2012 Employment Law Updates for California

Last Updated: October 09, 2011

On October 9, 2011, Governor Brown addressed a number of employment-related bills that had been passed by the state legislature. While he vetoed several bills stating that they would be harmful for California businesses, he did sign into law quite a number of bills that are NOT good news for employers. Some of the areas impacted are significantly increased penalties on Independent Contractor Misclassifications, restrictions on the use of Credit Reports for employment purposes, redefined protected employment categories based on Genetic Information and Gender Identity, newly mandated Notice of Pay Details upon hire, Commission Agreements required to be in written contracts, and additional protections for employees on Pregnancy Disability and California Family/Rights Act Leaves.

The following is a brief description of a number of new employment laws that unless otherwise stated, go into effect on January 1, 2012:

Independent Contractor Misclassification Penalties – Employers who engage in “willful misclassification” of workers as independent contractors instead of employees will now be subject to severe civil penalties that include fines of $5,000 to $25,000 per violation plus other disciplinary measures. For more details, please see Vantaggio’s separate article Independent Contractor Misclassification Penalties Now Severe.

Pregnancy Disability Leave – Employers with 5 or more employees will now be required to maintain health insurance benefits for up to 4 months for an employee who goes out on a PDL leave. For more details, please see Vantaggio’s separate article Pregnancy Leave Benefits must now be Maintained under CA Law.

Credit Reports – This new law prohibits an employer or prospective employer (with the exception of certain financial institutions) from obtaining a consumer credit report for employment purposes unless the position is (1) in the state Department of Justice; (2) a managerial position (defined as an exempt executive); (3) a sworn peace officer or other law enforcement position; (4) a position for which a credit report is required by law; (5) a position that involves regular access, for any purpose other than routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person: bank or credit card information, social security number, and date of birth; (6) a position in which the person is a named signatory on the bank or credit card account of the employer, able to transfer money on behalf of the employer, or authorized to enter into financial contracts on behalf of the employer; (7) a position that involves access to confidential or proprietary information; or (8) a position that involves regular access to cash totaling $10,000 or more. The law will also require changes to the written notice that is given to a person when a credit report is being obtained, namely the employer will now need to specify which of the above reasons applies. For a full review of the new law, see California AB 22.

E-Verify – The U.S. Department of Homeland Security and the U.S. Social Security Administration have partnered to create the E-Verify system which allows participating employers to use the program to verify that the employees they hire are legally authorized to work in the United States. The program is currently voluntary for most employers other than government contractors. However, certain states and municipalities across the country have passed legislation mandating the use of E-Verify for certain or all employers in their jurisdiction. This new law prohibits the state of California, a city, a county, or district from requiring a private employer to use E-Verify. E-Verify presents a number of challenges which include information that is not always up to date, technology and training demands, and complex procedural requirements. Additionally, we find that many employers mistakenly believe that the use of E-Verify takes the place of the I-9 process and often use the system to perform checks on current employees which is prohibited. Due to these concerns and the risk of creating greater liability for themselves, our recommendation is that employers should not use E-Verify unless required to do so by law. For a full review of the new law, see California AB 1236.

Notice of Pay Details – AB 469, entitled “The Wage Theft Prevention Act of 2011” increases a number of penalties associated with an employer who fails to make correct wage payments, imposes new disclosure requirements on farm labor contractors, and increases the statute of limitations for the DLSE to collect penalties from 1 to 3 years. It also creates a new Notice of Pay Details that must be given to all non-exempt employees (other than government employees or employees covered by a collective bargaining agreement who earn no less than 30% more than minimum wage) at the time of hire. The notice must include (1) The rates of pay and the basis whether by the hour, shift, day, week, salary, piece, commission, or otherwise; (2) any allowances claimed as part of minimum wage such as meal or lodging allowances; (3) the regular payday established by the employer; (4) the name of the employer including any “doing business as” (DBA) names; (5) the physical address of the employer’s main or principal place of business and a mailing address if different; (6) the phone number of the employer; (7) the name, address, and phone number of the employer’s workers’ compensation carrier; and (8) “any other information the Labor Commissioner deems material and necessary.” Finally, an employer will be required to notify an employee in writing if any of the above information changes. Such notification must be within 7 calendar days of the change unless all changes are reflected on a timely wage statement or if notice is given through another legally required document with 7 days of the change. The DLSE is supposed to provide a template form to be used. For a full review of the new law, see California AB 469.

Commission Plans – Existing statutory law, which has been invalidated by existing case law, requires an employer who has no permanent and fixed place of business in California and who enters into a payment agreement that involves commissions for an employee who will perform services in the state to put the contract in writing. This bill would extend this written contract requirement to all employers effective January 1, 2013. The document must describe the method by which commissions will be computed and paid. The employer must sign the contract, provide a signed copy to the employee, and receive a signed receipt from the employee. “Commissions” are given the same definition as in the California Labor Law Code – if the compensation is based upon a percentage of the sale of the employer’s goods or services, a commission plan exists. “Commissions” does not include short-term productivity bonuses nor bonus or profit-sharing plans unless a fixed percentage of sales or profits is provided for work performed. In our experience, commission plans are often a source of confusion, misunderstanding, and thus complaints and litigation by employees. A well documented plan is essential and should include definitions of terms, details regarding timing of payments, how outstanding commissions will be handled upon termination, etc. For a full review of the new law, see California AB 1396.

Interference with CFRA and PDL – Existing California law under the California Family Rights Act (CFRA) makes it unlawful for an employer with 50 or more employees to refuse to grant an eligible employee up to 12 weeks of unpaid leave during any 12-month period to (1) bond with a new child, (2) care for an immediate family member with a serious health condition or (3) because of the employee’s own serious health condition. Under the California Fair Employment and Housing Act, employers with 5 or more employees are prohibited from refusing to allow an employee affected by pregnancy, childbirth, or related medical conditions to take leave for a reasonable period of time not to exceed 4 months or to be provided reasonable accommodation for such conditions. This new law makes it an unlawful practice for an employer to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under these laws. This new language is similar to the provision already contained in the federal Family Medical Leave Act (FMLA) and as such do not present a major change to an employer’s obligations. In fact, the law actually states that the changes it makes are simply a declaration of existing law. For a full review of the new law, see California AB 592.

Discrimination Based on Genetic Information – Existing California law already has significant statutory protections against the use of genetic information for employment purposes. One example is the California Fair Employment Housing Act (FEHA) which prohibits employers from discriminating against an employee based upon a number of factors including the employee’s medical condition which includes “genetic characteristics.” As such, this new legislation does not present a major change for most employers. It does, however, amend the FEHA and the Unruh Civil Rights Act to explicitly add “genetic information” to the list of prohibited bases for discrimination. The new language is very similar to the federal Genetic Information and Non-Discrimination Act (GINA) and defines “genetic information” as an individual’s genetic tests, the genetic tests of family members of the individual, and the manifestation of a disease or disorder in family members of the individual, and the request for, or receipt of, genetic services or clinical research that includes genetic services. For a full review of the new law, see California SB 559.

Discrimination Based on Gender Identity and Expression – In 2003, FEHA was amended to add gender “perception” or “identity” to the list of prohibited bases for discrimination. That legislation changed the definition of “sex” to include a person’s gender as defined under other California law, providing protection to cross-dressing and transgender individuals. This new law really only makes technical changes to a number of existing laws by including the terms “gender, gender identity, and gender expression” to the list of protected categories. It further defines gender expression as a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth. While not a new requirement, employers should be reminded that employees must be allowed to dress consistently with their gender expression. For a full review of the new law, see California AB 887.

What should employers do?

  • Review your independent contractor relationships for compliance.
  • Update your internal procedures, notices, and forms to reflect the new 4-month benefit continuation requirements for PDL leaves.
  • Review and update your employee handbook to ensure all new legal requirements are incorporated, especially with regards to medical insurance during PDL, FMLA, and CFRA leaves as well as an updated and complete list of protected categories.
  • Check with your third-party background and credit check company to ensure that the written notices provided to employees or applicants will now contain the reason for the credit report.
  • Review and amend hiring documents to comply with the Notice of Pay Details requirements.
  • Begin documenting all commission agreements.

If you need additional information about any of the above information or if you would like help with making the necessary compliance changes, please give us a call. Vantaggio can help with specific projects or can conduct a complete HR audit for your company.

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