Last week, on September 22, 2021, Governor Newsom signed AB 701, which creates new obligations for certain employers with warehouse distribution centers that use production quotas, effective January 1, 2022. Under this new law, employers with at least 100 employees at a single warehouse distribution center in California, or at least 1,000 employees at one or more warehouse distribution centers in California, must provide their employees with a written description of the quotas they are expected to meet. In counting employees, an employer must include workers provided through the services of a third-party employer, temporary service, or staffing agency or similar entity, if the employer employs or exercises control over the wages, hours, or working conditions of those workers.
What qualifies as a warehouse distribution center?
A facility qualifies as a warehouse distribution center if it falls within the definition of an establishment with certain North American Industry Classification System (NAICS) Codes: 493110 (General Warehousing and Storage), 423 (Merchant Wholesalers, Durable Goods), 424 (Merchant Wholesalers, Nondurable Goods), and 454110 (Electronic Shopping and Mail-Order Houses), but not 493130 (Farm Product Warehousing and Storage). Definitions for these NAICS codes can be found here.
What qualifies as a quota?
A quota is defined as "a work standard under which an employee is assigned or required to perform at a specified productivity speed, or perform a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period and under which the employee may suffer an adverse employment action if they fail to complete the performance standard." This law does not apply to employees with sales quotas, but keep in mind that section 2751 of the California Labor Code outlines express requirements for California employees who are paid, at least in part, through commissions.
When does the quota description need to be distributed, and what needs to be in the description?
A written description of the quota must be provided to the employee either upon hire or within 30 days of the effective date of the law (January 31, 2022) setting forth: (1) the quantified number of tasks to be performed or materials to be produced or handled, (2) the defined time period within which the production quota must be met, and (3) any potential adverse employment action that could result from failure to meet the quota. However, the law does not state what the employer must do if it later implements a new quota requirement, or when the employer must advise the employee of that new quota.
What makes a quota unlawful?
The quota cannot prevent an employee from being able to take timely meal and rest periods or use the bathroom, and it cannot prevent compliance with occupational health and safety laws. In addition, the employer cannot take adverse employment action against the employee for failing to meet either an unlawful quota or a quota that has not been disclosed to the employee.
Can an employee ask how they are performing under the quota requirement?
Yes. An employer is required to provide certain information about the employee’s performance under the quota if it monitors employee work speed data (defined as “information an employer collects, stores, analyzes, or interprets relating to an individual employee’s performance of a quota, including, but not limited to, quantities of tasks performed, quantities of items or materials handled or produced, rates or speeds of tasks performed, measurements or metrics of employee performance in relation to a quota, and time categorized as performing tasks or not performing tasks”). The employer is required to provide, within 21 days of the date of an employee's request, a written description of the quota and a copy of the most recent 90 days of the employee’s own personal work speed data. Former employees are limited to a total of one request under this law.
Are there penalties for failure to comply with this new law?
Yes. The law authorizes a number of remedies, including an action for injunctive relief, as well as recovery of attorneys’ fees and costs if an employee is successful in that action. An employee could also recover civil penalties for a claim under the Private Attorneys General Act, though the law provides the employer with a limited right to cure the alleged violations.
Is there a collective bargaining exception for this law?
No. Unlike many other California Labor Code requirements, there is no exception for employees who are covered by a collective bargaining agreement.
What steps should employers take to prepare for this new law?
Employers should confirm their quotas are lawful (e.g., ensure their productivity expectations do not make it difficult for employees to take a timely meal or rest periods, use the bathroom, etc.) and ready written descriptions containing the required information to distribute to their employees when the new law becomes effective. We expect significant litigation to be filed on this issue. Employers will also need to develop a process to ensure they can promptly respond to employee requests for their productivity data. Lastly, employers need to be mindful of the timing of any adverse employment actions that may be necessary, because AB 701 creates a rebuttable presumption of unlawful retaliation if the employer takes any adverse action against the employee within 90 days of the employee making their first request in a calendar year for information about the quota or personal work speed data, or making a complaint about the quota to the employer or government authority. With this presumption, it will become more challenging to terminate or take adverse action against employees who work under production quotas.
This new law poses significant requirements for many companies operating in the warehouse distribution industry.