Q&A: How to Ensure Compliance with California’s New Fair Pay Law

California’s Fair Pay Act, which takes effect Jan. 1, 2016, mandates that male and female employees doing “substantially similar” work be paid the same wages, unless employers can demonstrate that certain factors such as seniority, a merit system, education, training, experience or productivity can account for the gender disparities. As 2015 winds down, other companies either based in California or operating in the state may still be scrambling to ensure they’re prepared for the new law.

SHRM Online asked Los Angeles partner Mark Terman, as well as two other industry experts, to share their views about statistical analyses, labor law and compliance measures related to the Fair Pay Act.

Please click here to view the entire Q&A at SHRM Online.

Strict New California Fair Pay Act Will Become Effective January 1, 2016

In only a few months, employers in California will be subject to one of the strictest and most aggressive equal pay laws in the country.  This week, Governor Jerry Brown signed the California Fair Pay Act (“Act”), Senate Bill 358, a new law intended to increase requirements for wage equality and transparency.  The Act amends Section 1197.5 of the California Labor Code relating to private employment.

New “Substantially Similar Work” Standard

Under the Act, an employer is prohibited from paying employees of the opposite sex lower wage rates for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”  Previously, the equal pay statute was more limited.  It prohibited employers from paying 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 new standard permits an employee to bring an unequal pay claim based on employee wage rates in any of their employer’s facilities and in other job categories as long as the work is substantially similar. The employer’s defense burden has also increased under the Act. An employer must establish that the entire wage differential is based on the reasonable application of one or more of the following:

• A seniority system;
• A merit system;
• A system which measures earnings by quantity or quality of production; or
• A bona fide factor other than sex, such as education, training, or experience. This 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.  An employee can defeat this defense by proving that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

Increased Wage Transparency

The Act also seeks to decrease pay secrecy by further prohibiting employers from enacting rules, policies or otherwise engaging in conduct that prohibits employees from disclosing their own wages, discussing the wages of others, asking about other employees’ wages or aiding and encouraging employees to exercise rights under the Act.  Yet, no one, including an employer, is obligated to disclose employees’ wages.

Additional Remedies and Cause of Action for Discrimination and Retaliation

The statute currently allows employee recovery of wages and interest, plus an equal amount as liquidated damages, and attorneys’ fees.  The Act also prohibits discharge, discrimination and retaliation of employees for asserting rights under the Act and permits a civil action seeking reinstatement, reimbursement for lost wages and interest, an equal amount as liquidated damages, lost benefits, and other equitable relief.  Such a claim must be brought within one year of the prohibited conduct.  There is no requirement that an employee exhaust administrative remedies prior to filing suit.

Increased Record Keeping Requirement

Additionally, this new law requires that an employer maintain records of employees’ “wages and rates of pay, job classifications, and other terms and conditions of employment” for a three-year period.

Practical Takeaways

This new law goes into effect January 1, 2016. Employers would be wise to use this time to assure that their compensation practices are in defensible compliance with these new requirements.  We suggest the following proactive steps:

• Conduct a wage audit/review of employee pay equity, including identifying opposite sex pay practices for “substantially similar” work;
• Review all pay and compensation-related policies and procedures, including job descriptions, employee handbooks, review and evaluation protocols;
• Consider the scope of information and documents that may fall within the Act’s three-year record retention requirement and modify policies and practices accordingly;
• Provide internal training to members of management who make decisions regarding employees’ pay and compensation; and
• Consider performing some or all of the foregoing under the shield of attorney work-product.

If you have any questions or concerns about this alert please contact the authors named below or your usual Drinker Biddle contact.

Joint Employer Liability on the Rise

The Issue:  Could my company be liable as a joint employer for California Labor Code violations of our subsidiary or third-party staffing company?

The Solution:  Companies with subsidiaries and staffing companies in California should take steps to limit exposure.

Analysis:  Parent corporations are generally presumed to be separate entities from their subsidiaries, and therefore not liable for the unlawful treatment of their subsidiary’s separate employees unless they exercise significant control over day-to-day operations.  Recent developments, however, call this precedent into question.

In Castaneda v. Ensign, 229 Cal. App. 4th 1015 (2014) (review denied), the California Court of Appeal held:  “an entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire, or supervise’ the employees.”  (emphasis added).  The parent company at issue claimed a lack of control over wages, hours and working conditions of its subsidiary operating companies’ employees.  In reversing summary judgment for the parent and sending the case to be tried by a jury, the court highlighted evidence that the parent provided centralized human resources, accounting, payroll, and other key services to its subsidiary; controlled the mechanisms used to track subsidiary employees’ hours; handled subsidiary employee discipline, benefits and workers’ compensation claims; required subsidiary compliance with parent policies, practices, templates, forms, and training; and set the pay rate for some subsidiary employees.

Castaneda also resurfaced recent California Supreme Court precedent that “[m]ultiple entities may be employers where they control different aspects of the employment relationship…This occurs, for example, when one entity (such as a temporary employment agency) hires and pays a worker, and another entity supervises the work…Supervision of the work, in the specific sense of exercising control over how services are performed, is properly viewed as one of the ‘working conditions’…control over how services are performed is an important, perhaps even the principal, test for the existence of an employment relationship.”  In other words, the worksite employer who supervises the worker may be liable to workers for Labor Code violations and other alleged wrongs even if it is not the employer of record who issues paychecks.

The California Legislature is not sitting on the sidelines, either.  Effective January 1, 2015, AB 1897 imposed joint employer liability on many companies who engage labor contractors such as staffing agencies that fail to pay required wages to, or secure valid workers compensation insurance for, the workers they supply—regardless of the “control” test discussed above.  Please see our prior blog post on this new law here.

Likewise, the California Department of Industrial Relations has clarified that California’s new paid sick leave law will apply equally to staffing agencies and their “joint employers.”  Please see our prior blog post on this new law, here.

Given this upward trend in joint employer liability, companies with the help of counsel should evaluate their subsidiary and staffing relationships.  Corporate structure—in name and in operations—should be separate and independent.  Companies who prefer centralized corporate services by the parent company should weigh the risk that efficiency may indicate control over wages, hours, and working conditions.  Careful selection and some oversight of, and indemnity agreements with, labor contractors should be considered.

Labor Laws for the New Year

If only the Beatles’ call to “Let it Be” was heard by the California Legislature. Instead, employer regulation is on the rise again. In 2014, 574 bills introduced mentioned “employer,” compared to 186 in 2013. Most of those 500-plus bills did not pass, and several that did pass were not signed into law by the governor. One veto blocked a bill that would have penalized employers for limiting job prospects of, or discriminating against, job applicants who aren’t currently employed.

A sampling of significant new laws affecting private employers, effective Jan. 1, 2015, unless otherwise mentioned, follows.

Shared Liability for Employers Who Use Labor Contractors

AB 1897 mandates that companies provided with workers from a labor contractor to perform labor within its “usual course of business” at its premises or worksite will “share with the labor contractor all civil legal responsibility and civil liability” for the labor contractor’s failure to pay wages required by law or secure valid workers compensation insurance, for the workers supplied.

The law applies regardless of whether the company knew about the violations and whether the company hiring the labor contractor (recast by the new law as a “client employer”) and labor contractor are deemed joint employers. This liability sharing is in addition to any other theories of liability or requirements established by statutes or common law.

The client employer will not, however, share liability under this new law if it has a workforce of less than 25 employees (including those obtained through the labor contractor), or is supplied by the labor contractor with five or fewer workers at any given time.

A labor contractor is defined as an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business, unless the specific labor falls under the exclusion clause in AB 1897. Excluded are bona fide nonprofits, bona fide labor organizations, apprenticeship programs, hiring halls operated pursuant to a collective bargaining agreement, motion picture payroll services companies and certain employee leasing arrangements that contractually obligate the client employer to assume all civil legal responsibility and civil liability for securing workers’ compensation insurance.

This bill is a significant expansion of existing law—which is limited to prohibiting employers from entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard or warehouse contractor—if the employer knows or should know that the agreement does not include sufficient funds.

In light of the new law, labor services contractor engagements should be evaluated with an eye toward limiting the risk of retaining non-compliant contractors, including indemnity, insurance, termination provisions and compliance verification protocols.

Wage and Hour Changes

California’s $9 hourly minimum wage is due to increase to $10 Jan. 1, 2016. Defeated by the California Legislature, however, was a bill to raise the hourly minimum wage to $11 in 2015, $12 in 2016, $13 in 2017 and then adjust annually for inflation starting in 2018.

Undeterred, several municipalities have increased their respective minimum wage for companies who employ workers in their jurisdiction. For example, employees who work in San Francisco more than two hours per week, including part-time and temporary workers, are entitled to the San Francisco hourly minimum wage, which increased Jan. 1 from $10.74 to $11.05 and will increase to $12.25 by May 1. Hourly minimum wages also increased Jan. 1 in San Jose ($10.30).

The minimum wage will increase in Oakland March 2 ($12.25) and in Berkeley Oct. 1 ($11). Many other cities have either enacted, or have pending, minimum wage laws.

Federal minimum wage continues to lag behind California, but no longer for federal contractors. President Obama issued Executive Order 13658 in 2014 which established that workers under federal contracts must be paid at least $10.10 per hour. This applies to new contracts and replacements for expiring federal contracts that resulted from solicitations issued on or after Jan. 1, 2015, or to contracts that were awarded outside the solicitation process on or after Jan. 1, 2015. There are prevailing wage requirements for many state and local government and agency contractors as well.

Employers should monitor each of the requirements, including those in the jurisdiction in which they do business, to assure compliance.

Paid Sick Days Now Required

Effective July 1, AB 1522 is the first statewide law that requires employers to provide paid sick days to employees. The new law grants employees, who worked at least 30 days since the commencement of their employment, the right to accrue one hour of paid sick time off for each 30 hours worked—up to 24 hours (three days) in a year of employment. Exempt employees are presumed to work a 40-hour normal workweek; but, if their normal workweek is less, the lower amount could be used for accrual purposes.

An employer may cap accrual at 48 hours (six days) and also may limit the use of paid sick days in a year to 24 hours. Unused paid sick days normally carry-over from year to year, though no carry-over is required if 24 hours of paid sick days is accrued to the employee at the beginning of a year. No payout is required at termination of employment.

The paid sick days may be used for the employee’s own health condition or preventative care; a family member’s health condition or preventative care; if the employee is a victim of domestic assault or sexual violence; and stalking. “Family member” means a child, regardless of age or dependency (including adopted, foster, step or legal ward), parent (biological, adoptive, foster, step, in-law or registered domestic partner’s parent), spouse, registered domestic partner, grandparent, grandchild or siblings.

The law applies to all employers, regardless of size, except for a few categories of employees that are not covered—such as those governed by a collective bargaining agreement that contains certain provisions, in-home supportive services providers and certain air carrier personnel.

Employers must keep records for at least three years, a new workplace poster is required and employers are barred from retaliating against employees who assert rights under this new law.

Failure of an employer to comply with AB 1522 can result in significant monetary fines and penalties in addition to pay for the sick days withheld, reinstatement and back pay if employment was ended, and attorneys fees and costs.

Employers should beware to integrate city specific paid sick leave laws with the new state law. For example, the pre-existing San Francisco paid sick day law has some provisions that are similar and some that are different from AB 1522. As a general rule, where multiple laws afford employee rights on a common topic, the employee is entitled to the law benefits that favors the employee most.

Discrimination Law and Training Requirements Expanded

AB 1443 amends the California Fair Employment and Housing Act (FEHA) to make its anti-discrimination, anti-harassment and religious accommodation provisions apply to unpaid interns. It also amends FEHA’s anti-harassment, and religious belief or observance accommodation provisions, to apply to volunteers. This new law appears to respond to, and trump, courts that have not classified these workers as employees and, in turn, found them not eligible for legal protections afforded to employees.

Prior law requires the California Department of Motor Vehicles to commence issuing special drivers licenses in January to applicants who meet other requirements to obtain a license, but cannot submit satisfactory proof of lawful presence in the United States. AB 1660 amends FEHA to prohibit discrimination against holders of these special drivers licenses; adverse action by an employer because an employee or applicant holds a special license can be a form of national origin discrimination. Employer compliance with any requirement or prohibition of federal immigration law is not a violation of FEHA.

Since 2006, employers of 50 or more employees have been required to provide supervisors with two hours of classroom or other effective interactive anti-sexual harassment training, every two years. New supervisors are to receive the training within six months after they start a supervisory position. This is commonly known as “AB 1825” training.

In apparent response to societal concerns about the impacts of bullying in general, AB 2053 requires that AB 1825 training include a component on abusive conduct prevention. Under the new law, abusive conduct means “conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive and unrelated to an employer’s legitimate business interests.

Abusive conduct may include repeated infliction of verbal abuse—such as the use of derogatory remarks, insults and epithets; verbal or physical conduct that a reasonable person would find threatening, intimidating or humiliating; or the gratuitous sabotage or undermining of a person’s work performance. A single act shall not constitute abusive conduct, unless especially severe and egregious.”

The new law does not make abusive conduct unlawful in and of itself, but it’s common for plaintiffs’ counsel to try, in attempts to win cases, to tether abusive behavior by a supervisor to conduct that is alleged to be unlawful.

SB 1087 requires farm labor contractors to provide sexual harassment prevention and complaint process training annually to supervisory employees and at the time of hire and each two years thereafter to non-supervisory employees. The new law also blocks state licensing of farm labor contractors who have been found by a court or administrative agency to have engaged in sexual harassment in the past three years, or who knew— or should have known—that a supervisor had been found by a court or administrative agency to have engaged in sexual harassment in the past three years.

Child Labor Laws Enhanced

AB 2288, the Child Labor Protection Act of 2014, accomplishes three things.

1. It confirms existing law that “tolls” or suspends the running of statutes of limitation on a minor’s claims for unlawful employment practices until the minor reaches the age of 18.

2. Treble damages are now available—in addition to other remedies—to an individual who is discharged, threatened with discharge, demoted, suspended, retaliated or discriminated against, or subjected to adverse action in the terms or conditions employment because the individual filed a claim or civil action alleging a violation of the Labor Code that arose while the individual was a minor.

3. For Class “A” child labor law violations involving minors at or under the age of 12, the required range of civil penalties increases to $25,000 to $50,000. Class A violations include employing certain minors in dangerous or prohibited occupations under the Labor Code, acting unlawfully or under conditions that present an imminent danger to the minor employee, and three or more violations of child work permit or hours requirements.

Immigration and Retaliation

Several new California laws involving immigration issues surfaced last year. All were premised on existing law that all workers are entitled to the rights and protections of state employment law regardless of immigration status, and that employers must not leverage immigration status against applicants, employees or their families.

This year, AB 2751 adds to and clarifies these existing laws.

For example, actionable “unfair immigration- related practices” now include threatening or filing a false report to any government agency. The bill also clarifies that a court has authority to order the suspension of business licenses of an offending employer to block otherwise lawful operations at worksites where the offenses occurred.

What’s Next?

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

 

*Originally published by CalCPA in the January/February 2015 issue of California CPA.

San Francisco’s Retail Workers Bill of Rights Has Passed: Are you ready?

Operative July 3, 2015, companies located in San Francisco who are “Formula Retail Establishments”  must comply with additional wage and hour requirements under the Retail Workers Bill of Rights (a combination of two ordinances, Ordinance 236-14 and Ordinance 241-14), the country’s first-ever such legislation.

Supporters claim that this new law is intended to improve life for retail employees which, according to some accounts, include more than 40,000 workers at 1,250 locations in the City of San Francisco.  In passing the bill, the San Francisco Board of Supervisors found that Formula Retail Establishments are a major employment base and stated that the City has a strong interest in ensuring that jobs at these establishments allow employees to meet their basic needs and achieve economic security.  An overview of this onerous and extensive legislation follows.

Formula Retail Establishments

The new law applies to companies who employ 20 or more employees in 20 or more locations worldwide and who operate a Formula Retail Establishment in San Francisco.  Other than the number of locations, “Formula  Retail Establishments” borrow from the definition of “Formula Retail Use” in  The San Francisco Planning Code and generally have standardized merchandise, facade, worker apparel, interior design, signage and/or trademarks.  Of course retail stores are included, but so are many businesses that one would not commonly think of as retailers.  For example, hotels, restaurants, bars, movie theatres, certain financial institutions, and “Property Services Contractors” such as janitorial and/or security services contractors.   For a full listing, click here.

Part-Time Employee Preferences and Retention After Ownership Change

Under this new law, employers are generally required to:  (a) offer additional hours of work to current part-time employees before hiring new employees or subcontractors; and (b) retain employees (i.e., by the successor employer) for 90 days upon change in ownership control of the business.

Initial Estimate of Minimum Hours

Prior to the start of employment, employers must provide new employees with a good faith estimate in writing of the employee’s expected minimum number of scheduled shifts per month, and the days and hours of those shifts. The estimate must not include on-call shifts. This is a non-binding estimate.  It is not a contractual offer.

Two Weeks’ Notice of Work Schedules & Predictability Pay

Employers must give employees at least two weeks’ advance notice of employees’ work schedules.  Changes on less notice requires employers to issue additional “predictability pay” for each previously scheduled shift that the employer moves to another date or time or cancels, or each previously unscheduled shift that the Employer requires the employee to come into work:

  • With less than seven days’ notice but 24 hours or more notice to the employee, one hour of pay at the employee’s regular hourly rate
  • With less than 24 hours’ notice to the employee, two hours of pay at the employee’s regular hourly rate for each shift of four hours or less
  • With less than 24 hours’ notice to the employee, four hours of pay at the employee’s regular hourly rate for each shift of more than four hours

There are exceptions to predictability pay requirements, such as an employer request that an employee work overtime or fill in for another employee who is out due to sickness or discipline.

Pay for On-Call Shifts

Employers must provide employees with the following compensation for each on-call shift for which the employee is required to be available but is not called in to work:

  • Two hours of pay at the employee’s regular hourly rate for each on-call shift of four hours or less
  • Four hours of pay at the employee’s regular hourly rate for each on-call shift of more than four hours

Equal Treatment to Part-Time Employees

Employers must generally provide part-time employees with equal treatment in the hourly wage, access to pro-rated time off, and eligibility for promotions.

Impact of Non-Compliance

The San Francisco Office of Labor Standards Enforcement (OLSE) is authorized to take appropriate steps to enforce and coordinate enforcement of this new law, including the investigation of any possible violations, and order any appropriate relief, including, but not limited to, requiring an employer to offer additional hours of work to part-time employees, reinstatement, penalties, payment of lost wages and the payment of an additional sum as an administrative penalty that does not exceed the amount of the award for lost wages. Further, to compensate the City for the costs of investigating and remedying the violation, the OLSE may also order the employer to pay the City’s enforcement costs.

Conclusion

While this new law will take effect in January 2015, it does not become operative until July 3, 2015. As such, employers affected by the Retail Workers Bill of Rights have some time to determine how to best comply.  This is an opportune time to review with counsel your employment and hiring practices, including the manner in which your company schedules employee shifts and changes them to ensure compliance by July 2015.

Should you have questions about this alert, please contact the authors or any other member of Drinker Biddle’s Labor & Employment Group.

Elimination of Vacation and Sick Day Accruals. Can that be Legal?

According to a November 17, 2014 article in LAobserved.com highlighted by the Los Angeles Business Journal, exempt non-union Los Angeles Times employees as of January 1, 2015 will no longer be able to accrue vacation days, sick days or floating holidays.  Instead, a new Discretionary Time-Off policy will reportedly allow those employees time off, “subject to their professional judgment and to the performance expectations of their supervisor that apply to their job.”  In theory, says the article, an employee can take more time off than under an accrual system, but Times’ employees are wary.

From some who caught this story, we have been asked if this kind of policy is legal. Well, in short, it can be.

Private employers generally do not have to provide paid vacation, sick or holidays under California Law.  Those benefits are so customary that many think they must be required.  An employer can lawfully end accruals for the future; but, it must allow use or pay out of vacation (or PTO) that has already been accrued.  This is because California law treats accrued vacation as a form of wages that cannot be taken away once earned.  By contrast, California law has not treated sick day accrual as wages and sick day accrual can be lost if not used.   Collective bargaining agreements often lay out different rules for union employees.

The Times policy reportedly ends future vacation accruals and allows exempt employees time off (with their regular pay continuing) if their supervisors approve the time off.  Employers go with a no accrual policy to save costs, particularly at termination of employment when unused vacation accruals must be paid in cash to the exiting employee. This strategy works legally and it can eventually end vacation accrual financial liability; but, it can be a morale problem to a workforce who may be wary that management may only infrequently approve time off.  Management does, however, have an incentive to handle requests fairly if it wants to attract and retain great employees.

A no accrual policy needs to be integrated with state and local laws in California which require minimum paid sick day accruals. Effective July 1, 2015, for example, AB 1522 requires that most employee be provided at least three paid sick leave days. Cities such as San Francisco already have similar laws.

Before changing to a no accrual policy, employers should, with the help of counsel, plan a policy that is both compliant with the California wage and hour laws and takes into account the impact it may have on the existing workforce and on recruiting.

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