Newly Enacted State Laws Will Affect Companies Operating In California

by Pepper Hamilton LLP
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[author: Jeffrey M. Goldman]

With the New Year comes a slew of California employment regulations that every company conducting business in the Golden State must follow.

Unless otherwise stated, the following Assembly bills (ABs) go into effect January 1, 2013, and generally continue California’s traditional pro-employee atmosphere. Employers should review their established practices and policies to ensure compliance with these new requirements.

New Contract Requirements for Commissioned Employees, Regardless of Whether the Employer Is Based In-State or Out-of-State

AB 1396 (originally enacted in 2011) provided a safe harbor until January 1, 2013 for all in-state and out-of-state employers paying commissions to employees working in California to provide them with written “contracts setting forth both the formula for calculating commissions as well as the method of payment.” Employers also must keep signed receipts of such agreements from employees.

AB 1396 was enacted in response to Lett v. Paymentech, Inc., 81 F. Supp. 2d 992 (N.D. Cal. 1999), which held former California Labor Code Section 2751 unconstitutional because that Code section only required out-of-state employers, and not in-state employers, to have written commission contracts with their commissioned California employees, thus violating the Commerce Clause.1

The new law will be codified as California Labor Code Section 2751.

Fixed Salaries for Non-Exempt Employees Can Only Be Considered Compensation for Regular Hours, and Such Employees Are Entitled to Additional Overtime Pay

Previously, certain California employers designated non-exempt employees as “salaried” and paid them a fixed sum for both regular work hours and overtime work. The amount of pay remained the same, regardless of how many overtime hours were worked.

AB 2103 makes this practice illegal in response to Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011) (approving of a private agreement to pay an employee a fixed salary for 66 hours of work each week, and holding that no additional overtime was due to the employee). Now, a fixed salary can only compensate for regular, non-overtime hours, and the hourly rate for a non-exempt full-time salaried employee must be 1/40th of the employee’s weekly salary. In addition to the fixed salary, non-exempt employees must be paid overtime for each hour worked over 40 in a workweek, in accordance with California law. Private agreements to the contrary are prohibited.

The new law will be codified as California Labor Code Section 515.

Employers Cannot Require or Request ‘Social Media’ Login Information

Under AB 1844, employers cannot even request, much less require, employees or applicants to disclose usernames or passwords for the purposes of:

(i) accessing an employee’s or applicant’s personal social media, or
(ii) accessing employees’ or applicants’ personal social media while a representative of the employer watches.

Employers also cannot discipline or retaliate against an applicant or employee for refusing to provide usernames or passwords for the aforementioned purposes. However, employers can still require employees to provide their login information if relevant to investigate misconduct or legal violations.

“Social media” is broadly defined by the bill as including electronic content containing videos, still photographs, blogs, podcasts, text messages, e-mail or Internet Web site profiles.

The new law will be codified as California Labor Code Section 980.

New Requirements for Inspection of Personnel Records

Under current law, employers must maintain a copy of all itemized statements showing payment of wages to all employees for at least three years, and must make personnel records available for inspection by employees.

AB 2674 imposes new copying requirements, updated timelines for employer compliance, and revised penalty provisions. For example, under AB 2674, employers can maintain a computer-generated record that includes accurate itemized statement information, rather than a photocopy. As another example, employers now must provide a copy of a current or former employee’s personnel file or make the entire file available within 30 days of receipt of a request from the employee or his/her representative (except if a related lawsuit is pending), or else face a $750 penalty as well as potential claims for injunctive relief and attorney’s fees. Employers can redact the names of non-supervisory employees.

The new law will be codified in California Labor Code Sections 226 and 1198.5.

New Penalties for Incomplete or Inaccurate Wage Statements

Under SB 1255 and AB 1744, pay statements must now include all of the following information under California Labor Code Section 226:

(1) gross wages earned
(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission
(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis
(4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item
(5) net wages earned
(6) the inclusive dates of the period for which the employee is paid
(7) the name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number
(8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and
(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.

The law appears to be effective as of July 1, 2013 (the drafting is unclear), and the import is certain – the omission of any one of the above pieces of information “injures” an employee, entitling him or her to $50 for the initial pay period in which a violation occurs, and $100 for each subsequent pay period, up to $4,000, plus costs and attorney’s fees. Under previous law, the omission of just one of the above nine itemized requirements did not constitute an “injury,” but that is no longer the case.

Statutory Clarification – Breastfeeding Discrimination Is ‘Sex’ Discrimination

Though this was already the case, AB 2386 clarifies existing law by amending the definition of “sex” under the Fair Employment and Housing Act (FEHA) to include “breastfeeding and conditions related to breastfeeding.”

Religious Accommodation under FEHA Enhanced

Under FEHA, employers must reasonably accommodate religious beliefs and observances of their employees unless the accommodation would create an undue hardship for the employer. AB 1964 clarifies that religious dress and grooming practices are covered “beliefs and observances.”

The new law states that FEHA’s “significant difficulty or expense” definition of undue hardship applies to the FEHA religious discrimination section. This means that undue hardship will be difficult to establish and will be determined by several factors, including the overall financial resources of the facilities involved and the number of employees. Notably, the “significant difficulty or expense” standard is harder to satisfy than the federal Title VII undue hardship standard applicable to religious accommodation claims; under the Title VII standard, there is an “undue hardship” whenever there is more than a minimal cost to the employer to accommodate the employee. See Trans World Airlines, Inc. v. Hardison, 432 U.S. 63 (1977).

AB 1964 also specifies that segregation from the public or other employees will no longer be an acceptable religious accommodation.

The new law will be codified as California Government Code Sections 12926 and 12940.

Depositions Are Now Limited to Seven Hours, Except for ‘Employment’ Cases

Under California Code of Civil Procedure Section 2025.290, depositions are generally limited, as of January 1, 2013, to seven hours in length (as they are under the Federal Rules of Civil Procedure). Previously there was no time limit, absent a protective order.

Notably, the legislature has codified several exceptions to the new seven-hour length requirement. One of those exceptions is for “employment cases,” defined as “any case brought by an employee or applicant for employment against an employer for acts or omissions arising out of or relating to the employment relationship.”

This amendment raises several important employment law issues, which will likely be answered in developing case law. For example, is a former shareholder’s complaint seeking invalidation of a confidentiality/trade secret/non-solicit agreement an “employment” case? What if a plaintiff alleges he or she was misclassified as an independent contractor, and the defendant maintains the plaintiff was properly classified? As a broader matter, how closely related to the employment relationship does the complaint have to be to qualify?

Certain Laws Were Also Vetoed

Interestingly, two laws that were expected to pass were vetoed by Governor Brown:

First, Governor Brown vetoed AB 889, which would have required overtime pay and meal and rest break protections for domestic workers. Governor Brown suggested that the costs that domestic worker protections could place on the disabled or elderly, as well as their families, should be further investigated before a bill is signed.

Second, Governor Brown vetoed AB 1450, which would have prohibited job advertisements stating that current employment is a requirement for consideration for a job. The veto was based on changes that the bill went through in the legislative process that could have led to “unnecessary confusion,” according to the governor.

Conclusion

As always, employers with California operations must remain vigilant to the ever-changing employment law landscape. As part of that effort, employers should review their practices, procedures and handbooks to ensure that they comply with the new laws discussed above.

Endnote

1 Note, AB 2675, a September 2012 amendment to this law, clarifies that “Commissions” (otherwise defined by Labor Code Section 204.1 as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof”) do not include short-term productivity bonuses or profit-sharing plans unless the employer offers to pay a fixed percentage of sales or profits as compensation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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