applicant of the specific reason the employer is obtaining the report, meaning the provision set forth above that applies to the position.  This new requirement is in addition to the other requirements already imposed on employers under the Fair Credit Reporting Act and other similar laws.

SB 299 – Evans (D – Santa Rosa) – Health Insurance Coverage for Pregnancy Disability Leaves

Currently, employers with 50 or more employees are subject to the federal Family & Medical Leave Act as well as California’s Family Rights Act.  Both laws require that a covered employer continue to provide health insurance coverage to employee who must take a leave of absence for a serious health condition.  The right to have continued health insurance coverage extended for a period of three months for certain employees who have 1250 hours and 12 months of service.  Employers who were not covered by FMLA/CFRA, but had employees who needed to take a pregnancy disability leave, were required to provide up to four months of leave – but were not required to continue health insurance coverage because the costs to employers was previously consider too burdensome to impose on the smaller business.  Now, this new law requires that companies with 5 or more employees (no tenure requirement) provide continued health insurance costs for up to four (4) months – longer than what is required by FMLA or CFRA.

The financial burden on smaller employers is blatantly evident.  Employers with just a handful of employees must continue to provide health insurance coverage during a PDL leave, when one was not required before.  My fear is that this will cause some smaller employers to reconsider providing health insurance at all to their employees.  Accordingly, effective January 1, 2012, employers will have to revise their leave policies.

SB 459 – Corbett (D – San Leandro) – Independent Contractor Misclassification

This bill has now created an entire administrative scheme and additional causes of action for companies that engage the services of individual independent contractors.  If the individual is subsequently found to have been improperly classified as an independent contractor and that individual should have been classified as an employee, the contracting entity may be fined anywhere from $5,000 to $25,000 for EACH violation!

This new law is going to be difficult to comply with as differing state agencies utilize differing determinations of who is an independent contractor.  I have not seen clear guidance yet, but it would be my recommendation to comply with all of the tests concerning determining independent contractor status, in particular, the 11-point test utilized by the California Labor Commissioner.  If in doubt, classify any individual contracting worker as employee.  By all means, seek legal advice if you have any individuals who are currently being 1099’d for work.

SB 272 – DeSaulnier (D – Concord) Organ Donor/Bone Marrow Leave of Absence

Last year SB 1304 was enacted with relatively little fanfare.  This law added sections 1508-1513 to the California Labor Code.  SB 1304 created an additional leave of absence for employees of private organizations which entitled that employee up to 30 days of leave to donate an organ, and up to 5 days for someone to donate bone marrow.  This new law brings renewed attention to this new law and clarifies that the 30 days are business days and not calendar days.  This new law also clarifies that the time off cannot be seen as a break in service for pay increases or the accrual of benefits, including vacation and seniority.

AB 469 – Swanson (D – Oakland) California Wage Theft Prevention Act

Among the flurry of bills Governor Jerry Brown signed recently, the Wage Theft Prevention Act of 2011 (“Act”) imposes new requirements on California employers.  One significant provision now requires employers to provide non-exempt employees with a written notice, at the time they are hired, of various compensation information and information on the company.

In particular, Labor Code Section 2810.5 (as of January 1, 2012) will require that at the time of hiring, an employer shall provide each employee a written notice, in the language the employer normally uses to communicate employment-related information to the employee, containing the following information:

  1. The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
  2. Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
  3. The regular payday designated by the employer in accordance with the requirements of this code.
  4. The name of the employer, including any “doing business as” names used by the employer.
  5. The physical address of the employer’s main office or principal place of business, and a mailing address, if different.
  6. The telephone number of the employer.
  7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
  8. Any other information the Labor Commissioner deems material and necessary.
  9. The Labor Commissioner is in the process of preparing a template that complies with the above requirements and estimates that the template shall be made available to employers by mid-December.

If an employer changes any of the eight items, it shall notify the impacted employees in writing of any changes within seven calendar days after the time of the changes, unless all changes are reflected on a timely wage statement furnished in accordance with Section 226; or notice of all changes is provided in another writing required by law within seven days of the changes.

This “New Hire Statement” applies to private, non-exempt employees but does not apply to public employees; exempt employees; or employees who are covered by a valid collective bargaining agreement.

The Act also requires employers to maintain records itemized wage statements and records of deductions for three years.  The Act also dramatically strengthens certain penalties and the enforcement powers of the California Labor Commissioner.  One particular provision now allows the Labor Commissioner to collect penalties and fees for up to three (3) years whereas the prior limit was one (1) year.

AB 1369 – Assembly Committee on Labor & Employment – Written Commission Agreement

The new law requires all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. Commission wages are defined as compensation paid to any person for services rendered in the sale of an employer’s property or services and based proportionately upon the amount or value thereof.

The deadline for employers to reduce all commission agreements to writing is January 1, 2013.  In addition to outlining the commission plan in writing, employers must provide a signed copy of the contract to every employee covered by the commission agreement and obtain a signed receipt for the contract from each employee.  There are no penalties associated with a violation of the new statute but presumably it could be a basis for suit under California’s Private Attorneys General Act (PAGA) and Unfair Competition Law.  Accordingly we recommend commencing with the implementation as soon as possible.

Other laws have gone into effect, and we will attempt to provide guidance on more as the impact on businesses become clearer.  In conclusion, the start of Governor Brown’s tenure does not bode well for California businesses.   It is important to stay diligent in any and all advocacy efforts and work with your local, state and federal Chambers of Commerce or industry associations to protect the interests of businesses.

By: Michael S. Lavenant and Brian E. Ewing