California Legislative Update
In the latter half of 2016, California Governor Jerry Brown signed numerous bills into law. Below is a summary of those laws that will affect California employers in 2017 and beyond.
Fair Pay Expansion—AB 1676 prevents employers from basing an employee’s salary solely on what the employee earned at a previous job. While employers may still inquire about salary history, the law seeks to eliminate any penalty due to prior practices tainted by gender bias. SB 1063 extends prior amendments to the Fair Pay Act to workers of a different “race or ethnicity,” not just women. Both laws took effect on January 1, 2017.
Choice Of Law And Venue In Employment Contracts—Effective January 1, 2017, new Labor Code section 925 prohibits employers from requiring employees who primarily reside and work in California to agree to, as a condition of employment, a contract provision requiring adjudication of claims outside of California or application of another state’s laws. Any such provision is voidable by the employee. The protections do not apply to employees who were represented by counsel in negotiating the contract.
Domestic Violence Leave Notification Requirements—AB 2337 will require employers with 25 or more employees to provide written notice to their employees—at hire and upon later request—of their right to take a leave of absence as a result of domestic violence, sexual assault or stalking. The Labor Commissioner is required to develop and post online by July 1, 2017 a form that employers may use to satisfy these new notice requirements. The employer’s notice obligations under this law commence once the new form is available.
Cell Phone Use While Driving—AB 1785, which took effect on January 1, 2017, broadens existing law by forbidding drivers to hold their phones or devices while driving. Phones must be mounted to be used, and only a single tap or swipe will be permitted while driving. Employers with policies regarding cellphone use while driving company vehicles or while driving on company business should update their policies accordingly.
Enrollment In Retirement Savings—SB 1234 requires private employers with 5 or more employees who do not offer an employer-sponsored retirement plan to automatically enroll their employees in a new state-funded retirement account and deduct money from their paychecks accordingly, although employees may opt out or set their own savings rate. This mandate for employers, however, will not go into effect until the government’s so-called “Secure Choice” program is fully operational—which could take years.
Gender-Neutral Restrooms—AB 1732 requires all employers to post signs on single-user restrooms indicating that the restroom is an “all-gender” facility by March 1, 2017. The law will not affect restrooms with multiple stalls.
Juvenile Court Records—Effective January 1, 2017, AB 1843 extends California Labor Code protections to juvenile court records. Specifically, Section 432.7 expressly prohibits employment-related requests for, consideration or use of, or other efforts to obtain information relating to any “arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of the juvenile court law.” Limited exceptions exist for certain health care employers.
Background Checks For Ride-Sharing Company Drivers—Effective January 1, 2017, AB 1289 requires all ride-sharing service providers using an online-enabled platform to run extensive background checks on drivers encompassing their entire local and national criminal histories. The law prohibits “a transportation network company from contracting with, employing, or retaining a driver if he or she, among other things, is currently registered on the United States Department of Justice National Sex Offender Public Website, has been convicted of any of certain terrorism-related felonies or a violent felony, as defined, or, within the previous 7 years, has been convicted of any misdemeanor assault or battery, any domestic violence offense, driving under the influence of alcohol or drugs, or any of a specified list of felonies.” AB 1289 carries a fine of up to $5,000 for any failure to comply with the statute, which includes both the requirement to run the compliant background check and to refrain from hiring certain individuals.
Itemized Wage Statements—AB 2535 adds a new section to Labor Code section 226, no longer requiring employers to list hours worked on the paystubs of exempt workers. This became effective January 1, 2017, eliminating any ambiguity, and frivolous and costly litigation, about reporting hours for exempt employees.
Vetoed—Expansion Of CFRA To Small Employers—Governor Brown vetoed SB 654, which would have required California employers with 20-49 employees to provide up to 6 weeks of unpaid job-protected leave to bond with a new child, citing concern for the impact on small businesses.
Local Leave-Related Developments
San Francisco Paid Parental Leave—San Francisco has made several revisions to its paid parental leave law, effective January 1, 2017. These changes largely focus on determining coverage for employees with fluctuating hours, as well as employee notice requirements. Clarifications provided on December 23, 2016 address definitions, notification requirements, procedures, and computations of payments. Covered employers must post this poster at every work place and job site, and provide this form to employees requesting leave. For more detail, see the San Francisco Paid Parental Leave website.
San Diego Sick Leave—San Diego’s paid sick leave law went live on July 11, 2016. On September 2, 2016, an implementing ordinance took effect, clarifying the law in several important ways. Principally, the implementing ordinance will allow employers to cap sick leave accrual at 80 hours, to front-load sick leave of no less than 40 hours at the beginning of the year (in lieu of by accrual), and overall clarifies the law to be more consistent with the state’s paid sick leave law. For more details, see San Diego’s Minimum Wage Program website.
Berkeley Sick Leave—Effective October 1, 2017, Berkeley will require all employers, regardless of size, to provide paid sick leave to employees at the rate of 1 hour of leave for every 30 hours worked. The law allows a cap of 72 hours of accrual (or 48 hours for employers with fewer than 25 workers). Expect more details on this law as its implementation deadline approaches.
California Wage and Hour Update
Computer Software Employee Exemption
Section 515.5(a)(4) of the California Labor Code requires an annual update to the compensation rate for exempt computer software employees, based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Accordingly, starting January 1, 2017, exempt computer software employees must be paid no less than $42.35 hourly (up from $41.85), $7,352.62 weekly (up from $7,265.43), or $88,231.36 annually (up from $87,185.14).
Reminder: California Minimum Wage and Exempt Employee Salary Increase
SB 3, passed earlier this year, increased California minimum wage rates. Effective January 1, 2017, the statewide minimum wage for employers with at least 26 employees increased to $10.50 per hour, with incremental increases through 2022 when the rate hits $15 hourly. Employers with up to 25 employees are subject to a one-year delay for the rate increases, with minimum wage remaining at $10 per hour for 2017 and increasing to $10.50 next year. The California Labor Commissioner has published an FAQ, including a schedule of rate increases, regarding the new minimum wage rates. The increased minimum wage rate also impacts the salary thresholds for exempt executives, administrators, and professionals under California law, increasing it to $43,680 annually for employers with at least 26 employees. Employers should also be sure to comply with higher minimum wage rates imposed by local ordinances in cities such as San Francisco, Emeryville, and Oakland, as applicable.
New York Wage and Hour Developments
NY DOL Increases Minimum Wage and Salary Thresholds for Exempt Employees
On December 28, 2016, the New York Department of Labor (“NY DOL”) issued regulations increasing both minimum wage rates and the minimum salary thresholds for exempt executives and administrators. In New York City, the minimum hourly wage is $11 for employers with at least 11 employees and $10.50 for employers with up to 10 employees. The salary threshold for exempt executives and administrators, which is calculated as 75 times the minimum wage, similarly increased. In New York City, the exempt salary threshold increased to $825 per week (or $42,900 annually) for employers with at least 11 employees and $787.50 per week (or $40,950 annually) for employers with up to 10 employees. These changes became effective December 31, 2016. Minimum wage rates and exempt salary thresholds vary by employer location and size and will increase over time; different requirements apply in the fast food industry and to tipped employees. For more information, visit the NY DOL website and its “Miscellaneous Industry” wage order summary.
Payment of Wages by Direct Deposit
On September 7, 2016, the NY DOL issued final rules on Methods of Wage Payment, effective March 1, 2017. These rules will require New York employers who pay wages other than by cash or check to notify workers in writing of the options for wage payment methods, that the employer cannot require employees to accept wages by direct deposit, and that the employee may not be charged any fees to access their full wages. Employers must also obtain written informed consent from employees to accept payment of wages via direct deposit. The notice and consent may be provided and obtained electronically if the employee is able to view and print them at work without cost and is notified of this through the electronic process. The NY DOL will soon be providing notice and consent templates for employers to use.
Federal Agency and Executive Action
EEOC Guidance on Retaliation
In August, the Equal Employment Opportunity Commission (EEOC) issued its final “Enforcement Guidance on Retaliation and Related Issues,” together with a fact sheet for small businesses. The guidance is particularly important given that nearly half of all discrimination claims brought to the EEOC are on the basis of retaliation. While not itself enforceable law, the guidance provides helpful insight into the EEOC’s position on pursuing workplace retaliation claims, and how it might seek to tighten legal restrictions in the courts. Principally, the guidance demonstrates that the EEOC is broadening its interpretation of retaliation to include many more possible violations by employers by expanding the definitions of key legal terms, such as “retaliation,” “protected activity,” and “materially adverse action.” These expansions could result in the EEOC finding retaliation in a broader range of situations, such as where an employee may (but has not yet) engaged in protected activity, or where protected activity is not based on a “reasonable, good faith belief” of potentially unlawful conduct. “Materially adverse actions” can now include minor actions having no effect on employment, such as stray remarks or closer work supervision. The EEOC also loosened the causation standard for Title VII and ADEA retaliation cases, and suggested it would be much more aggressive in pursuing claims related to requests for accommodation.
EEOC Guidance on National Origin Discrimination
In November, the EEOC issued its “Enforcement Guidance on National Origin Discrimination,” modernizing its definition of such discrimination and providing insight into the EEOC’s position on unsettled or unaddressed interpretive issues. According to the guidance, national origin discrimination under Title VII is “discrimination because an individual (or his or her ancestors) is from a certain place or has the physical, cultural, or linguistic characteristics of a particular national origin group.” The guidance provides that Title VII prohibits discrimination based on the perception that an employee or applicant is of a particular national origin group or that the person is associated with someone of a particular national origin group. The guidance addresses other topics, such as English-only policies, examples of situations involving (or not involving) discrimination, insight on how discrimination intersects with workplace harassment, and advice on how to avoid workplace discrimination, including recommended practices. In addition to the guidance, the EEOC released a Q&A and fact sheet for small businesses.
EEOC Resource Document for Applicants and Employees on Mental Health Conditions
In December, the EEOC published a resource document regarding “Depression, PTSD, & Other Mental Health Conditions in the Workplace: Your Legal Rights.” A Q&A directed to applicants and employees, the document provides guidance to those with mental health conditions on their rights under the Americans with Disability Act, including against discrimination and harassment due to their condition, privacy about mental health information, and reasonable accommodation in the workplace. It cautions against the use of stereotypes or assumptions about mental health conditions, encouraging the use of objective evidence in assessing an employee’s ability to perform the essential functions of a position. The resource document advises individuals how to secure a workplace accommodation, underscores the EEOC’s role in enforcing rights, and directs individuals to a fact sheet released earlier this year to aid in the process—The Mental Health Provider’s Role in a Client’s Request for a Reasonable Accommodation at Work.
EEOC 2017-2021 Strategic Enforcement Plan
In October, the EEOC released its Strategic Enforcement Plan for fiscal years 2017-2021. The plan builds on the prior 2013-2016 plan, continuing in its priorities and addressing emerging areas of focus, including:
complex employment relationships “focusing specifically on temporary workers, staffing agencies, independent contractor relationships, and the on-demand economy;”
“backlash discrimination” against Muslims and Sikhs or persons of Arab, Middle Eastern or South Asian descent;
extending equal pay priority to reach all workers and address pay disparities based not only on sex but also race, ethnicity, and disability and other protected characteristics; and
impact of algorithms or other data-driven employment screening tools on fairness of the hiring and recruitment process.
New EEO-1 Form Will Require Companies to Report Pay Data
The EEOC released an updated EEO-1 form on September 29, 2016, which employers will be required to use as of March 31, 2018. Employers will be required to report pay data for employees, in addition to the already required information about gender, race, and ethnicity. The controversial change is intended to make EEOC investigations into discriminatory pay disparity more effective. Although the first reports will not be due until 2018, they must encompass 2017 data, so employers should already be preparing to provide this expanded information. See our Summer 2016 Update for more detail.
Antitrust Guidance Cautions HR Professionals about No-Poaching and Wage-Fixing Pacts and Information Sharing
The Federal Trade Commission and Antitrust Division of the United States Department of Justice (DOJ) jointly issued an Antitrust Guidance for Human Resources Professionals. The 11-page document summarizes antitrust law and the competitive employment market and provides guidance about no-poaching and wage-fixing agreements and other conduct (including information sharing) that could violate antitrust laws. The guidance follows DOJ civil enforcement actions over the last several years against well-known Bay Area technology companies for allegedly entering into “no poach” agreements with competitors. Those actions ended in consent decrees; civil lawsuits followed resulting in multiple significant settlements to allegedly impacted workers. The guidance emphasizes that HR professionals are on the front lines of hiring and compensation practices, and are often in the best position to ensure compliance. Employers should incorporate learning points from the guidance into training for HR and compliance professionals and those involved in recruitment and hiring.
Fair Pay and Safe Workplaces Executive Order 13673—Partially Enjoined
As reported in our June 2015 FEB, President Obama signed into law the Fair Pay and Safe Workplaces order (final text here), which requires companies to, among other things, disclose data about labor violations as part of the bidding and selection process for federal contracts. The law was to take effect October 29, 2016, but a Texas court issued a preliminary injunction partially enjoining the bill, on a national basis, just five days before the scheduled effective date. Specifically, the Court enjoined the imposition of new reporting requirements regarding labor law violations on government contractors and subcontractors and the order’s prohibition on pre-dispute arbitration agreements regarding matters arising under Title VII of the Civil Rights Act and torts based on sexual assault or harassment. The Court based its decision, in part, on the belief that the order’s requirements were not authorized by the underlying statute on which it relies. Many believe that this executive order will be among the first to be eliminated by the incoming presidential administration.
U.S. Supreme Court to Review Enforceability of Class and Collective Action Waivers in Employment Arbitration Agreements
On January 13, 2017, the United States Supreme Court granted review in three cases presenting the issue of whether class and collective action waivers in mandatory arbitration agreements are enforceable or whether they violate the National Labor Relations Act.
By way of background, mandatory pre-employment arbitration provisions have been a hot issue for some time. Early enforceability challenges focused on unconscionability and, in particular, unfairness and surprise to the employee. Class and collective action waivers took center stage around 2012, when the National Labor Relations Board (NLRB) ordered D.R. Horton to remove such a waiver from its arbitration agreements, contending the provision chilled employee rights to engage in concerted activity under the National Labor Relations Act (NLRA). See February 2012 FEB. On appeal, the Fifth Circuit Court of Appeal reversed that order, finding the class and collective action waiver and arbitration agreement enforceable. See December 2013 FEB.
Five years later, the NLRB has steadfastly maintained and enforced its position, leading to numerous appeals and a split among the federal appeal courts regarding the enforceability of class and collective action waivers. The Second, Fifth, and Eighth Circuit Courts of Appeal have upheld such waivers under the Federal Arbitration Act. The Fifth Circuit recently reaffirmed its position, reversing a NLRB decision that required an employer to remove class action waivers from its arbitration agreements. See Citigroup Technology, Inc. v. NLRB. In its briefing, even the NLRB conceded that, under earlier Fifth Circuit precedent, the at-issue provision was enforceable. In contrast, earlier this year the Ninth Circuit joined the Seventh Circuit in finding such waivers to violate the NLRA. See August 31, 2016 Employment Alert.
Given the appellate court divide, the issue was ripe for the Court’s guidance and its decision to intervene is not surprising. What remains to be seen is how the new administration may impact the ultimate outcome here. Will Trump’s eventual Supreme Court nominee be confirmed in time to participate in the review and, if so, possibly be the deciding vote for an otherwise split Court? Will the reconstituted NLRB, with anticipated Trump appointees filling open vacancies, reverse course and cede its position on the issue? Stay tuned.
Appellate Briefing Expedited on DOL Overtime Rule Injunction, District Court Lawsuit to Proceed
As reported in our November 28, 2016 Employment Alert, a Texas federal district court preliminarily enjoined enforcement of certain aspects of the Department of Labor’s Final Overtime Rule that would have increased the federal minimum salary for exempt executives, administrators and professionals. The Department of Labor (DOL) appealed the district court’s ruling to the Fifth Circuit Court of Appeals and secured an expedited briefing schedule that will complete by the end of January. Further, the district court declined the DOL’s request to stay the lawsuit pending resolution of its appeal, finding the DOL did not show a “substantial case on the merits” that the injunction was improper.
With all this activity, little progress toward final resolution has been made, and it is unclear whether this matter will ultimately be resolved in court. The federal district court could issue a final ruling on the merits at any time, which could result in a fresh appeal. The Trump administration, set to take office in late January, could order the DOL to stand down on the matter. Or, Congress could obviate everything by legislative action. We will continue to monitor this matter and report on significant developments.
California Supreme Court Rejects On-Duty and On-Call Rest Breaks, Reinstates $90M Award
California “law prohibits on-duty and on-call rest periods.” During mandated rest periods, “employers must relieve their [non-exempt] employees of all duties and relinquish any control over how employees spend their break time,” according to the California Supreme Court’s recent decision in Augustus v. ABM Security Services, Inc.
Augustus and other security guards sued ABM, alleging, among other claims, that the employer failed to provide required rest periods. While ABM permitted guards to take 10-minute rest periods, it required guards to be on call, keeping pagers and radios on and being vigilant and responsive to calls as needs arose. The guards sought and obtained summary adjudication that ABM’s policy and practice violated California’s rest period requirement, and the trial court awarded the guards about $90 million in statutory damages, interest, and penalties.
After the appellate court reversed, the California Supreme Court reinstated the trial court’s order and award. Citing the California Labor Code, the wage orders (which address minimum wages, maximum hours, and working conditions), and the plain meaning of the word “rest,” the supreme court concluded that employers must provide non-exempt employees off-duty rest periods, free from all work-related duties and employer control, including being on call. According to the court, “[i]n the context of a 10-minute break that employers must provide during the work period, a broad and intrusive degree of control exists when an employer requires employees to remain on call and respond during breaks.” The court observed that, if the circumstances of a particular job prevent such rest breaks, employers may apply for an exemption from the state—something ABM had done in two prior years. Alternatively, for occasional interruptions, employers could reasonably reschedule the rest break or pay affected employees a rest period premium.
Employer Rounding and Grace Period Compensation Practices Upheld, Claims Dismissed where Practices Implemented Neutrally
In Silva v. See’s Candy Shops, Inc., former employee Pamela Silva brought individual, class and Private Attorneys General Act (PAGA) claims challenging, among other things, See’s policies regarding calculation of hours worked. Specifically, See’s maintained (a) a rounding policy, by which timeclock punches were rounded to the nearest tenth of an hour, and (b) a grace-period policy, which permitted employees to clock in ten minutes prior to, or out ten minutes after, their scheduled shift, but used scheduled start and stop times to calculate hours worked. Silva claimed application of these policies deprived employees of owed compensation. Silva unsuccessfully sought a ruling that the rounding policy was unlawful (November 2012 FEB). Thereafter, See’s secured dismissal of Silva’s claims.
On appeal, the court upheld dismissal of all claims pertaining to the rounding and grace-period policies, as See’s presented uncontroverted evidence that they were neutral on their face and, in application, did not deprive employees of compensation. See’s provided declarations from a labor economist and statistician, who conducted extensive review and analysis of See’s time records and concluded that the rounding rule was “both mathematically and empirically unbiased.” He further testified that “the rounding policy did not negatively impact employee overtime compensation: it was ‘virtually a wash—neither the employees nor See’s benefited from this rounding practice.’” See’s also provided evidence that the grace period only applied to those shifts that were pre-programmed into its timekeeping system, its policies prohibited employees from working during the grace periods and required employees to report and be paid for any time worked, and its employees complied with the policies, using the grace period for personal pursuits, including running errands, using the restroom and playing mobile games. Silva, in contrast, argued that employees were under See’s control during the grace period but offered insufficient evidence for the proposition.
For procedural reasons, the court reinstated Silva’s individual claims, which had not been subject to See’s motions.
Arbitration Provision Buried in Handbook that Disclaimed Contract Status Not Enforceable
The California Court of Appeals for the Second Appellate District held in Esparza v. Sand & Sea, Inc. that an arbitration agreement, contained in a handbook that disclaimed it was a contract, was not enforceable. Even though the handbook acknowledgment form signed by the employee referenced the arbitration provision, it did not state the employee agreed to such arbitration. To be clear, the court did not create a blanket rule that arbitration provisions in handbooks are unenforceable; rather, this case underscores the importance that the arbitration provision and the employee’s agreement to it be clear and unmistakable. Many companies achieve this by using stand-alone arbitration agreements or including the arbitration provision in an offer letter. Employers relying on a handbook arbitration provision should consult counsel to avoid missteps that could undermine the provision’s enforceability.
No Aspect of PAGA Claim, Including Whether Employee is Aggrieved, Subject to Arbitration
A California appellate court recently rejected an employer’s efforts to compel its former employee, as a precondition of pursuing a PAGA claim in court, to arbitrate the issue of whether she was an aggrieved employee under state law. In Hernandez v. Ross Stores, Inc., former warehouse employee Martina Hernandez filed a single PAGA claim against Ross in state court, alleging Ross failed to properly pay all wages owed, itemize hours worked and paid, and pay overtime. As a condition of employment, she had agreed to arbitrate any disputes relating to her employment on an individual basis. Ross moved to compel arbitration, asserting that, as a precondition to pursuing a PAGA action, she had to prove she had suffered an injury under the California Labor Code, which comprised a “dispute” between Hernandez and Ross that was subject to arbitration. Both the district and appellate court rejected Ross’s argument. The appellate court explained that Hernandez’s action was not a dispute between employer and employee, but a representative active where Hernandez was acting on the state’s behalf, and thus not subject to arbitration in any respect.
NLRB Continues Scrutiny of Allegedly Overbroad Social Media Policies
The NLRB’s evaluation of workplace policies in its Chipotle Services LLC d/b/a Chipotle Mexican Grill decision demonstrates the continued scrutiny imposed on social media policies and provides helpful insight to employers in drafting or revising such policies.
James Kennedy was an hourly employee at a Chipotle restaurant in Pennsylvania in 2014 and 2015. In early 2015, Kennedy posted several messages on his personal Twitter account about working conditions at Chipotle. Management at Chipotle saw the tweets and asked Kennedy to delete them, and reviewed the company’s social media policy with him. The policy informed employees that their social media activities were outside the scope of their employment, and employees “may not make disparaging, false, misleading, harassing or discriminatory statements about or relating to Chipotle, our employees, suppliers, customers, competition, or investors.” It also said, “If you aren’t careful and don’t use your head, your online activity can also damage Chipotle or spread incomplete, confidential, or inaccurate information.” Chipotle’s employee handbook contained other provisions prohibiting the use of Chipotle’s name or trademark (i.e., its corporate logo) in social media.
The NLRB held that Chipotle’s policies had a chilling effect on the employees’ exercise of their rights under Section 7 of the NLRA and ordered it to revise and redistribute its policies. According to the NLRB:
an employer may not prohibit postings that are merely false or misleading—they must be shown to be malicious to be prohibited.
Chipotle’s reference to “confidential” information was vague and misleading, “which could easily lead employees to construe it as restricting their Section 7 rights.”
an employer also may not prohibit “disparaging” remarks, although it can prohibit harassing or discriminatory statements.
inclusion of a statement that the policy would not restrict any activity protected by the NLRA would not cure the policy’s defects.
prohibiting the use of Chipotle’s name or logo also violated the NLRA.
Employers should be mindful of the NLRB’s arguably strained positions on workplace policies. Because the NLRB’s decisions do not have the force of law until reviewed and accepted by a court, employers should also consult counsel to assess risk and set strategy when implementing or revising workplace policies.