Are You Prepared For California’s Sweeping Labor Law Changes?

Dec 10, 2019

With a new governor and a progressive state legislature, 2019 was a significant year for legislative developments in California labor and employment law. This article will summarize the four key pieces of employment law legislation in California and offer some suggestions for human resources and management professionals to consider in light of these new laws.

Contractor v. Employee

The most significant development in California is the passage of AB 5. This new law is the legislature’s codification of the California Supreme Court’s 2018 ruling in Dynamex v. Superior Court, making the ABC test the primary standard for determining whether a worker is an employee or an independent contractor in California, for wage and hour purposes.

The 2018 Dynamex ruling greatly narrows the classes of workers who will qualify for independent contractor status in California. AB 5 statutorily adopts the ABC test as the primary test for determining employee/independent contractor status for workers in California for purposes of California wage and hour law. The ABC test is difficult because prong “B” of the test requires that the worker “perform work outside the usual course of the hiring entity’s business” in order to qualify as an independent contractor.

A number of industries and professionals (those with strong lobbyists) have been expressly exempted from AB 5 and can still use the traditional right of control test for this analysis.

Who is exempted

Those exempted from the ABC test include: certain insurance agents/brokers; physicians, surgeons, dentists, podiatrists, psychologists, veterinarians; lawyers, architects, engineers, private investigators, accountants; securities brokers and investment advisors; certain direct salespersons; commercial fishermen; certain real estate licensees; repossession agents; newspaper distributors and carriers (actually exempted under a sister bill – AB 170), certain construction industry contract work, including trucking services; motor club services; referral agency work; and certain professional services contracts, including marketing, human resources professionals, travel agent services, graphic design services, grant writing, fine artist work, work of certain agents who practice before the IRS, payment processing services with independent sales organizations, services provided by certain still photographers or photojournalists, services provided by certain freelance writers, editors, and newspaper cartoonists, and services provided by certain estheticians, electrologists, barbers, manicurists, and cosmetologists.

The bill also exempts business-to-business contracting relationships from the ABC test, if specified conditions are met. Finally, the bill expressly states that the provisions of AB 5, including its exemptions, are intended to apply retroactively.

Employer action

In light of this bill, employers should closely re-examine their workforce to determine whether they are using any independent contractors in California. If they are, it is important to determine whether labeling these workers as independent contractors is still legally viable and practical considering the provisions of AB 5.

Advance arbitration agreements unlawful

This bill (AB 51) makes it unlawful for an employer to require employees to agree in advance to arbitrate most employment disputes (those alleging violations of the Fair Employment and Housing Act and/or the Labor Code).

Notably, this bill includes a provision stating that the law is not “intended to invalidate a written agreement that is otherwise enforceable under the Federal Arbitration Act (FAA).” This addition is intended to avoid the problem of FAA preemption. Unless invalidated by the courts (and challenges are expected), this bill will be enforceable as to agreements that are not covered by the FAA, but will not be a bar to agreements that are covered by the FAA.

AB 51 applies to “contracts entered into, modified, or extended on or after January 1, 2020.” Thus, arbitration agreements entered into prior to January 1, 2020 appear to be safe, but not if they are modified or contractually “extended” after the effective date. One final note – the bill does not apply to arbitration clauses contained in negotiated severance agreements or post-dispute settlement agreements.

Employer action

California employers should look very closely at any mandatory arbitration agreements they require employees to sign that include mandatory arbitration of employment discrimination, harassment and related claims. If these agreements are not covered by the FAA, which requires that the employer be engaged in interstate commerce, they may no longer be enforceable in California. Employers who are engaged in interstate commerce should make sure it is clear that their mandatory arbitration agreements are intended to be governed by the provisions of the FAA. In sum, employers may need to revamp their entire mandatory arbitration program, taking into account AB 51.

Employment discrimination claims extended

This bill (AB 9), which takes effect on January 1, 2020, significantly expands the statute of limitations to file a claim for employment discrimination, harassment, and/or retaliation under the Fair Employment and Housing Act (FEHA).

Under current and long-standing law, an employee who wants to sue for employment discrimination is required to first file an administrative complaint with the Department of Fair Employment and Housing (DFEH) before filing suit. Currently the administrative complaint must be filed within one year after the alleged discriminatory act, and then the employee has one year from the date of the DFEH’s issuance of a right to sue notice to file a lawsuit. This bill extends the employee’s time to file the administrative complaint from one year to three years.

The effect of this bill will allow employees to wait to file a lawsuit against an employer for four years after the alleged unlawful employment practice (three years to file the charge and then one year before the time expires to file the lawsuit).

This new law invites stale discrimination/harassment/retaliation claims that will be much more difficult to defend based on fading memories, management turnover, and inability to locate relevant documents and evidence. Indeed, the extended statute of limitations is longer than employers are even statutorily required to keep personnel records (which would have information relevant to a claim of discrimination).

Employer action

California employers will need to do a very careful job investigating employee misconduct, consider being more aggressive about obtaining witness statements during investigations, and will need to adjust their document retention policies to make sure that the relevant documents are still available and accessible for lawsuits that are not filed until many years after the incident/termination. California employers should expect to see an increase in litigation in this area as a result of this bill.

Private lactation space

This bill (AB 142), which is modeled after a local San Francisco lactation accommodation ordinance, specifies new lactation accommodation requirements for California employers, effective January 1, 2020.

A California employer must now provide an affected employee with a private space (other than the bathroom) that can be used for lactation. The space must have electricity, a table or other surface to hold equipment, and a place to sit. The employer must also provide a sink and refrigerator or other cooling device (for storing milk) near the employee’s workspace. An employee’s normal workspace may be used if it otherwise complies. There are additional provisions for multi-tenant buildings and agricultural employers.

Employers with less than 50 employees may seek an exemption from these specific requirements if compliance would pose an undue hardship, in which case the employer still has to accommodate lactation needs but may provide a bathroom (or other space) for this purpose. The bill also requires employers to adopt a written lactation accommodation policy (which may be freestanding or included in an employee handbook) and to distribute that policy upon hire and at the time of any relevant inquiry by an employee.

Unfortunately, the bill offers little guidance for how to handle lactation accommodation for field employees, such as technicians, salespersons, etc. The bill makes a failure to comply with its provisions equivalent to a failure to provide a rest break under the Labor Code, subjecting employers to significant monetary penalties for non-compliance.

Employer action

California employers should review their current policies and practices regarding lactation accommodation and draft new policies and implement new policies that are in full compliance with the additional requirements of AB 142. For employers with employees in the field, it is advisable to seek legal counsel to determine how to handle lactation accommodation for these particular employees and manage the risks.

Other employment laws

These four bills only reflect only some of the 2019 developments in California employment law. There are many other developments in such areas as modified sexual harassment training requirements, expansions of the organ donation leave law, new laws regarding discrimination based on natural hairstyles, increases in the minimum wage requirements and salary test for exempt employees and others.

It is advisable for all HR professionals and key management employees with responsibilities for managing employees in California to review all the new laws and ensure that they are taking steps to modify their policies and practices to be in compliance with the provisions above as well as the other changes to California employment laws.

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