What Retailers Need to Know About the California Transparency in Supply Chains Act

By Daniel H. Aiken, Carol F. Trevey and Brendan P. McHugh

Retail sellers and manufacturers across the country that conduct a threshold amount of business in California must comply with the California Transparency in Supply Chains Act (“Supply Chains Act” or “Act”). CAL. CIV. CODE § 1714.43. The Act, which became effective in January 2012, requires those retailers and manufacturers to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains. Id. § 1743.43 (a)(1). Specifically, those companies must disclose on their website to what extent they: (1) engage in verification of product supply chains to evaluate and address risks of human trafficking and slavery; (2) conduct audits of suppliers; (3) require direct supplies to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the countries in which they are doing business; (4) maintain accountability standards and procedures for employees or contractors that fail to meet company standards regarding slavery and human trafficking; and (5) provide employees and management training on slavery and human trafficking. Id. § 1743.43 (c).

By its terms, the Act does not require manufacturers and retailers to take affirmative action to detect or prevent slavery or human trafficking in their supply chains. It requires only that the company make the mandated disclosures. Nevertheless, manufacturers and retailers should be aware of the potential for attorney general enforcement actions, as well as enterprising litigation by consumers, based on violations of the statute.

Requirements of the Supply Chains Act

The Act applies to any company that does business in California, has worldwide annual revenues in excess of $100 million, and is either a “manufacturer” or “retail seller” as reported on the entity’s California tax return. CAL. CIV. CODE §§ 1714.43(a)(1)–(a)(2). A retail seller or manufacturer located outside of California may be considered to be “doing business in California” if it satisfies one of the following conditions: the retail seller or manufacturer in a tax year (1) has business sales in California that exceed $500,000 or 25% of the businesses’ total sales, whichever is lesser; (2) has retail property and tangible personal property in California that exceeds $50,000 in value or 25% of the business’ total real property and tangible personal property value, whichever is lesser; or (3) pays compensation in California that exceeds $50,000 or 25% of the total compensation paid by the business, whichever is lesser. Id. § 1714.43(a)(2)(D); CAL. REV. & TAX. CODE § 23101(b). Retailers and manufacturers subject to the Act are identified each year using data provided to the California Attorney General by the state Franchise Tax Board. See CAL. REV. & TAX. CODE § 19547.5.

Retailers and manufacturers subject to the Act must disclose their efforts in the following five areas: verification, audits, certification, internal standards, and employee training. In 2015, the California Attorney General issued non-binding guidance to assist companies in complying with the statute. See California Department of Justice, “The California Transparency in Supply Chains Act: A Resource Guide,” at 3 (2015) (“Resource Guide”). According to the Attorney General’s guidance, disclosures should include the following:

  • Verification. Manufacturers and retailers subject to the act must disclose whether they verify “product supply chains to evaluate and address risks of human trafficking and slavery.” CAL. CIV. CODE § 1714.43(c)(1). This disclosure should include whether a third party conducts the verifications, a description of the verification process, and whether the company assesses potential risks related to labor-brokers and third-party recruiters in its supply chain. See Resource Guide at 11–12.
  • Audits. Manufacturers and retailers subject to the act must disclose whether they audit their suppliers’ practices. CAL. CIV. CODE § 1714.43(c)(2). This disclosure must specify whether audits are independent and unannounced. Id. It also should include statistics regarding the timeline, frequency, and number of audits. See Resource Guide at 14–15.
  • Certification. Manufacturers and retailers subject to the act must disclose whether they require direct supplies to certify that materials “comply with the laws regarding slavery and human trafficking of the . . . countries in which they are doing business.” CAL. CIV. CODE § 1714.43(c)(3). This disclosure should describe the company’s certification requirements, the consequences to the supplier of any violation, and any additional action the company takes to encourage direct suppliers to comply with relevant laws. See Resource Guide at 16–17.
  • Internal standards. Manufacturers and retailers subject to the act must disclose whether they maintain “accountability standards and procedures for employees or contractors [that] fail[] to meet company standards regarding slavery and human trafficking.” CAL. CIV. CODE § 1714.43(c)(4). This disclosure should describe the company’s standards and procedures, identify the persons tasked with monitoring these standards and procedures, and identify the company’s code of conduct related to supplier standards. See Resource Guide at 18–19.
  • Employee training. Manufacturers and retailers subject to the act must disclose whether they provide “employees and management . . . training on slavery and human trafficking, particularly with respect to mitigating risks within the supply chains of products.” CAL. CIV. CODE § 1714.43(c)(5). This disclosure should identify what positions receive training and provide a description the training, including the topics presented, duration, and frequency. See Resource Guide at 20–21.

Companies subject to the Supply Chains Act must make the above disclosures on their website’s homepage “with a conspicuous and easily understood link to the required information.” CAL. CIV. CODE § 1714.43(b). The California Attorney General has suggested that to be “conspicuous and easily understood,” a link should be placed at the top or bottom of the company’s homepage and include a relevant title, such as “California Supply Chains Act,” that plainly alerts consumers to its content. See Resource Guide at ii, 5. If a company subject to the Act does not maintain a website, such company must provide a written disclosure to any consumer request within 30 days. CAL. CIV. CODE § 1714.43(b).

A. Exclusive Remedy for Violations of the Act and Uses of the Act In Litigation

The exclusive remedy for a violation of the Supply Chains Act is an action brought by the California Attorney General for an injunction. Although the Attorney General has filed few cases under the statute, it has called upon consumers to report suspected violations. In 2015, the Attorney General requested companies that may be subject to the Act’s requirements to submit information voluntarily about their current disclosures. See Press Release, California Office of the Attorney General, Attorney General Kamala D. Harris Issues Consumer Alert on California Transparency in Supply Chains Act (April 13, 2015); Informational Letter.

B. The Supply Chains Act as a Predicate of California Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act Claims

Although the sole remedy provided for under the Supply Chains Act is an Attorney General action for injunctive relief, the Act provides that it does not “limit [other] remedies available for a violation of any other state or federal law.” CAL. CIV. CODE § 1714.43(d). Some plaintiffs have therefore attempted to rely on violations of the Supply Chain Act as predicates for liability under California’s consumer protection statutes, the Unfair Competition Law (UCL), CAL. BUS. & PROF. CODE § 17200 et seq., the False Advertising Law (FAL), CAL. BUS. & PROF. CODE § 17500 et seq., and the Consumer Legal Remedies Act (CLRA), CAL. CIV. CODE § 1750 et seq.

For example, in Sud v. Costco Wholesale Corp., the plaintiffs attempted to bring UCL, FAL, and CLRA claims based on Costco’s alleged failure to disclose on its packaging that its prawns were “derived from a supply chain tainted by slavery, human trafficking and other human rights violations.” No. 15-CV-03783-JSW, 2017 WL 345994, at *1 (N.D. Cal. Jan. 24, 2017). The plaintiffs argued that this was an “unlawful” practice under the UCL, in part because it violated the Supply Chains Act. The Northern District of California dismissed the plaintiff’s claims, holding that “[t]he Supply Chains Act does not clearly speak to product labels.” Id. at *8. The court additionally held that “to the extent Plaintiffs are attempting to suggest” that Costco’s Supply Chains Act disclosure on its website did “not comply with the requirements of the Supply Chains Act . . . Plaintiffs lack[ed] statutory standing” because they had not alleged that they “read or relied on” the disclosure. Id. at *5, *8. Because the court focused on plaintiffs’ failure to allege an actual violation of the Supply Chains Act and their failure to allege that they relied on the disclosures required by the Act—as opposed to ruling that there was no private cause of action under the Supply Chains Act—Sud leaves open the possibility that inadequate Supply Chains Act disclosures could be a basis for successful UCL, FAL, or CLRA claims.

C. The Supply Chains Act as a Defense to California Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act Claims

Defendants have also attempted to use their compliance with the Act to defeat claims under the UCL, FAL, and CLRA. California law recognizes a “safe harbor” defense to UCL, FAL, and CLRA claims where the California legislature has either clearly permitted certain conduct or “considered a situation and concluded no action should lie.” See Loeffler v. Target Corp., 324 P.3d 50, 76 (2014). Companies defending against UCL, FAL, or CLRA actions have, therefore, successfully pointed to their compliance with the Supply Chains Act as precluding plaintiffs from pursuing UCL, FAL, or CLRA claims based on alleged human trafficking or slavery in a company’s supply chain. In several cases, the District Court for the Central District of California has determined that the Act creates a safe harbor under the UCL because the California legislature specifically considered “how much companies should disclose to consumers about the possibility of forced labor in their supply chains.” Wirth v. Mars, Inc., Case No. 1:15-cv-1470, 2016 U.S. Dist. LEXIS 14552, at *3 (C.D. Cal. Feb. 5, 2016) (concerning cat food products that may have included ingredients from forced labor); See also Barber v. Nestle USA, Inc., 154 F. Supp. 3d 954, 961 (C.D. Cal. 2015) (same).

The Northern District of California, however, has expressed skepticism toward this argument. Without reaching the merits, in McCoy v. Nestle United States, Inc., the court questioned whether the Supply Chains Act creates a “safe harbor” because the Act is merely a disclosure statute that neither bars nor clearly permits conduct. 173 F. Supp. 3d 954, 971 (N.D. Cal. 2016). Similarly, in Hodsdon v. Mars, Inc., the court, in dicta, questioned whether adequate Supply Chains Act disclosures, which cover only “human trafficking” and “slavery,” preclude liability under the UCL, FAL, or CLRA based on child labor. The Hodsdon court commented that it would be “anomalous” if businesses earning more than $100 million worldwide (the Supply Chains Act threshold) would have access to such a “safe harbor” defense while smaller businesses would not. See Hodsdon, 162 F. Supp. 3d at 1029.

* * *

Manufacturers and retailers subject to the Supply Chains Act, or who may become subject to the Supply Chains Act, should consider whether their existing disclosures comply with the Act as interpreted by the California Attorney General. However, because of the limits of the safe harbor doctrine, compliance with the Act might not be sufficient to avoid consumer protection claims based on alleged human trafficking or slavery in supply chains. If you have any questions about best practices or other aspects of the Supply Chains Act, please do not hesitate to contact the authors or your usual Drinker Biddle contacts.

Laboring Under New Laws

By Mark E. Terman

*Originally published by CalCPA in the January/February 2017 issue of California CPA — the original article can be found here.

Few things in this world can be certain, except that the California Legislature will expand regulation of employers each year and the sun will come up tomorrow. In an apparent pendulum swing, 569 bills introduced in 2016 mention “employer,” compared to 224 in 2015 and 574 in 2014. Most of those bills did not pass, and of the ones that did, most were not signed into law by Gov. Brown. Essential elements of selected bills that became law affecting private employers, effective Jan. 1, 2017, unless otherwise mentioned and organized by Senate and Assembly bill number, follow.

California Minimum Wage Ascending to $15
SB 3 sets a state minimum wage for non-exempt employees that will escalate annually over the next several years. As of Jan. 1, the state minimum wage at employers with 26 or more employees increases to $10.50 per hour, and then increases 50 cents per hour on Jan. 1 of each following year until and including 2022, when the rate will reach $15 per hour. For employers of 25 or fewer employees, state minimum wage will remain $10 per hour until Jan. 1, 2018, when it will increase to $10.50, and then escalate 50 cents per hour each year until and including 2023 when the rate will arrive at $15 per hour.

Beginning July 1, the state director of finance is to determine each year whether economic conditions can support the next scheduled increase. If conditions cannot support an increase, the governor can—no more than twice—temporarily postpone the increase schedule for a year. After the final scheduled escalation year, the state minimum wage can remain the same or increase based on any increase in consumer inflation as determined by the director.

Changes in state, but not local, minimum wage also impact classification of most exempt workers. In addition to strict“duties tests” for administrative, executive and professional wage and hour exemptions, a salary of at least twice the state minimum wage must be paid to meet the “salary basis test.” As of Jan. 1, the annualized salary rate that employers with 26 or more employees must pay to meet the exempt salary requirement will advance to $43,680, up from $41,600.

For employers with smaller workforces, the $41,600 amount of the exempt salary requirement will remain in place until Jan. 1, 2018, when it will move up to $43,680. With each escalation, the required salary also will rise. At a $15 state minimum wage, the exempt salary requirement will be $62,400.

Also affected by SB 3 is the retail, inside-sales exemption, which requires employees be paid at least 1.5 times the state minimum wage, and at least half of their other earnings be from commissions.

At the same time, the trend of municipalities creating and increasing their own minimum wage for companies that have employees working in their jurisdiction continues. For example, by July 1, the city and the County of Los Angeles require employers with 26 or more employees to raise the local minimum wage to $12 per hour, up from $10.50, and then comply with other scheduled annual increases up to $15 per hour by July 1, 2020. Los Angeles employers with fewer employees, or nonprofit corporations who obtain approval to pay a deferred rate, do not start paying more than the state minimum wage until July 1, 2018.

Minimum wage for employees in San Francisco will increase to $14, up from $13, on July 1, 2017. Many other cities—including Berkley, Oakland, Malibu, Santa Monica, El Cerrito and San Diego—have enacted local minimum wage laws. In addition, living-wage laws may require higher minimum wages be paid as a condition of contracting with local, state or federal agencies. Employers should monitor each of the requirements to assure compliance.

As of press time, a federal court enjoined implementation of a new federal rule that would have increased by Dec. 1, 2016, the salary basis requirement for exempt workers status under the Fair Labor Standards Act to $47,476. This would have been higher than the California exemption salary amount will be for at least two years. For now, California employers are not legally required to either increase salaries to satisfy this federal exemption rule or to reclassify employees as non-exempt.

No Sunset on Overtime Pay for Personal Attendant Domestic Workers
The Domestic Worker Bill of Rights (AB 241) added Labor Code Sec. 1454, effective Jan. 1, 2014, (and caused amendment to Wage Order 15-2001). It entitles a domestic work employee who is a “personal attendant” overtime pay at the rate of one-and-one-half times their regular rate of pay for hours worked in excess of nine hours in any workday or more than 45 hours in any workweek. A domestic worker who spends at least 80 percent of his or her time supervising, feeding and dressing a child or person who needs assistance due to advanced age, physical disability or mental deficiency is considered a personal attendant. SB 1015 removes a Jan. 1, 2017, sunset provision from the law. As such, these overtime rules will remain in effect into the future.

Immigration Related Unfair Practices Expanded
SB 1001 adds Labor Code Sec. 1019.1 to existing prohibitions of unfair immigration practices. This bill constrains employers, who are verifying that workers have the necessary documentation to lawfully work in the United States, from requesting of such workers more or different documents than are required under federal law, refusing to honor documents tendered that on their face reasonably appear to be genuine, refusing to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work, or reinvestigating or re-verifying an incumbent employee’s authorization to work using an “unfair immigration practice.” Applicants and employees may file a complaint with the Division of Labor Standards Enforcement. Any person who is deemed in violation of this new law is subject to a penalty imposed by the labor commissioner of up to $10,000, among other relief available.

Wage Anti-discrimination Law Now Applies to Race and Ethnicity
Under the Fair Pay Act in effect since Jan. 1, 2016, employers are prohibited from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions.

The Fair Pay Act provides for exceptions such as, the wage differential is based upon one or more of the following factors:

  1. A seniority system;
  2. A merit system;
  3. A system that measures earnings by quantity or quality of production; and
  4. A bona fide factor other than sex, such as education, training or experience.

The later factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is job related to the position, and is consistent with business necessity.

SB 1063 amends Labor Code secs. 1197.5 and 1199.5 to expand requirements of the Fair Pay Act to employees’ race or ethnicity, in addition to gender. In other words, the same rules now apply to prohibit wage differential based on race or ethnicity. Like existing Fair Pay Act sex-based prohibitions, the amendment bans employers from discriminating or retaliating against employees who report or assist with others’ affected by race or ethnicity-based wage differentials; provides the same enforcement rights; and includes protections for employees to disclose, inquire or discuss wages.

AB 1676 amends the Fair Pay Act (Labor Code Sec. 1197.5) to provide that an employee’s “prior salary shall not, by itself, justify any disparity in compensation” under the bona fide factors above.

Non-California Choice of Law and Forum in Employment Contracts Voidable
SB 1241 adds Labor Code Sec. 925 to prohibit employers from requiring an employee who primarily resides and works in California, as a condition of employment, to enter into agreements (including arbitration agreements) to:

  • Adjudicate claims arising in California in a non-California forum; or
  • Deprive the employee of the substantive protection of state law during a controversy arising in California.

Any provision of a contract that violates this new law is voidable by the employee, the dispute will be adjudicated in California under California law and the employee is entitled to recover reasonable attorneys’ fees incurred enforcing Sec. 925 rights. This section applies to any contract entered into, modified or extended on or after Jan. 1, 2017.

There’s an exception to Sec. 925: It does not apply to any contracts with an “an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.” Thus, in the case of more executive-level employees, who often retain independent counsel to negotiate employment agreements, employers may still be able to make use of forum-selection and choice-of-law provisions.

Workplace Smoking Restricted Further
California law already prohibited smoking of tobacco products inside an enclosed place of employment for certain employers. ABX2-7 amends Labor Code Sec. 6404.5 to expand that enclosed space prohibition to all employers of any size, including a place of employment where the owner-operator is the only employee. “Enclosed space includes covered parking lots, lobbies, lounges, waiting areas, elevators, stairwells and restrooms that are a structural part of the building.” A “place of employment” does not include:

  • 20 percent of the guestroom accommodations in a hotel, motel or similar transient lodging establishment;
  • Retail or wholesale tobacco shops and private smokers’ lounges;
  • Cabs of “motortrucks” or truck tractors;
  • Theatrical production sites, if smoking is an integral part of the story in the theatrical production;
  • Medical research or treatment sites, if smoking is integral to the research and treatment being conducted;
  • Private residences, except licensed family day care homes; and
  • Patient smoking areas in long-term health care facilities.

Violations are punishable by a fine not to exceed $100 for a first violation, $200 for a second violation within one year and $500 for a third and for each subsequent violation within one year.

Overtime Pay Increasing for Agricultural Workers
Existing law affords ag workers who work more than 10 hours per day overtime pay at one-and-one-half times the regular rate of pay. AB 1066 (Phase-In Overtime for Agricultural Workers Act of 2016) amends Labor Code Sec. 554 to, among other things, provide a gradual phase-in of overtime pay expansion to agricultural workers.

For employers with 26 or more employees, beginning Jan. 1, 2019, and continuing until Jan. 1, 2022, the phase-in provides for annual reduction of the daily overtime threshold by a half-hour per day until reaching eight hours, and the weekly overtime trigger by five hours per week until reaching 40 hours. As such, on Jan. 1, 2019, agricultural workers working more than 9.5 hours per day or in excess of 55 hours in any one workweek are to receive overtime pay at one-and-half times their regular rate of pay.

By Jan. 1, 2022, the annual phase-ins will conclude with agricultural workers working more than eight hours per day or in excess of 40 hours in any one workweek receiving overtime pay at one-and-half times their regular rate of pay. In addition, beginning Jan. 1, 2022, agricultural workers working more than 12 hours per day are to receive overtime pay at twice their regular rate of pay.

Finally, this bill authorizes the governor to delay the implementation of the phase-in schedule if he or she also suspends the implementation of the scheduled increase in the California minimum wage (see, Minimum Wage Ascending, above). For employers with 25 or fewer employees, the phase-in schedule begins on Jan. 1, 2022, and continues annually through Jan. 1, 2025.

All-gender, Single-user Restrooms
By March 1, 2017, AB 1732 requires all single-user toilet facilities in any business establishment, place of public accommodation or government agency to be identified with signage as all-gender toilet facilities. For the purposes of this section, “single-user toilet facility” means a toilet facility with no more than one water closet and one urinal with a locking mechanism controlled by the user. This bill also allows inspectors, building officials or other local officials responsible for code enforcement to inspect for compliance.

More Restriction on Criminal History Inquiry of Job Applicants
Under existing law, an employer cannot ask an applicant about an “arrest or detention that did not result in conviction, or information concerning a referral ;to, and participation in, any pretrial or post-trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law.”

AB 1843 amends Labor Code Sec. 432.7 to prohibit employers from asking applicants to disclose, or using as a factor in determining any condition of employment, information concerning or related to “an arrest, detention, process, diversion, supervision, adjudication or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

This bill also alters the definition of “conviction” to exclude “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” In addition, this bill contains some exceptions for health care facilities involving final adjudications of recent sex crimes and specified controlled substances crimes.

More Talent Services Act Artist Protection
AB 2068 amends Labor Code secs. 1703 and 1703.4 to provide further protect of artists’ information and photographs in any form of communication, such as “an online service, online application, or mobile application of the talent service or one that the talent service has the authority to design or alter.” AB 2068 also requires:

  • The talent service to act, within 10 days, on requests of the artist made by any form of electronic communication, including text messages, to remove information or photographs from the talent service’s website, online service, online application or mobile application (collectively “electronic medium”) or an electronic medium the talent service has the authority to design or alter; and
  • That the artist may cancel the contract within 10 business days from the date of the talent service contract or the date on which the artist commences utilizing the services under the contract, whichever is longer.

Domestic Violence, Sexual Assault or Stalking
By July 1, 2017, AB 2337 requires employers with 25 or more employees to provide specific information in writing to new employees upon hire, and to other employees upon request, of their rights to take off time from work and not suffer adverse employment action from doing so under Labor Code Sec. 230.1 (relating to victims of domestic violence, sexual assault or stalking). This bill also requires that, on or before July 1, 2017, the labor commissioner develop and post on its website a compliant form of notice that employers may elect to use. Employers are not required to comply with the notice requirement until the labor commissioner posts the form.

Wage Statement Requirement for Exempt Employees
Labor Code sec. 226 requires employers to provide their employees along with each paycheck an accurate itemized statement in writing containing information listed in the statute, including hours worked, unless the employees are paid solely a salary and are properly exempt from overtime.

AB 2535 clarifies that hours worked are not required to be recorded on wage statements of employees exempt from minimum wage and overtime under a specified exemption for: executive, administrative or professional employees; the “outside sales” exception; salaried computer professionals; parents, spouses, children or legally-adopted children of the employer; directors, staff and participants of a live-in alternative to incarceration rehabilitation program for substance abuse; crew members employed on commercial passenger fishing boats; and national service program participants. This bill does not change the requirement to include total hours worked by non-exempt employees in their itemized wage statements for each pay period.

Bond Required to Contest Minimum Wage Citation
Labor Code Sec. 1197.1 authorizes the labor commissioner to issue, upon inspection or investigation, a citation against an employer who has paid its employees less than the minimum wage. The citation must specify the nature of the violation, and the labor commissioner is to take steps to enforce the citation and to recover the civil penalty assessed, wages, liquidated damages and waiting time penalties.

An employer can contest a citation through the superior court. AB 2899 amends the statute to require that, prior to contesting a citation, the employer must post a bond with the labor commissioner in an amount equal to the unpaid wages assessed under the citation, excluding penalties. The bond must be in favor of the employee and will be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings if the citation is not reversed.

What’s Next?
Employers should consider how these new laws impact their workplaces, and then review and update their personnel policies and practices with the advice of experienced attorneys or human resource professionals.

The California Supreme Court Rejects “On Duty” Rest Breaks

By Philippe A. Lebel

Two weeks ago, just in time for the holidays, the California Supreme Court issued its (published) decision in Augustus v. ABM Security Services, Inc. (opinion available here).  In Augustus, the Court held that California law does not permit employers to require employees to take on-duty or on-call rest breaks.

The Augustus decision will have significant impact for thousands of California employers who have employed on-duty or on-call rest breaks as part of their business operations, especially in the healthcare, security, hospitality, and retail sectors.

California’s Rest Break Requirements (In General)

Although not directly addressed in California’s Labor Code,[1] California’s Industrial Welfare Commission’s industry-specific Wage Orders require employers to authorize and permit their non-exempt employees to take a net 10 consecutive minute rest break for each four hour work period or major fraction thereof.  Insofar as practicable, the rest breaks should be taken in the middle of each four work period.[2]

Background of Augustus

In Augustus, the plaintiffs worked as non-exempt security guards for defendant ABM Security Services, Inc. (“ABM”).  The putative class worked at a variety of different locations, including residential, retail, office, and industrial sites throughout California.  Guards’ principal duties were to provide an immediate response to emergency and/or life safety situations and to provide physical security for their assigned locations.

As part of their jobs, guards were required to keep their pagers and radio phones on – including during rest breaks – and to remain vigilant and responsive to calls when needs arose. According to ABM, urgent or time-sensitive needs which required guards to remain on-duty or on-call included a variety of circumstances, including where a building tenant wished to be escorted to the parking lot, a building manager had to be notified of a mechanical problem, or the occurrence of some kind of “emergency situation.”

Plaintiffs sued ABM, alleging the company failed to provide them compliant rest breaks. The trial court granted summary judgment for plaintiffs, and awarded the plaintiffs approximately $90 million, but the Court of Appeal reversed.

Issues Presented to the California Supreme Court

Augustus presented two issues to the California Supreme Court:  (1) must rest breaks required by California Wage Orders be provided by employers on an off-duty basis; and (2) may employers require non-exempt employees to remain on-call during rest breaks.

The California Supreme Court’s Decision

The California Supreme Court began by addressing whether California law required employers to provide off-duty rest breaks. The Court noted that, unlike the section of the relevant Wage Order relating to meal periods, the section on rest breaks did not explicitly require that they be off-duty.  However, the Court’s examination of the plain meaning of the word “rest,” as well as other language in the Wage Order and Labor Code, led it to conclude that rest breaks needed to be off-duty.  In particular, the Court relied on the fact that Labor Code section 226.7 prohibits employers from requiring any employee to work during any meal or rest period.  The Court also noted that the relevant Wage Order contained language to the effect that rest breaks needed to be counted as time worked.  The Court reasoned that this language – counting rest breaks as work time – would be unnecessary if they were not intended to be off-duty.  The Court also rejected ABM’s argument that an on-duty rest break was consistent with language in the Wage Orders permitting employers – in rare instances – to require employees to take on-duty meal periods.  In the Court’s opinion, the absence of language authorizing on-duty rest breaks was telling.  Accordingly, the Court held that rest breaks must be off-duty.

The Court next considered whether employers could satisfy their obligations to relieve employees from duties and employer control during rest breaks where the employers nonetheless required employees to remain on-call. ABM attempted to distinguish situations where an employer required an employee to continue working from a situation where an employer merely required an employee to remain available if a need arose.  The Court was unpersuaded.  The majority noted that, given the practical realities of a 10-minute break period, employees were already somewhat constrained in terms of what they could do.  The Court found that the additional limitations on employees – from pagers, radios, and/or being vigilant and responsive – were “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.”  Thus, the Court held that on-call rest breaks were not compliant.

Takeaways

The Augustus decision will have significant impact on employers who employ on-duty or on-call rest breaks due to staffing shortages and/or single-employee shifts.  Employers who cannot relieve non-exempt employees of all duties during required rest breaks may need to pay rest break premiums if they cannot find a way to provide an alternative off-duty rest break.  Employers who use on-duty or on-call rest breaks may wish to consult an employment lawyer to evaluate strategies to avoid liability going forward.

 


[1] While rest break requirements are not set forth in the Labor Code, Labor Code section 226.7 makes it unlawful for an employer to require an employee to perform work during any break period.

[2] The above Wage Order rest break rules apply to the vast majority of non-exempt employees.  However, there are exceptions for employees employed in certain 24-hour residential care facilities as well as employees covered by the Wage Order applicable to the motion picture industry.

Summary of Key New California Laws for 2017: What Employers Should Know

By Pascal Benyamini

Governor Brown has this year signed several new laws impacting California employers, some of which have already gone into effect and others that will be effective or operative in 2017 or later. A summary of key new laws follows. The effective date of the particular new law is indicated in the heading of the Assembly Bill (AB) and/or Senate Bill (SB).[1] The list below is in numerical order by the AB or SB.

ABX2-7 – Smoking in the Workplace (Effective June 9, 2016)

By way of background, California law already prohibited smoking of tobacco products inside an enclosed at a place of employment for certain employers. This Bill amends Labor Code Section 6404.5 and expands the prohibition on smoking of tobacco products in all enclosed places of employment to all employers of any size, including a place of employment where the owner-operator is the only employee (i.e., owner-operated business). “‘Enclosed space’ includes covered parking lots, lobbies, lounges, waiting areas, elevators, stairwells, and restrooms that are a structural part of the building.” There are, however, certain exemptions. “Place of employment” does not include: (1) 20% of the guestroom accommodations in a hotel, motel, or similar transient lodging establishment; (2) Retail or wholesale tobacco shops and private smokers’ lounges; (3) cabs of motortrucks; (4) theatrical production sites, if smoking is an integral part of the story in the theatrical production; (5) medical research or treatment sites, if smoking is integral to the research and treatment being conducted; (6) private residences, except for licensed family day care homes; (7) patient smoking areas in long-term health care facilities.

A violation this law is punishable by a fine not to exceed $100 for a first violation, $200 for a second violation within one year, and $500 for a third and for each subsequent violation within one year.

AB 908 – Paid Family Leave (Operative January 1, 2018)

Paid Family Leave (PFL) provides short-term benefits to eligible employees who lose wages when they need to take time off work to care for a seriously ill child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner, or to bond with a new child entering the family by birth, adoption, or foster care placement.

This Bill revises the formula for determining benefits available to those eligible employees “for periods of disability commencing after January 1, 2018, but before January 1, 2022.” This Bill provides “a weekly benefit amount minimum of $50 and increases the wage replacement rate to specified percentages, but not to exceed the maximum workers’ compensation temporary disability indemnity weekly benefit amount established by the Department of Industrial Relations pursuant to existing law.” Further, this Bill removes the existing seven-day waiting period for paid family leave benefits.[2]

AB 1066 – Wages, Hours and Working Conditions for Agricultural Workers (Effective January 1, 2017)

Currently, agricultural workers who work more than 10 hours per day are to receive overtime pay at one-and-half times the regular rate of pay. This Bill, known as the Phase-In Overtime for Agricultural Workers Act of 2016, amends Labor Code Section 554[3] and provides that a gradual phase-in of overtime to agricultural workers. For employers with 26 or more employees,[4] beginning on January 1, 2019, and continuing until January 1, 2022, the phase-in provides for a reduction of half-hour per day per year until reaching 8 hours (or 40 hours per week). As such, beginning on January 1, 2019, agricultural workers working more than 9 ½ hours per day or in excess of 55 hours in any one workweek are to receive overtime pay at one-and-half times their regular rate of pay. And so on until January 1, 2022, agricultural workers working more than 8 hours per day or in excess of 40 hours in any one workweek are to receive overtime pay at one-and-half times their regular rate of pay. Further, beginning on January 1, 2022, agricultural workers working more than 12 hours per day are to receive overtime pay at twice their regular rate of pay. Finally, this Bill authorizes California to delay the implementation of the foregoing phase-in schedule if the governor also suspends the implementation of the scheduled increase in the California minimum wage.

AB 1676 & SB 1063 – Wage Discrimination and Application to Race and Ethnicity (Effective January 1, 2017)

Under the Fair Pay Act, which went into effect on January 1, 2016, existing law generally prohibits an employer from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. The Fair Pay Act provides for exceptions such as, the wage differential is based upon one or more of the following factors: (a) a seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; (d) a bona fide factor other than sex, such as education, training, or experience.

AB 1676 amends the Fair Pay Act (Labor Code Section 1197.5) to provide that an employee’s prior salary cannot, by itself, justify any disparity in compensation under the bona fide factors above.

SB 1063 amends Labor Code Sections 1197.5 and 1199.5 and expands the requirements of the Fair Pay Act to include employees’ race or ethnicity, and not just gender.

AB 1732 – Single-User Restrooms (Effective March 1, 2017)

Commencing on March 1, 2017, this Bill requires all single-user toilet facilities in any business establishment, place of public accommodation, or government agency to be identified as all-gender toilet facilities. This Bill would authorize inspectors, building officials, or other local officials responsible for code enforcement to inspect for compliance with these provisions during any inspection.[5]

AB 1843 – Criminal History in Applications for Employment (Effective January 1, 2017)

In addition to existing laws that proscribe what an employer can or cannot ask applicants about their criminal history,[6] this Bill amends Labor Code Section 432.7 and prohibits employers from asking applicants to disclose, or from utilizing as a factor in determining any condition of employment, information concerning or related to “an arrest, detention, process, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

For purposes of this Bill, “conviction” does not include “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” Further, this Bill contains additional restrictions and rights for employers of health care facilities.

AB  2068 – Talent Services  (Effective January 1, 2017)

This Bill amend Labor Code Sections 1703 and 1703.4 and provides additional protections to artists for their information or photographs to any form of communication such as “an online service, online application, or mobile application of the talent service or one that the talent service has the authority to design or alter.” Further, this Bill requires, among other things: (1) the talent service to act, within days 10 days, on requests of the artist made by any form of electronic communication, including text messages, to remove information or photographs from the talent service’s website, online service, online application, or mobile application (collectively electronic medium”) or an electronic medium that the talent service has the authority to design or alter; and (2) that the artist may cancel the contract within 10 business days from the above date of the contract or the date on which the artist commences utilizing the services under the contract, whichever is longer.

AB  2337 – Employment Protections for Victims of Domestic Violence, Sexual Assault, or Stalking (Effective July 1, 2017)

This Bill requires that by July 1, 2017, employers with 25 or more employees provide specific information in writing to new employees upon hire and to other employees upon request of their rights to take leave under Labor Code Section 230.1 (relating to victims of domestic violence, sexual assault, or stalking). This Bill also requires that, on or before July 1, 2017, the Labor Commissioner develops a form that employers may elect to use to comply with these provisions and to post it on the Labor Commissioner’s website. Employers are not required to comply with the notice of rights requirement until the Labor Commissioner posts such form.

AB 2535 – Itemized Wage Statements (Effective January 1, 2017)

Existing law requires that employers provide their employees an accurate itemized statement in writing containing specified information as listed in Labor Code Section 226. This Bill clarifies that Section 226 does not require employers to include in itemized wage statements the total number of work hours by an exempt employee. An exempt employee is an employee who is exempt from the payment of minimum wage and overtime under the California Labor Code or other applicable Wage Orders promulgated by the Industrial Welfare Commission (a commission within the within the California Department of Industrial Relations). Employers must continue to include the total hours worked by non-exempt employees in the itemized wage statements for each pay period.

AB 2899 – Minimum Wage Violations (Effective January 1, 2017)

This Bill amend Labor Code Section 1197.1 and requires that, prior to an employer appealing a citation by the Labor Commissioner against the employer for violation of wage and hour laws, the employer post a bond with the Labor Commissioner in an amount equal to the unpaid wages assessed under the Labor Commissioner’s citation, excluding penalties. The bond must be in favor of the employee and will be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings.

SB 1001 – Immigration Related Unfair Practices (Effective January 1, 2017)

Employers who are in the process of verifying that workers have the necessary documentation to work in the United States are prohibited from requesting of such workers more documents or different documents than are required under federal law, to refuse to honor documents tendered that on their face reasonably appear to be genuine, to refuse to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work, or to reinvestigate or re-verify an incumbent employee’s authorization to work. Under this Bill, which adds Labor Code Section 1019.1, applicants and employees may file a complaint with the Division of Labor Standards Enforcement. Any person who is deemed in violation of this new law is subject to a penalty imposed by the Labor Commissioner of up to $10,000, among other relief available.

SB 1167 – Heat Regulations for Indoor Workers (Effective January 1, 2019)

By way of background, the Division of Occupational Safety and Health (“Division”) investigates complaints that a workplace is not safe and may issue orders necessary to ensure employee safety. Under existing law, certain violations of that act or a standard, order, or special order authorized by the act are a crime. Under existing law, the Division has adopted regulations establishing a heat illness prevention standard for outdoor workers.

This Bill, which adds Labor Code Section 6720, requires that, by January 1, 2019, the Division is propose to the Occupational Safety and Health Standards Board (“Board”) for the Board’s review and adoption, a heat illness and injury prevention standard applicable to workers working in indoor places of employment. “The standard shall be based on environmental temperatures, work activity levels, and other factors.” Further, under this Bill, the Division is not precluded from proposing, or the Board from adopting, a standard that limits the application of high heat provisions to certain industry sectors.

SB 1241 – Choice of Law and Forum in Employment Contracts (Effective January 1, 2017)

This Bill adds Labor Code Section 925 and prohibits employers from requiring California-based employees to enter into agreements (including arbitration agreements) requiring them to: (1) adjudicate claims arising in California in a non-California forum; or (2) litigate their claims under the law of another jurisdiction, unless the employee was represented by counsel. Any provision of a contract that violates this new law is voidable by the employee, any dispute arising thereunder shall be adjudicated in California under California law and the employee is entitled to recover reasonable attorneys’ fees. Click here for a more detailed discussion of this Bill.

As a result of the foregoing new laws, employers should consult with legal counsel to ensure their policies are compliant and their employee handbooks are up to date.


[1] As a reminder, the minimum wage in California is increasing to $10.50 per hour on January 1, 2017 for employers with 26 or more employees based on previous legislation signed by Governor Brown in 2015. The minimum wage for employers with 25 or fewer employees will remain at $10.00 per hour for 2017. Also, please note that various cities and local governments in California have enacted minimum wage ordinances that exceed the state minimum wage.

[2] This Bill impacts Sections 2655, 3303 and 2655.1 of the Unemployment Insurance Code.

[3] This Bill also adds Chapter 6 (commencing with Section 857) to Part 2 of Division 2 of the Labor Code, relating to employment.

[4] For employers with 25 or fewer employees, the phase-in schedule begins on January 1, 2022, through January 1, 2025.

[5] This Bill adds Article 5 (commencing with Section 118600) to Chapter 2 of Part 15 of Division 104 of the Health and Safety Code, relating to restrooms.

[6] Under existing laws, an employer cannot ask an applicant about an “arrest or detention that did not result in conviction, or information concerning a referral to, and participation in, any pretrial or post-trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law.”

My House My Rules: California Reigns In Employers’ Use Of Forum-Selection and Choice-of-Law Clauses to Avoid California Law

By Philippe A. Lebel

Last week, California Governor Jerry Brown signed into law Senate Bill 1241 (“SB 1241”).  The new law (available here), which takes effect on January 1, 2017, adds section 925 to the California Labor Code (“Section 925”).  In general, Section 925 will prohibit employers from requiring California-based employees to enter into agreements requiring them to:  (1) adjudicate claims arising in California in a non-California forum; or (2) litigate their claims under the law of another jurisdiction, unless the employee was represented by counsel.  Section 925 represents a considerable limit on parties’ rights to contract and may be the end of forum-selection and choice of law provisions, currently common in employment agreements.

For years, employers based outside of California have incorporated forum-selection and/or choice-of-law provisions in agreements with their California employees.  Some employers used these provisions to create company-wide uniformity among their workforce.  Others used forum-selection and choice-of-law provisions to avoid some of California’s more rigid rules about restrictive covenants.  Whatever the motivation, forum-selection and choice-of-law provisions have become commonplace in employment and arbitration agreements.

Despite their prevalence, out-of-state employers sometimes faced hurdles in securing enforcement of forum-selection and choice-of-law provisions with California employees.  In some instances, California state and/or federal courts upheld choice-of-law clauses, although almost never in the case of post-employment restrictive covenants.  Several federal district courts and some California state courts were willing to uphold combined forum-selection and choice-of-law clauses, including in situations involving restrictive covenants, but generally speaking, the law in this area has been unclear and long unaddressed by the California Supreme Court.  That is no longer the case.

Under Section 925, an employer is prohibited from requiring  “an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:  (1) … adjudicate outside of California a claim arising in California[; or] (2) [d]eprive the employee of the substantive protection of California law with respect to a controversy arising in California.”  Section 925 provides that any provision of a contract that violates either of the above rules is voidable by the employee and any dispute arising thereunder shall be adjudicated in California under California’s substantive law.  Section 925 provides that, in addition to injunctive relief and any other form of relief available to the employee under the substantive law, an employee enforcing his or her rights under Section 925 is entitled to recover reasonable attorneys’ fees.  Importantly, Section 925 makes explicit that it also applies to both litigation and arbitration.  Thus, employers cannot avoid this law through private arbitration agreements that purport to invoke the law or forum of another jurisdiction.

Although the law is sweeping in nature, it does not apply retroactively.  However, it takes effect on January 1, 2017 as to contracts entered into, modified, or extended on or after that date.  Thus, to the extent preexisting contractual relationships automatically renew on a set basis, Section 925 will cover them as of January 1st.

There is one narrow exception to Section 925:  it does not apply to any contracts with an “an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.”  Thus, in the case of more senior, executive-level employees, who often retain independent counsel to negotiate employment agreements, employers may still be able to make use of forum-selection and/or choice-of-law provisions.

Unfortunately, Section 925’s language leaves some questions unanswered.  For instance, the statute fails to define what it means for an employees to “primarily” reside and work in California.  This may become particularly problematic for employees who entered into such agreements during their employment in another state, who then relocate to California.  Further, it is unclear what Section 925 means by the “substantive protection of California law,” and, in particular, whether California courts would object to application of equally- or more-protective laws of other jurisdictions.

For now, employers should take note of this new legislation and take it into account when entering into new or renewing preexisting employment agreements with California-based employees.

Spotlight on Fair Pay for Female Law Firm Partners: Class Action Lawsuit Filed Against Sedgwick

By Kate S. Gold

Traci Ribeiro’s class action lawsuit against her employer Sedgwick LLP is the latest in a string of lawsuits in the pay equity battle, which has been highlighted in this year’s Presidential election and through the recent EEOC claim filed by the U.S. womens’ soccer team. Ribeiro is a non equity partner who claims that, as one of the firm’s three highest revenue generating partners, she has been denied equity partnership and was subjected to retaliation for filing an EEOC complaint claiming gender discrimination.  She seeks to represent a class of past and present female attorneys in partnership track positions at the firm; her complaint alleges violations of the California Fair Pay Act, Illinois Fair Pay Act, and Federal Equal Pay, as well as gender discrimination and retaliation under the California FEHA, Illinois Human Rights Act, and Title VII.  Ribeiro claims, in addition to routinely paying women lawyers less than their male counterparts, Sedgwick has denied women equity partnership and membership on its Executive Committee (until 2016, when Ribeiro made a formal complaint about gender discrimination).  She asserts discrimination under both a disparate treatment and disparate impact theory.

Among the more remarkable allegations in her complaint is that female associates were paid $40,000-$50,000 less annually than their male counterparts, and that despite her own high revenue generation, she was denied promotion to equity partnership three years in a row and, in 2015, an equity partner promotion was given to a male with less than 10% of Ribeiro’s revenues. But there is clearly a lot we can’t tell from reading the complaint:  as to the gender discrimination claims, what is the firm’s criteria and process for determining compensation and partnership and how is it biased in favor of men?  As to the fair pay claims, will the firm rely on the established defenses to pay disparities, such as a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or upon a bona fide factor other than sex, such as education, training, or experience? Employers and employment lawyers will no doubt be following this case as the topic of pay equity continues to hold a firm place in the public spotlight.  That is, unless the case ends up in a private arbitration.  Ribeiro is also seeking declaratory relief that the dispute is not subject to the parties’ arbitration agreement (and is also attempting to stay Sedgwick’s arbitration demand which also seeks a declaration that the dispute should be compelled to arbitration).  For more information on compliance with Title VII, the Equal Pay Act and various state laws regarding gender discrimination and fair pay, contact Kate Gold or Lynne Anderson.