EXECUTIVE SUMMARY: Doing business in California comes with its own set of landmines for employers. In “Golden Rules in the Golden State: California’s Differences in Employment Law (Golden Rules in the Golden State),” we provide a comprehensive guide detailing some of the state’s unique employment laws. This Executive Summary highlights some of those regulations.
Neither the Golden Rules in the Golden State nor this Executive Summary is meant to be a do-it-yourself guide to resolving employment disputes or handling employment litigation. Likewise, neither is meant to help a company conduct a self-audit of its practices, as there are sometimes exceptions to statutes for particular industries and additional requirements for government employers or government contractors. Neither is meant as a substitute for experienced legal counsel and neither provides legal advice or attempts to address the numerous factual differences that inevitably arise in any employment-related issue. This Executive Summary is a general outline that is not all-inclusive. All citations are to California Codes unless otherwise specified. If you would like the full Golden Rules in the Golden State, please contact Corinn Jackson at Littler Mendelson at 310.772.7268 or firstname.lastname@example.org.
All copyrightable text and graphics, the original selection, arrangement, and presentation of all materials (including information in the public domain), and the overall design of this guide are © 2013 Littler Mendelson P.C. All rights reserved. Permission is granted to download and print this guide for the purpose of viewing, reading, and retaining for reference. Any other copying, distribution, retransmission, or modification of information in this guide, whether in electronic or hard copy form, without the express prior written permission of Littler Mendelson P.C., is strictly prohibited. Littler Mendelson, Littler Employment & Labor Law Solutions Worldwide, Littler GPS, and The National Employer are registered trademarks of Littler Mendelson, P.C. Other trademarks are owned by their respective owners.
The information in this guide is for informational purposes only, not for the purpose of establishing an attorney-client relationship or providing legal advice, and should not be relied on as legal advice. Inasmuch as labor and employment law is a dynamic field, often with varying results from state to state, you should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this guide does not create an attorney-client relationship between Littler Mendelson and the user. This publication is not a do-it-yourself guide to resolving employment disputes or handling employment litigation. Nonetheless, employers involved in ongoing disputes, litigation or day-to-day human resources functions will find the information extremely useful in understanding the issues raised and their legal context. This publication is not a substitute for experienced legal counsel and does not provide legal advice or attempt to address the numerous factual issues which inevitably arise in any employment-related dispute. Although we have attempted to cover the major recent developments in employment and labor law, this publication is not all-inclusive, and the current status of any decision or principle of law should be verified by counsel.
A. Background Checks
1. Consumer Reports For Employment Purposes
Current California law limits when employers can lawfully use consumer credit reports and impose notice and disclosure obligations on employers who intend to do so.
California’s Consumer Credit Reporting Agencies Act (“CCRA”), like its federal counterpart, the Fair Credit Reporting Act, is triggered when an employer orders a consumer credit report from a vendor (commonly known as “consumer reporting agencies”) for employment purposes. Both statutes generally require: (1) advance consent from the individual to order the credit report; (2) notice to the individual of the intended use of the report; and (3) notice to the individual if the report’s contents negatively impact his or her employment opportunities (commonly known as “adverse action letters”).
California Labor Code Section 1024.5, imposes an additional notice obligation on employers that use consumer credit reports to screen job applicants and employees. Specifically, before ordering a consumer credit report concerning a job applicant or employee, the employer must notify the individual in writing of the basis under Labor Code section 1024.5 for permissibly using the consumer credit report (e.g., because the individual is applying for or holds a managerial position, etc.).
Labor Code section 1024.5 limits when private and public sector employers, except for financial institutions, lawfully can use consumer credit reports in connection with hiring and personnel decisions. Specifically, employers are permitted to use consumer credit reports only if the individual is applying for or works (or will work) in the following positions:
a. a managerial position (as the term elsewhere is defined by California law);
b. a position in the State Department of Justice;
c. a sworn peace officer or law enforcement position;
d. a position for which the employer is required by law to consider credit history information;
e. a position that affords regular access to bank or credit card account information, Social Security numbers, and dates of birth, provided, however, that the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment;
f. a position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money or authorized to enter into financial contracts on the employer’s behalf;
g. a position that affords access to confidential or proprietary information; or
h. a position that affords regular access during the workday to the employer’s, a customer’s or a client’s cash totaling at least $10,000.
Civil Code section 1785.31 provides a remedy for “negligent” and “willful” violations of the CCRAA. An individual who suffers damages as a result of the violation can recover actual damages, including attorney’s fees and court costs, as well as punitive damages up to a maximum amount of $5,000 for willful violations.
2. Availability Of Criminal Record History Information
An employer may not ask an applicant to disclose information about: (1) an arrest or detention that did not result in conviction; (2) referral to, and participation in, any pretrial or post-trial diversion program; or (3) criminal records that have been expunged, sealed or dismissed. An employer cannot seek this information from any other source or use it as a factor in determining any condition of employment of an applicant or employee. Lab. Code §§ 432.7, 432.8; Cal. Code Regs., tit. 2, § 7287.4(d).
Employers are exempt from these requirements in the following circumstances: (1) the prospective employer is required by law to obtain that information; (2) the job position requires the applicant to possess or use a firearm in the course of his or her employment; (3) an individual who has been convicted of a crime is prohibited by law from holding the position sought by the applicant, regardless of whether that crime has been judicially dismissed, expunged, statutorily eradicated or ordered sealed; or (4) the employer is prohibited by law from hiring an applicant who has been convicted of a crime.
Effective July 1, 2014, California join the growing list of jurisdictions that "ban the box," but only for public sector employers. California state and local agencies, cities and counties must first determine an applicant's minimum qualifications for the position before inquiring about the applicant's conviction history. This law does not, however, apply to law enforcement positions or positions where the applicant will work with children, the elderly, the disabled or other sensitive positions.
B. Independent Contractors
1. Independent Contractor Tests
California governmental agencies may not agree with Federal IRS test and different laws may be involved in a particular situation so it is possible that the same individual may be considered an employee for purposes of one law and an IC under another law.
2. Independent Contractor Misclassification
Any entity that “willfully misclassifies” an individual as an “independent contractor,” when that individual is determined to have actually been an “employee,” faces stiff civil and other penalties. (Lab. Code §§ 226.8, 2753.) The law:
a. Discourages the engagement of independent contractor/sole proprietorships by penalizing employers who commit a “pattern and practice” of “willful” misclassification.
b. The California Labor and Workforce Development Agency can fine an entity that “willfully misclassifies” an “employee” not less than $5,000 and up to $15,000 per violation. Further, if that entity is found to have engaged in a “pattern or practice” of misclassification, then those fines are ratcheted up to a minimum of $10,000 per violation, with a cap of $25,000 per violation.
c. Provides for joint and several liability for consultants (excluding practicing lawyers) who advise employers on such independent contractor engagements.
d. Makes it unlawful to charge “misclassified” independent contractors any fee or take deductions from the compensation paid such contractors.
e. Provides that the penalties are in addition to existing penalties, interest and taxes that may be imposed at the state level for misclassifying contractors.
f. Concentrates enforcement with the Labor Commissioner, but also provides for private action, potentially including Private Attorney General Act (PAGA) lawsuits.
g. Effectively requires a one-year public prominent posting (on a website or at a worksite) of notice that the entity was found to have willfully misclassified an independent contractor.
II. EEO: DISCRIMINATION/HARASSMENT
A. Protected Categories
1. The Fair Employment And Housing Act (FEHA)
This act applies to employers with five or more employees and includes additional categories: marital status, gender identity or expression, sexual orientation. Also includes those that are “perceived to be within any protected classification.” (Gov’t Code §§ 12900-12996.)
Broader definition of mental/physical disability than ADA, so many more employees are probably covered and an individual analysis must be done. Colmenares v. Braemer Country Club, 29 Cal. 4th 1019 (2003). The interactive process may be required even for those who actually may not be disabled but who are “regarded as.” Gelfo v. Lockheed Martin Corp, 140 Cal. App. 4th 34 (2006).
The definition of the protected category of “sex” includes gender, pregnancy, childbirth, and medical conditions related to pregnancy or childbirth. gender identity and gender expression. Gender expression is defined as a person’s gender-related appearance and behavior, whether or not stereotypically associated with the person’s assigned sex at birth. (Gov’t Code § 12940, Lab. Code § 4600.)
“Sex” also includes breastfeeding or medical conditions related to breastfeeding. (Gov’t Code § 12926.)
Religion is included under the FEHA’s protections. Gov’t Code §§ 12926, 12940.
d. Genetic Information
Discrimination in employment on the basis of genetic information is banned by the FEHA and the Unruh Civil Rights Act. (S.B. 559; amended Gov’t Code § 12921 and Civ. Code § 51.)
A. Same-Sex Marriage and Benefits Issues
On June 26, 2013, the Supreme Court issued its long-awaited decisions in two same-sex marriage cases. In Hollingsworth v. Perry, No. 12-144, the Court ruled that the proponents of a popular voter initiative that reversed same-sex marriage approval in California did not have standing to appeal a decision by a U.S. District Court that overturned the initiative (thereby restoring same-sex marriages in California). In Windsor v. United States, No. 12-307, the Court ruled that the section of the Defense of Marriage Act (DOMA) that required federal laws to ignore same-sex marriages that are legally entered into under an applicable state law is unconstitutional. The Windsor decision, in particular, will have a substantial impact on the design and operation of private employer benefit plans nationwide.
For a detailed discussion of how the Windsor decision will affect private employer benefit plans, see below:
B. Affordable Care Act Conformation
Effective October 1, 2013, the Affordable Care Act Conformation (California AB 2) requires that insurers limit enrollment in health care plans sold in the individual and small employer marketplaces to specified open enrollment periods for policy years on or after January 1, 2014. It also prohibits insurers from imposing any preexisting condition exclusions upon any individual or conditioning the issuance or offering of individual plans on any health status-related factors. The law also requires a health insurer to consider the claims experience of all individuals insured in its non-grandfathered individual and small employer health benefits plans to be part of a single risk pool, and requires the insurer to establish a specified index rate for that market. The insurer may only vary premiums based on specified factors, and insurers can only use age, geographic region, and family size for purposes of establishing rates. Insurers cannot market their grandfathered plans to dependents of the policy holders, and must issue an annual notice to policy holders enrolled in grandfathered plans. Finally, the law modifies the exceptions from the guarantee issue requirement and the manner in which an insurer determines premium rates for a small employer health benefit plan.
IV. WAGE & HOUR ISSUES
A. Wage Notice Requirements
Labor Code section 2810.5 requires employers to give new employees and, in other circumstances, current employees a particularized notice about their wages and other employment-related information. The Labor Commissioner has provided a form 2810.5 notice employers can provide to employees that lays out the requested information:
The law requires employers to provide each employee hired on or after January 1, 2012 with written notice at the time of hiring, in the language the employer normally uses to communicate employment information, of the following:
1. The rate or rates of pay to be paid to the employee, whether paid by the hour, shift, day , week, salary, piece, or commission, including rates for overtime;
2. Allowances claimed as part of the minimum wage;
3. The employer’s regular pay days;
4. The name of the employer, including any dba names;
5. The physical and mailing address of the employer’s main or principal place of doing business;
6. The employer’s telephone number;
7. The name, address and telephone number of the employer’s workers compensation insurance carrier; and
8. Any other information the Labor Commission determines material and necessary.
If any employer changes any information set forth in the notice, it must inform employees of the changes within seven calendar days after the changes take place, unless:
The law does not apply to an employee who is exempt from the payment of overtime wages or an employee covered by a valid collective bargaining agreement who qualifies for the union exemption.
An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with the requirements identified in Section 226 is entitled to recover the greater of all actual damages or a specified sum, not exceeding an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney’s fees.
Effective January 1, 2013, an employee is deemed to “suffer injury” if the employer fails to provide a wage statement or fails to provide a wage statement showing the name of the employee and the last 4 digits of his or her social security number or employee identification number. An employee is deemed to suffer injury for that penalty if the employer fails to provide accurate and complete information and the employee cannot promptly and easily determine from the wage statement alone the amount and manner in which the employer calculated the gross and net wages paid to the employee during the pay period, the deductions the employer made from the gross wages to determine the net wages paid to the employee during the pay period, and the name and address of the employer or legal entity that secured the services of the employer. Lab. Code § 226.
C. Wage Notice Requirements for Staffing Firms
Staffing firms must include new information on employee pay stubs. As part of the new wage notice requirements, staffing firms will be required to include their clients’ names and addresses on employee pay stubs, along with employee pay rates and the number of hours worked for each client during the pay period. Staffing firms can provide the client name and address as part of the wage theft notice at the time of hire or, if that information is not known at that time, in a timely wage statement or in a separate notice within seven days of an assignment. (The requirement that staffing firms must include pay rates and hours worked for each client on pay stubs becomes effective July 1, 2013.)
Answers to FAQs explaining how staffing firms can comply with the wage notice requirements and a copy of the wage notice template developed by California’s Division of Labor Standards Enforcement are available here: http://www.dir.ca.gov/dlse/FAQs-NoticeToEmployee.html
D. Minimum Wage And Overtime
1. Minimum Wage
Usually higher than federal, it is currently $8.00 an hour in California. Effective July 1, 2014, California’s minimum wage will increase to $9.00 an hour. Lab. Code §§ 1182.12, 1197; IWC Wage Orders § 4. http://www.dir.ca.gov/dlse/FAQ_MinimumWage.htm
2. One Day’s Rest In Seven
Every person employed in any occupation of labor is entitled to one day’s rest in seven. Lab. Code § 551; 552. Exemptions are identified in Labor Code section 554 for emergencies, agriculture, movement of trains, and other particular situations.
3. Overtime Requirements
a. General Rules
Employers must pay time and one-half for all hours worked over eight in one day, 40 in a single workweek, and for the first eight hours on the seventh day of work in a single workweek. Effective January 1, 2014, under California “Domestic Workers Bill of Rights,” domestic work employees employed as “personal attendants” (such as nannies) must receive overtime compensation at the employee’s regular rate for hours worked in excess of nine hours in any workday or 45 hours in a workweek.
Double-time compensation is generally required for all hours worked over 12 in one day and over eight hours on the seventh consecutive day of work in a single workweek. Lab. Code § 510; IWC Wage Orders § 3.
b. Regular Rate
Overtime is calculated as a multiple of an employee’s regular rate of pay. An employee’s regular rate is calculated on an hourly basis, which requires converting all monthly salaries, commissions, and noncash wages into an hourly figure. The regular rate is calculated before any deductions are taken from an employee’s wages. In no case may the regular rate be less than the applicable minimum wage.
California law: overtime due a nonexempt salaried employee is calculated as one-fortieth of the employee’s weekly salary. Lab. Code § 515(d) [total compensation divided by 40-hours, usually results is a higher regular rate than federal law]. Federal law: a salary can be divided by the total hours worked in the week to arrive at the regular rate and overtime is calculated differently. 29 C.F.R. § 778.109.
Employers cannot have a rule that says they will not pay for any unapproved overtime that is worked. Overtime must be compensated.
d. Out-of-State Employees
California’s Supreme Court has found that California’s overtime laws apply to nonresident employees that were temporarily working in California for a California-based employer who worked at least a full day in the state. Sullivan v. Oracle, 541 Cal. 4th 1191(Jun. 30, 2011).
e. White-Collar Exemptions
The most common overtime exemptions are for white-collar employees—executive, administrative and professional employees, and outside salespersons. Some IWC Wage Orders provide limited exemptions for employees in particular industries and occupations. Each of the exemptions has their own requirements, but generally the duties of job are key, independent judgment and discretion and the primarily engaged in duty test is required, that is 51% of the day needs to be spent on exempt level duties. It is also crucial to ensure that each workweek the salary needs to be at least $2,773.33 per month/$640 per week (2008) (no less than two times the state minimum wage for full-time employment, defined as 40 hours per week).
f. Inside Sales Exemption
Under IWC Wage Order § 4 (professional) or Wage Order § 7 (retail) section 3, employees may be exempt if their earnings exceed one- and-one half times the minimum wage and more than one-half of their compensation represents commissions compliant with the Labor Code.
g. Computer Professional Exemption
An employee in the computer software field shall be exempt from overtime requirements if he or she is paid on an hourly basis on an hourly rate of not less than $38.89/hr., and if an employee is paid on a salary basis, the employee earns an annual salary of not less than $81,026.25 annually for full time employment which is paid at least once a month, and in a monthly amount of not less than $6,752.19. Cal. Lab. Code § 515.5.
h. Licensed Physician
In order to qualify for the licensed physician exemption, a licensed physician must earn an hourly rate of not less than $70.86/hr. Cal. Lab. Code § 515.6.
4. Hours Worked
The Wage Orders generally define hours worked more broadly than federal law. Under federal law, hours worked includes all time that an employee is suffered or permitted to work. Under California law, hours worked means the time during which an employee is subject to the control of an employer, and includes the time the employee is suffered or permitted to work. IWC Wage Orders § 2.
5. Meal Periods
Thirty-minute, unpaid off-duty meal periods are required within 5 hours work. Meal periods are considered hours worked unless they are at least 30 minutes in length, the employee is relieved of all duty, and the employee is free to leave the premises. Time records should record meal periods. Second meal period is required if more than 10 hours are worked. One hour of additional wages is owed at the employee’s regular rate for each workday during which a meal period was not provided. Lab. Code §§ 512, 226.7; applicable IWC Orders. On-duty meal period waivers should be in writing and are permitted in very narrow scope jobs that qualify for such.
Note: Under federal law, there is no requirement that an employee be able to leave the premises for a meal period to be noncompensable.
In the seminal case Brinker Restaurant Corporation v. Superior Court, 53 Cal. 4th 1004 (Apr. 12, 2012), the California Supreme Court held that an employer’s duty to “provide” meal periods is a duty to relieve employees of all duty, empowering employees to decide how to use the meal period. The court stated employers have three potential choices for employees working at least 5 hours in a day: (1) to “afford an off-duty meal period;” (2) to obtain consent to a mutual waiver if the shift is no more than 6 hours; or (3) to obtain a written agreement to an on-duty meal period if circumstances permit. If an employee continues to work after an employer relinquishes control, the employer will be liable for regular wages “only when it ‘knew or reasonably should have known’” that the worker was working through the meal period. The court thus clarified that premium pay (an extra one hour’s wage) is not owed when an employer relinquishes control and an employee nevertheless decides to continue working.
The Brinker court also resolved when employers must make meal periods available. The court found that the obligation to provide a second meal period arises only if an employee works more than 10 hours in a day. The court concluded generally that the first meal must be afforded no later than the end of the employee’s fifth hour of work, and a second meal period must be provided no later than the end of an employee’s 10th hour of work. The court also noted that, due to differing language in other Wage Orders, the first meal period may be offered after six hours of work to employees governed by Wage Order No. 12 (motion picture industry) and those unionized employees governed by Wage Order No. 1 (manufacturing industry) who collectively bargain for that variance.
6. Rest Breaks
Employers must provide employees with a ten-minute paid rest period for four hours of work or substantial portion thereof (defined as any amount of time over two hours). The employee must be relieved of all duty. The 10 minutes does not include time going to or from break areas, and restroom breaks are not counted toward these 10-minute rest periods. No waivers are allowed—and no working through break and “leave early” policies are permitted. Employers must pay one hour of additional wages at the regular rate for each workday during which one-or-more rest periods were not provided. Lab. Code § 226.7; applicable IWC Wage Orders.
Regarding rest breaks, the Brinker court considered what is meant by the phrase “major fraction” as used in the rest break law. Wage Order No. 5 states the “authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof.” The court held that a “major fraction” of a four-hour work period is anything more than two hours over and above the prior four- hour work period.
Consequently, an employer is obligated to authorize or permit rest breaks as follows: an employee who works a shift of only 3.5 hours or less is not entitled to a rest break; an employee who works 3.5 to 6 hours is entitled to one 10-minute rest break; an employee who works more than 6 and up to 10 hours is entitled to two 10- minute rest breaks, and an employee who works more than 10 hours and up to 14 hours is entitled to three 10-minute rest breaks.
7. Recovery Periods
All employees who work outside must be “allowed and encouraged” to take cool-down periods in the shade for not less than five minutes at a time whenever employees feel the need to do so to protect themselves from overheating. Since August 2005, Cal-OSHA has required that employers must provide access to shade to all employees who work outside and must arrange for access to nearby shade when the temperature exceeds 85 degrees. There is no limitation in the regulations on how often employees can take such cool-down periods and no indication in the regulations as to when an employer could deny additional cool-down periods as excessive.
Effective January 1, 2014, employers will be liable for one hour of premium pay for missed “recovery periods.” A “recovery period” is defined by Cal-OSHA regs as “a cool down period afforded an employee to prevent heat illness.” The new law specifies that an employee cannot be required to work during a recovery, meal or rest period.
8. Lactation Accommodation
A reasonable amount of break time that may run concurrently with mandated paid rest breaks must be provided for lactating mothers. Additional required time may be necessary to accommodate and is unpaid. Employers must make reasonable efforts to provide appropriate, private space for mothers to express milk, other than the bathroom. Lab. Code §§ 1030-1033.
a. General Principles
Employers are not required to provide their employees with vacation benefits, but if an employer decides to do so it must comply with a number of requirements. Vacation is a deferred form of wages that vests as labor is performed. Lab. Code § 227.3. Paid time off or floating holidays that can be used for any purpose including personal, vacation or sick is treated the same under California rules. Employers may decide the amount of vacation and when employees can use vacation. Employers can also cash out an accrued vacation at year end that an employee earned but did not use. But, employees cannot insist on cash in lieu of taking vacation, with exceptions for required payment at termination.
b. No “Use It Or Lose It” But Reasonable Caps Are Okay
For non-ERISA based welfare plans: vacation carries forward to the following year and accrued, unused vacation must be paid to employees on termination at their final rate of pay, unless a CBA specifies otherwise. If an employer fails to pay vacation at termination, the employee will be entitled to waiting time penalties up to 30 days at their daily rate. Lab. Code § 203. A “reasonable” cap on vacation accrual that prevents employees from accruing additional vacation beyond the cap is permitted. Vacation will resume accruing after employees use vacation and it falls below the cap. A “reasonable” cap is still a matter of debate, but employees must be given a fair opportunity to take vacation at reasonable periods of time so that they can stay below the cap and continue vacation accruals. A cap equal to 1.75 times the employee’s annual vacation entitlement is currently accepted as reasonable.
c. Pro Rata Amount
How much vacation pay is owed to a terminated employee is calculated using a daily rate of accrual.
d. Exempt Employee’s Vacation
Employers can deduct a salaried exempt employee’s accrued vacation for partial-day absences that are covered by the FMLA/CFRA without disqualifying the employee’s exempt status. Although federal law permits employers to deduct an exempt employee’s accrued vacation for other types of partial-day absences without disqualifying their exempt status, California law is unsettled. Conley v. Pacific Gas & Electric Co., 131 Cal. App. 4th 260 (2005) [held that California law does not preclude a policy that allows employers to deduct for partial-day absences of four hours or more]. The California Supreme Court has yet to rule on the issue. Under both California and federal law, employers must allow exempt employees who have exhausted their vacation leave to take non-FMLA/CFRA partial day absences without a corresponding loss in pay.