In preparation for 2021, California employers have an abundance of new laws to decipher and comply with. Below are the highlights curated by our Employment Law Group.
AB 685 CREATES NEW REPORTING REQUIREMENTS REGARDING EMPLOYEE EXPOSURE TO COVID-19 AND PROVIDES CAL/OSHA WITH AUTHORITY TO CONTROL AN IMMINENT HAZARD RELATED TO COVID-19.
Employers Are Required to Provide Notice to Employees Exposed to COVID-19 at a Worksite
Effective January 1, 2021, AB 685 provides that employers must notify certain employees (including employees of certain subcontractors) when (1) the employees are exposed to a “qualifying individual” who is determined to have been infected by, diagnosed with, or died as the result of contracting COVID-19, and (2) the employee had exposure to the “qualifying individual” at the place of work during the “infectious period.”
The “qualifying individual” does not have to be an employee. It can be a guest, contractor, vendor or other visitor, and includes any individual who can establish any of the following requirements:
- A laboratory-confirmed case of COVID-19;
- A positive COVID-19 diagnosis from a licensed health care provider;
- A COVID-19-related isolation order issued by a public health official; or
- Death due to COVID-19 as determined by the County public health department.
To determine the “infectious period,” AB 685 incorporates the State Department of Public Health’s definition, which distinguishes between symptomatic and asymptomatic qualifying individuals.
For symptomatic Individuals, the infectious period begins two days before they first develop symptoms and ends when the following criteria are met:
- 10 days have passed since symptoms first appeared, AND
- At least 24 hours have passed with no fever (without use of fever-reducing medications), AND
- Other symptoms have improved.
For asymptomatic individuals who test positive, the infectious period begins two days before the specimen for their first positive COVID-19 test was collected and ends 10 days after the specimen for their first positive COVID-19 test was collected.
The State Department of Public Health definitions cited in this statute can also be found on the Department’s website. The Department of Industrial Relations has also published helpful Frequently Asked Questions.
Notice is only required to be provided to (1) those employees who were on the premises at the same worksite as the qualifying individual within the infectious period; and (2) employee representatives, including unions and sometimes attorneys, who represent employees. (Employees of certain health facilities or whose regular duties include COVID-19 testing may be exempt from receiving such notices.)
In addition to providing employees with notice of exposure, the employer must provide notice of COVID-19-related benefits that employee(s) may receive, including:
- workers’ compensation benefits,
- COVID leave;
- paid sick leave;
- leave under the Family Medical Leave Act and/or the California Family Rights Act;
- the company’s anti-discrimination, anti-harassment, and anti-retaliation policies; and
- the company’s disinfection protocols and safety plan to eliminate any further exposures, per CDC guidelines.
Timing of Notice
The employer must provide notice to employees within one business day of learning of a potential exposure to the qualifying individual. We recommend employers have a notice template prepared in advance that can be utilized within the short, required period.
Method of Providing Notice
Notice must be provided in a manner that the employer normally uses to communicate employment-related information. Written notice may include, but is not limited to, personal service, email, or text message, if it can reasonably be anticipated to be received by the employee within one business day of sending.
Notices must be sent in both English and, if applicable, the language understood by the majority of the employees.
An employer must maintain records of the written notifications required by this law for at least three years.
Employee Privacy Provision
The statute reiterates California’s general privacy protections in stating that employers are prohibited from requiring employees to disclose medical information except as required by law.
Prohibition on Retaliation
AB 685 explicitly prohibits an employer from retaliating against a worker for disclosing a positive COVID-19 test or diagnosis or order to quarantine or isolate. Employees may file a complaint with the Division of Labor Standards Enforcement pursuant to Labor Code Section 98.6 if they perceive they are subject to retaliation in violation of the provision. We recommend that employees be provided written notice of this strict policy against retaliation along with any written notice of exposure.
Employers Are Required to Report Outbreaks to the Applicable Local Public Health Agency
If an employer experiences an “outbreak,” the employer must also provide notification to the applicable local public health agency within 48 hours.
For purpose of this reporting requirement, an “outbreak” is currently defined by the California Department of Public Health (“CDPH”) as “three or more laboratory-confirmed cases of COVID-19 within a two-week period among employees who live in different households.” (See CDPH’s “COVID-19 Employer Playbook – Supporting a Safer Environment for Workers and Customers”)
Employers must provide the following information regarding qualifying individuals related to the “outbreak”:
- names of individuals
- number of cases
- worksite location
The employer must also report the business address and NAICS code of the worksite where the qualifying individuals work and continue to give notice to the local health department of any subsequent laboratory-confirmed cases of COVID-19 at the worksite.
AB 685 also requires the CDPH to make workplace industry information received from local public health departments pursuant to this section available on its internet website in a manner that allows the public to track the number and frequency of COVID-19 outbreaks and the number of COVID-19 cases and outbreaks by industry reported by any workplace under this law. While local public health departments and the division are required to provide a link to this page on their internet websites, no personally identifiable employee information may be made public or posted.
Cal/OSHA Can Prohibit Entry Into Any Workplace That Creates an Imminent Hazard
If Cal/OSHA finds that a workplace or operation/process within a workplace creates an imminent risk of COVID-19 infection to employees, it can prohibit entry to the workplace or the performance of such operation/process after first providing the employer with notice of the action and posting that notice in a conspicuous place at the worksite.
Unlike other workplace serious violation citations, Cal/OSHA is not obligated to provide notice of a COVID-19-related alleged violation 15 days prior to issuing the citation and can instead issue the citation immediately. The employer can then contest the citation through the existing Cal/OSHA appeal procedures after the citation is issued.
Any restrictions must be limited to the immediate area where the imminent hazard exists and must not prohibit any entry into or operation/process within a workplace that does not cause a risk of infection.
Furthermore, Cal/OSHA may not impose restrictions that would materially interrupt “critical government functions” essential to ensuring public health and safety functions, or the delivery of electrical power or water.
SB 1159 CREATES NEW COVID-19-RELATED PRESUMPTIONS IN THE WORKERS’ COMPENSATION CLAIMS PROCESS
Rebuttable Presumption of Workplace Injury for Certain COVID-19 Infections is Codified
SB 1159 builds upon Governor Newsom’s previously issued (though expired) Executive Order (N-62-20). Like the Executive Order, SB 1159 creates a “disputable” presumption that illness or death resulting from COVID-19 is an occupational injury entitling certain employees to workers’ compensation benefits. Unless this presumption is disputed by the employer, the Workers’ Compensation Appeals Board is obligated to find in accordance with the presumption. The statute took effect immediately and will remain in effect until January 1, 2023, unless extended.
The disputable presumption of occupational injury applies to:
- Employees who reported to their place of employment at their employer’s direction between March 19, 2020, and July 5, 2020, and who tested positive for or were adequately diagnosed with COVID-19 within 14 days after working at their place of employment. (This codifies the Governor’s expired Executive Order.)
- Employees performing essential duties, including, but not limited to, frontline workers, such as firefighters and certain healthcare workers.
- However, the presumption does not apply to certain healthcare workers who did not come into contact with a positive COVID-19-patient within the preceding 14 days.
- Any employee who:
- Works for an employer with five or more employees; and
- Tests positive or is adequately diagnosed with COVID-19 within 14 days after reporting to his or her specific place of employment during a COVID-19 “outbreak” at the employee’s particular workplace.
An “outbreak” exists if, within 14 days, one of the following occurs at the employee’s specific place of employment:
- If the employer has 100 employees or fewer at a specific place of employment, four employees test positive for COVID-19;
- If the employer has more than 100 employees at a specific place of employment, four percent of the number of employees who reported to the specific place of employment test positive for COVID-19; or
- A specific place of employment is ordered to close by a local public health department, the State Department of Public Health, the Division of Occupational Safety and Health, or a school superintendent due to a risk of infection with COVID-19.
If the COVID-19 infection is deemed a compensable workplace injury, employees are entitled to full hospital, surgical, medical treatment, disability indemnity, and death benefits, though the law specifically waives the Department of Industrial Relations’ right to collect certain death benefits under the Labor Code for deceased employees with no dependents.
However, if an employee has paid sick leave benefits specifically available in response to COVID-19 (e.g., the federal Families First Coronavirus Response Act’s (FFCRA’s) Emergency Paid Sick Leave), those benefits must be exhausted before any temporary disability benefits become available. If no such sick leave is available, the employee must be provided with applicable temporary benefits without any waiting period.
Given that the presumption is disputable, an employer may present evidence to overcome this presumption. For example, the employer may point to the measures it put in place to reduce the potential transmission of COVID-19 in the employee’s place of employment, as well as evidence of an employee’s nonoccupational risks of COVID-19 infection. However, an employer must act quickly to provide such evidence—if the COVID-related injury is dated before July 6, 2020, or if the employee is a certain frontline worker or healthcare provider, then the claim administrator has only 30 days to review and deny the claim, or the injury is presumed compensable. If the injury is dated on or after July 6, 2020, then the claim administrator has 45 days to review and deny the claim.
Required Notice to Workers’ Compensation Claims Administrator of COVID-19 Infections
When an employer knows or reasonably should know that an employee has tested positive for COVID-19, the employer must, within three business days, report the following items to its claim administrator in writing via e-mail or fax:
- That an employee has tested positive (though, the employer must not provide any personally identifiable information regarding the employee, unless the employee asserts that the infection is work-related or has filed an applicable claim form);
- The date the employee tested positive (i.e., the date the specimen was collected for testing);
- The address of the employee’s specific place of employment during the 14-day period preceding the date of the employee’s positive test; and
- The highest number of employees who reported to work at the employee’s specific place of employment in the 45-day period preceding the last day the employee worked at each specific place of employment.
An employer that fails to submit this information or that intentionally submits false or misleading information risks a fine up to $10,000.
With the short deadlines set forth in SB 1159, employers must work quickly to respond appropriately when they learn that an employee has contracted COVID-19, including by immediately coordinating with workers’ compensation claims administrators as required.
SB 1383 CREATES NEW CALIFORNIA FAMILY RIGHTS ACT OBLIGATIONS FOR SMALL EMPLOYEES AND IMPOSES SOME SIGNIFICANT CHANGES FOR LARGER EMPLOYERS
The California Family Rights Act (CFRA) applies to California employers that employ 50 or more employees in a 75-mile radius. Under such circumstances, eligible employees would be entitled to protected unpaid leave of up to 12 weeks for baby bonding, the employee’s own serious health condition, and the serious health condition of a family member.
New Regulations - Effective January 1, 2021
SB 1383 expands the reach of CFRA to smaller employers and provides leave to care for a larger pool of family members.
- Covered Employers
- CFRA will now apply to all California employers with at least five employees.
- Substantive Changes to CFRA
- Eligible employees will be permitted to take covered leave to care for grandparents, grandchildren, and siblings in addition to the originally covered family members of spouse, registered domestic partner, child, or parent.
- Definition of “child” is no longer limited to having an employee care for an adult child over 18 years of age with a serious health condition if the child was unable to care for him/herself because of a physical or mental disability. Now, the new definition will deviate from the federal Family and Medical Leave Act (FMLA) definition, since eligible employees will be able to take CFRA leave to care for any dependent adult child with a serious health condition.
- Additional leave entitlement is created for a qualifying exigency related to the covered active duty or call to covered active duty of an employee’s spouse, registered domestic partner, child, or parent in the United States Armed Forces (similar to FMLA).
- Removes employer’s ability to refuse reinstatement of “key employees” under exigent circumstances and requires employer to provide the right to reinstatement to all employees.
- Removes ability of employer of both parents of a new child to limit CFRA leave to a total of 12 weeks for bonding with the child. Will permit each parent to a total of 12 weeks for his or herself, irrespective of whether the other parent takes CFRA leave, for baby bonding.
Net Effects of SB 1383
- Smaller employers (under 50 employees) should:
- Draft a written CFRA policy for employment handbooks.
- Train human resources and supervisors to identify, monitor and support the leave and applicable short-term disability insurance and other medical benefits.
- Those who have employed 20 employees and have had to comply with the NPLA will instead now have to comply with CFRA.
- Larger employers (50 or more employees) should:
- Revise existing FMLA/CFRA combined leave policies to account for the new differences between the two.
- Train human resources and supervisors not to automatically run the two policies concurrently and to spot the leave obligations required by CFRA but not FMLA.
- Prepare to allow employees to take protected 12-week leaves separately under CFRA and then again under FMLA for a potential of up to 24 weeks of protected leave in a 12-month period in certain circumstances. E.g.: An employee who takes CFRA leave to care for the serious health condition of a grandparent will still have all his or her FMLA leave available because FMLA does not provide protected leave for grandparents.
NEW COVID-19-RELATED SUPPLEMENTAL SICK LEAVE FOR CERTAIN FOOD SECTOR WORKERS
Effective September 9, 2020, AB 1867 codifies COVID-19 supplemental paid sick leave for qualifying food sector workers under new Labor Code section 248.
Covered Employers and Workers
The law applies to food sector “hiring entities,” which are defined as any kind of private entity whatsoever with 500 or more employees in the United States. The leave is available to all workers for those entities (including independent contractors) from April 16, 2020, and forward. Food sector workers are those who (1) perform work in the food sector in agriculture, or anywhere else in the retail food supply chain, including pick-up, delivery, supply, packaging, retail, or preparation, and (2) leave home to perform work.
Food sector workers include, for example, farmworkers, grocery workers, workers at retailers that sell food, restaurant or fast food workers, warehouse workers, and workers who pick-up or deliver any food items as well as janitors or security guards who work at these locations.
Qualifying Reasons for Leave
Qualifying food sector workers are entitled to paid sick leave if they are unable to work for any of the following reasons:
- They are subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- They are advised by a health care provider to self-quarantine or self-isolate due to concerns related to COVID-19; or
- They are prohibited from working by the hiring entity due to health concerns related to the potential transmission of COVID-19.
Leave must be made available for use immediately upon oral or written requests of the worker.
Amount of Leave
Full-time food sector workers, and those workers who were scheduled to work for the hiring entity an average of 40 or more hours per week in the two weeks before supplemental sick leave was taken, are entitled to 80 hours of paid supplemental sick leave.
Part-time food sector workers with a normal weekly schedule are entitled to the number of hours the worker is normally scheduled to work.
Part-time food sector workers with variable schedules are entitled to 14 times the average number of hours they worked each day over a six-month period (or, for those workers who have worked fewer than six months, over the entire period of their employment).
Workers are entitled to the highest of either the regular rate of pay for their last pay period, state minimum wage, or local minimum wage, not to exceed $511 per day and $5,110 in total.
Timing and Availability of Leave
Leave is available for food sector workers from April 16, 2020, to December 31, 2020, or until expiration of any federal extension of the federal law providing paid sick leave related to COVID-19, the Families First Coronavirus Response Act (FFCRA), whichever is later. Workers may use such leave if they cannot work for any of the qualifying reasons listed above.
A hiring entity may not require that a food sector worker use other paid or unpaid leave before the worker uses this COVID-19 supplemental sick leave.
Hiring entities that already provide supplemental paid benefits that compensate workers at a level equal to or greater than what AB 1867 provides do not need to provide additional COVID-19 supplemental sick leave.
Hiring entities subject to AB 1867 must display applicable posters with information about COVID-19 supplemental paid sick leave in a conspicuous location. If workers do not frequent a physical workplace, it may be disseminated to workers electronically. The Labor Commissioner has provided a model notice available for employers, which may be accessed at: https://www.dir.ca.gov/dlse/COVID-19-Food-Sector-Workers-poster.pdf.
Retaliation and Discrimination Prohibited
Retaliation or discrimination against a food sector worker requesting or using COVID-19 supplemental paid sick leave is strictly prohibited. Food sector workers may file a complaint with the Labor Commissioner.
EMPLOYERS MUST COMPLY WITH ANNUAL MINIMUM WAGE/EXEMPT SALARY INCREASES UNDER CALIFORNIA LAW
California State Increases
With the new year, the California minimum wage will increase again. Effective January 1, 2021, employers with 25 or fewer employees must increase the minimum hourly wage to $13.00 (increased from $12.00 per hour), while employers with 26 or more employees must pay a minimum wage of $14.00 per hour (increased from $13.00 per hour).
The minimum wage is scheduled to increase annually thereafter, as follows:
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Employers With 26 or More Employees
|Employers With 25 or Fewer Employees
|January 1, 2021: $14.00 per hour
||January 1, 2021: $13.00 per hour
|January 1, 2022: $15.00 per hour
||January 1, 2022: $14.00 per hour
|January 1, 2023: $15.00 per hour
||January 1, 2023: $15.00 per hour
Until the minimum wage reaches $15.00 per hour, the Governor has the authority to suspend increases if economic conditions warrant. However, despite COVID-19, Governor Newsom announced in July 2020 that he would not suspend the increases scheduled for 2021.
New Exempt Employee Minimum Salary Requirements Tied to State Minimum Wage Increases
Employers should also remember that the state minimum wage affects the minimum salary for many exempt employees under California law. To satisfy the administrative, executive, and professional exemptions, California employers must pay exempt employees a salary that is at least twice the state minimum wage as summarized below. As of January 1, 2021, employers with 25 or fewer employees will be required to pay exempt employees at least $1,040 per week/$54,080 annually (increased from $960 per week/$49,920 annually), while employers with 26 or more employees will be required to pay exempt employees at least $1,120 per week/$58,240 annually (increased from $1,040 per week/$54,080 annually).
Employees Who Receive Minimum Salaries Will Not Be Exempt Unless They Also Satisfy the Exempt Duties Test.
In addition to being paid the increased salary, California employees must also satisfy the duties test to be classified as exempt. Determining whether the duties test is satisfied is a highly technical, fact-intensive exercise that requires a case-by-case analysis of how an employee actually spends the majority of his or her time. Although the duties portion of the test is beyond the scope of this client alert, the most common exemptions in both California and under federal law are the executive, administrative and professional exemptions. The actual duties tests for each of these exemptions are quite lengthy, and the following brief summaries should not be relied upon by the reader to determine if employees meet the duties test; rather, they provide a simplified explanation of these three exemptions:
- Executive Exemption: Employees who are primarily (i.e., spend more than half their working time) engaged in managing at least one recognized department or subdivision of a business, supervise two or more employees, and have the authority to make significant personnel decisions.
- Administrative Exemption: Employees who are primarily (i.e., spend more than half their working time) engaged in performing non-manual work and non-routine clerical duties relating directly to the business policies or general business operations of the employer.
- Professional Exemption: Employees who are licensed or certified by the State of California and are primarily engaged in the practice of one or more of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting. The professional exemption also includes employees primarily engaged in an occupation commonly recognized as “learned” or “artistic.”
New Minimum Salary for Exempt Computer Professionals
The minimum salary required for exempt California computer professionals will increase by 2% over the 2020 rates based on an annual adjustment for inflation determined by the California Department of Industrial Relations. Effective January 1, 2021, employers must pay their exempt California computer professional employees a salary of at least $1,902.08 per week/$98,907.70 annually or an hourly wage of at least $47.48 per hour. (Note, the option to pay exempt computer professionals on an hourly basis differs from the administrative, executive and professional exemptions which require a weekly or annual salary.) They will also have to satisfy their own duties test.
City of Los Angeles and Unincorporated Areas of Los Angeles County Minimum Wage Increases
Unlike the California state minimum wage increases that occur at the beginning of each calendar year, Los Angeles city and county minimum wages go into effect on July 1. On July 1, 2020, the minimum wage schedule for employees working in the City of Los Angeles and the Unincorporated Areas of Los Angeles County increased to $15.00 per hour for large employers (those with 26 or more employees) and $14.25 per hour for small employers (25 or fewer employees).
On July 1, 2021, small employers will be required to join larger employers in paying $15.00 per hour.
Nonprofit employers with 26 or more employees may qualify for the deferral rate schedule for employers with 25 or fewer employees.
A number of other cities will increase their minimum wages as of January 1, 2021, including but not limited to Belmont*, Cupertino*, Daly City, El Cerrito*, Los Altos*, Mountainview*, Oakland*, Palo Alto*, Petaluma*, Redwood City*, Richmond*, San Mateo*, San Diego, San Jose*, Santa Clara*, Sonoma, Sunnyvale*.
Furthermore, a number of other cities increased their minimum wages as of July 1, 2020, including but not limited to Alameda, Berkeley*, Emeryville*, Fremont, Malibu, Pasadena, City and County of San Francisco*, and Santa Monica.
Asterisks (*) denote increases that are tied to the Regional Consumer Price Index.
CALIFORNIA JOINS EEOC IN MANDATING PAY DATA REPORTING FOR CERTAIN EMPLOYERS
SB 973 requires private employers who (a) have 100 or more employees and (b) are required under federal law to file an annual Employer Information Report (an “EEO-1 Report”) to submit an annual pay data report to the California Department of Fair Employment and Housing (“DFEH”).
Notably, the law does not specify whether it extends only to those employers with 100 or more employees in the State of California, or whether out-of-state employees should also be included in determining whether employers are subject to the law. Moreover, the law does not specify whether only an employer’s California employees should be included in the new report submitted to the DFEH or whether non-California employees are also expected to be included.
The law is intended to further combat California’s gender wage gap through the collection of wage data to more efficiently identify wage patterns that might be discriminatory. (The Trump Administration effectively halted implementation of the federal reporting requirements in August 2017. Through SB 973, the California Legislature intends to ensure that such pay data will continue to be compiled and aggregated in California).
The DFEH must make the reports available to the Division of Labor Standards Enforcement (DLSE) upon request and maintain the data for at least 10 years. Although the law takes effect on January 1, 2021, the first annual report is due on or before March 31, 2021. Thereafter, reports are due on or before March 31 of each following year and encompass the prior year.
The new law requires covered employers to report annually the number of employees by race, ethnicity, and sex in each of the following broadly-defined job categories:
- Executive or senior-level officials and managers;
- First or mid-level officials and managers;
- Sales workers;
- Administrative support workers;
- Craft workers;
- Laborers and helpers; and
- Service workers.
In order to comply with California’s new reporting requirement, employers will need to determine the number of individuals who fall into each of these categories by looking at a single pay-period of the employer’s choosing between October 1 and December 31 of the calendar year preceding March 31.
Employers are required to report the number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the United States Bureau of Labor Statistics in the Occupational Employment Statistics survey. Such data must come from W-2 data for each employee, regardless of whether the employee worked for the entire year. Employers must also report the total number of hours worked by each employee in each pay band. (Notably, though, the law fails to take into consideration the practical reality that most exempt employees do not track their hours).
In submitting the pay data reports, employers have the opportunity to provide “clarifying remarks,” though they are not required to do so.
If an employer operates multiple workplaces throughout California, the employer must file a report containing the above-referenced data for each such workplace, in addition to a consolidated report inclusive of all employees at all workplaces in California.
Reports must be submitted in a technological format that permits the DFEH to search and sort the data through customary software. Employers have the option to submit their federal EEO-1 reports, so long as it contains the same or substantially similar data as required under the California law.
The DFEH is authorized to seek an order requiring those employers who fail to submit a report to provide one. The DFEH may further recover the costs it incurs in connection with seeking such an order.
The DFEH must keep the pay data it receives as confidential, except as necessary for administrative enforcement or through the normal rules of discovery in a civil action.
Despite its noble purpose, many have expressed concern over these new reports, particularly given that, for purposes of the report, employees are aggregated in broad job classifications that cannot encompass legitimate, nondiscriminatory reasons for pay differentials. One specific concern is the possibility that these reports will result in “false positives” of unlawful wage discrepancies where none exist.
Despite the potential limitations on the utility of such reports, employers should begin establishing protocols to ensure that they are able to collect the data in the format required by the deadline. Moreover, employers should proactively identify any ostensible pay disparities in order to remedy any problematic findings before the report comes due.
THE DEPARTMENT OF FAIR EMPLOYMENT AND HOUSING HAS NOW PUBLISHED FREE SEXUAL HARASSMENT TRAINING MATERIALS FOR SUPERVISORY AND NON-SUPERVISORY EMPLOYEES IN ADVANCE OF JANUARY 1, 2021, DEADLINE
As we first discussed in a client alert in late 2018, California passed legislation requiring that all employers of five or more employees provide one hour of sexual harassment and abusive conduct prevention training to nonsupervisory employees, and two hours of sexual harassment and abusive conduct prevention training to supervisory employees, once every two years. The legislation expanded the law which previously only required employers with 50 or more employees to provide at least two hours of training and education regarding sexual harassment to supervisory employees. It further required the DFEH to offer free on-line training that satisfies the statutory training requirements.
In June, we shared that the DFEH published the long-awaited free online training for non-supervisory employees in time for the January 1, 2021, deadline. Now, the DFEH has published its free online training for supervisory employees. Training is offered in English, Spanish, Korean, Chinese, Vietnamese, and Tagalog, and there is also a closed caption feature.
AB 2257 PROVIDES NEW CLARIFICATION REGARDING CALIFORNIA’S INDEPENDENT CONTRACTOR “ABC” TEST (AS CODIFIED BY AB 5 EARLIER THIS YEAR).
Effective September 4, 2020, AB 2257 substantially revises California’s recently enacted statutory test for classification of independent contractors (known as AB 5). As we discussed in a client alert last year, effective January 1, 2020, AB 5 codified the “ABC Test” as the default standard to determine whether workers should be treated as employees, or if they can instead be properly classified as independent contractors. AB 5 had a complicated list of exceptions which AB 2257 revises, expands and clarifies, largely thanks to aggressive lobbying efforts by certain industries.
The Fundamental Elements of the ABC Test Are Unchanged
AB 5 codified the “ABC Test” established by the 2018 case Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018). Under this test, an individual is presumed to be an employee unless the hiring entity can satisfy all three of the following elements:
- The person must be free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person must perform work that is outside the usual course of the hiring entity’s business.
- The person must be customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
More Professions Are Exempt From the “ABC Test”
AB 5 included several exceptions to the ABC Test for certain professions or worker relationships, which are described in our previous client alert. AB 2257 adds to and clarifies that list to include the following:
- Under the Professional Services Exemption, the following professions can be exempt from the ABC Test if certain specific conditions are met:
- Fine artists
- Freelance writers, translators, editors, copy editors, illustrators or newspaper cartoonists
- Content contributors, advisers, producers, narrators or cartographers
- A modified exemption for photographers, photojournalists, videographers, photo editors
- Content aggregators
- Real estate appraisers and home inspectors
- Insurance underwriters
- Referral agency and service providers, and those providing professional consulting services
- Certain occupations in connection with creating, marketing, promoting, or distributing sound records or musical compositions
- Musicians for the purpose of a single-engagement live performance event and other performance artists
- The relationship between a contractor and subcontractor in the construction industry
- The relationship between data aggregators and an individual providing feedback to the data aggregator
Despite the expanded list of exempted professions and relationships, there are still several that are notably excluded, including the motion picture and television industry, gig economy companies (such as Uber, Lyft, and Postmates), and California’s trucking industry, among others.
Workers Exempt From the ABC Test Must Still Satisfy the Multi-Factor Borello Test for Independent Contractors
Even if a profession falls within one of the exemptions from the ABC Test, the workers within those professions are not automatically deemed independent contractors. For professions exempt from the ABC Test, a worker cannot properly be classified as a contractor unless the relationship satisfies the multifactor test set forth in S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341 (1989), known as the Borello Test. Unlike the ABC Test, the Borello Test relies on multiple factors to make the determination of proper classification, including whether the hiring entity has necessary control over the manner and means of accomplishing the result desired. This factor is to be considered with other factors, which include:
- Whether the worker performing services holds himself or herself out as being in a business distinct from that of the hiring entity;
- Whether the work is a regular or integral part of the hiring entity’s business;
- Whether the hiring entity or the worker supplies the instrumentalities, tools, and the place for the worker doing the work;
- Whether the worker has invested in the business, such as in the equipment or materials required by their task;
- Whether the service provided requires a special skill;
- The kind of occupation, and whether the work is usually done under the direction of the hiring entity or without supervision;
- The worker’s opportunity for profit or loss depending on their managerial skill;
- The length of time the services are to be performed;
- The degree of permanence of the working relationship;
- The method of payment, whether by time or by the job;
- Whether the worker hires their own employees;
- Whether the hiring entity has the right to hire and fire at will or whether the termination would give rise to a breach of contract action; and
- Whether or not the worker and hiring entity believe they are creating an employer-employee or independent contractor relationship.
No single factor controls the determination. In some ways, the predictability of the ABC Test is comforting, since this multi-factor Borello Test is always subject to scrutiny and challenge, with courts often unpredictably emphasizing the importance of different factors based upon particular circumstances, and in some cases even reaching opposite conclusions when presented with similar facts. However, with more factors to consider and dispute, the Borello Test offers more of a “gray area” in terms of explaining challenged existing classifications.
Changes to the Business-To-Business Exemption
AB 5’s business-to-business exemption allowed California businesses to contract with other businesses without implicating the ABC Test, but it was one of the narrowest exemptions in the law, requiring 12 conditions to be met. See Labor Code 2776(a)(1)-(12). AB 2257 clarifies the exemption by specifying the terms required in a written contract, providing that a business service provider’s residence is a permissible place of business and limiting the type of work materials that must be provided by the business service provider. The exemption now clearly allows sole proprietors to engage as independent contractors provided there is a written agreement between the parties and certain components of the relationship otherwise satisfy the exemption.
Also, AB 2257 creates a “single-engagement” exemption from the ABC Test under the business-to-business exemption. It applies to individual businesspersons who contract with one another “for purposes of providing services at the location of a single-engagement event.” If certain criteria are met, the ABC Test will not apply where one individual contracts with another to perform services at “a stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week.”
This is a high-level summary of some changes AB 2257 made to AB 5 rather than a complete articulation of the many complicated components. Before classifying a California worker as an independent contractor, we encourage you to reach out to us to discuss the analysis and determine the proper classification.
AB 2143 EXPANDS AND CLARIFIES RESTRICTIONS ON THE USE OF NO-REHIRE PROVISIONS IN SETTLEMENT AGREEMENTS
Under current law, which was enacted last year, an employer may not enter into an agreement restricting an “aggrieved person” (defined to mean an employee who has filed a complaint against an employer in court, with an administrative agency, in arbitration, or internally) from obtaining future employment with that employer or its affiliates. Current law provides an exception to this prohibition if the employer has determined in good faith that the aggrieved person engaged in sexual harassment or sexual assault, in which case the use of a no-rehire provision in a settlement agreement would be permissible.
AB 2143, which becomes effective on January 1, 2021, adds another exception permitting use of no-rehire provisions in settlement agreements by employers if the aggrieved person engaged in criminal conduct, but clarifies that in order for these sexual harassment/sexual assault/criminal conduct exceptions to apply, the employer must have documented its good faith determination that the aggrieved person engaged in such behavior before the aggrieved person brought the claim giving rise to the settlement agreement.
It is important to note that nothing in the existing or new law requires an employer to rehire an employee who is unfit or unqualified; rather, this law only restricts the use of no-rehire provisions as a matter of contract in settlement of employment disputes.
AB 979 REQUIRES PUBLICLY HELD DOMESTIC AND FOREIGN CORPORATIONS WHOSE PRINCIPAL EXECUTIVE OFFICES ARE IN CALIFORNIA TO INCLUDE DIRECTORS ON THEIR BOARDS FROM UNDERREPRESENTED COMMUNITIES
Under current law, publicly held foreign and domestic corporations with principal executive offices in California (“Qualifying Corporations”) were required to have at least one female board member by December 31, 2019, and by December 31, 2021, they must have three of six total board seats filled by women if it is a board of six or more persons, two of five total board seats filled by women if it is a five-person board, and if there are four or fewer board seats, at least one board member must continue to be a woman.
AB 979, which became effective on September 30, 2020, expands on this in an effort to further diversify boards by requiring that Qualifying Corporations include one seat with a member from an unrepresented community, defined as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender” by no later than December 31, 2021. By no later than December 31, 2022, if there are nine or more board seats, that number should increase to three, and if the number of board seats is more than four or fewer than nine, that number should increase to two.
Penalties for non-compliance are $100,000 for failing to file required compliance information with the Secretary of State, and separately, if quotas are not met, $100,000 for the first violation and $300,000 for second or subsequent violations.
A lawsuit has already been filed to challenge the enactment and enforcement of AB 979 as constitutionally unlawful. As of this client alert, it is unclear if AB 979 will withstand the constitutional challenge.