As 2019 draws to a close, it is time to take a close look at some of the most important new laws that have been passed which will affect California employers in 2020 and beyond.  As always, employers should review their policies and practices to ensure ongoing legal compliance and to limit potential exposure. Be sure to consult with legal counsel as to any questions.

Contractor or Employee? How AB 5 will Impact California Employers

On September 18, 2019, California Governor Newsom signed AB 5, which codifies the California Supreme Court's groundbreaking ruling in Dynamex Operations West, Inc. v. Superior Court, (2018) 4 Cal. 5th 903. The statute fundamentally changes the test used to determine whether workers in California are employees or independent contractors. This monumental change to California employment law will require businesses operating in California to understand the intricacies of AB 5, and its numerous exemptions, and be aware of how their workers fit into this the new classification scheme. Failure to reclassify workers where appropriate will expose California employers to significant risk, including the collection of unpaid wages and back taxes, civil penalties, and civil (and potentially class action) litigation.

The bill will be codified as section 2750.3 in the Labor Code and is effective January 1, 2020. The bill presumes that all workers are employees, unless the hiring business can rebut this presumption. The new statute does not permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to the bill’s enactment.

While the text of AB 5 is lengthy and complex, it can generally be broken down into three main parts:

1. it adopts and codifies the “ABC” test established in Dynamex, to determine whether a worker is an employee or an independent contractor;

2. it expands the reach of the “ABC” test to include the California Labor Code and Unemployment Insurance Code, as opposed to only the Industrial Welfare Commission’s Wage Orders; and

3. it specifically exempts certain occupations, industries, and contractual relationships from the “ABC” test, and instead permits the use of the less-stringent, pre-Dynamex test established in G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, in certain specific circumstances.

Where a worker is not exempt, the “ABC” test applies. The “ABC” test presumes that all workers are employees, and places the burden on the hiring business to establish the following factors in order to classify a worker as an independent contractor: (A) the worker is free from the control and direction of the hirer in connection with the performance of the work; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity. If the hiring business fails to establish any of these factors, the worker will be classified as an employee.

AB 5 lists several specific occupations to which the older Borello test will continue to apply, including: insurance agents, surplus line brokers, analysts, physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, accountants, certain direct sales salespersons, securities broker-dealers, investment advisors, commercial fishermen, and certain newspaper carriers. AB 5 also provides that contracts for certain “professional services” are also exempt, under specific conditions. AB 5 defines “professional services” as the services provided by a human resources administrator, travel agent, graphic designer, grant writer, fine artist, payment processing agent, photographer, photojournalist, freelance writer, freelance editor, freelance newspaper cartoonist, esthetician, electrologist, manicurist, barber, or cosmetologist. In addition to falling into one of these categories of “professional services,” hiring businesses must also establish that the worker meets additional, very precise requirements, in order for the exemption to apply. AB 5 also contains several other miscellaneous exemptions, including for real estate licensees, repossession agencies, the construction industry, and relationships between referral agencies and service providers. 

Since the statute has not yet gone into effect, the full scope of AB 5 and its various exemptions, which are complex and specific, remain to be fully explored and potentially litigated. AB 5 is still very much a fluid statute, and California hiring entities should obtain appropriate guidance to ensure compliance with the newly-enacted law.

California Recognizes Discrimination Based on Race-Based Hairstyles

On July 3, 2019, California became one of the first states to ban race-based hair discrimination by enacting SB 188, also known as the Creating a Respectful and Open Workplace for Natural Hair (CROWN) Act. The CROWN Act expands the definition of “race” under the California Fair Employment and Housing Act (FEHA) to include traits historically associated with race, such as hair texture and protective hairstyles. “Protective hairstyles” include, but are not limited to, “braids, locks, and twists.” The new law goes into effect on January 1, 2020.

The CROWN Act acknowledges the disparate impact workplace dress code and grooming policies potentially could have on black individuals. Policies that prohibit natural hair, including afros, braids, twists, and locks, are more likely to deter black applicants and burden or punish black employees than any other group. The stated purpose of the CROWN Act is thus to enforce the “constitutional values of fairness, equity, and opportunity for all.”

California employers should review their dress codes, grooming policies, and general hiring and employment practices to ensure compliance with the new law. Employers operating nationally should monitor legislative developments—New York has enacted a similar law forbidding race-based hair discrimination, and New Jersey, Michigan, Wisconsin, Illinois, and Kentucky are also considering such legislation.

Additional Accommodations for Lactation Expression in the Workplace

SB 142 significantly changes existing law regarding an employer's obligation to provide accommodations to an employee for the purpose of expressing breast milk. Existing law:

• prohibits an employer, who is required by law to give an employee a rest period during a workday, from requiring the employee to work during the rest period;

• requires an employer to pay the employee one additional hour of pay, at the employee’s regular rate of compensation, for each rest period not provided;

• requires employers to provide a reasonable amount of break time to employees desiring to express milk for the employee’s infant child;

• requires an employer to make reasonable efforts to provide the employee with the use of a room, or other location, other than a bathroom, in close proximity to the employee’s work area, for the employee to express milk in private;

• exempts an employer from the break time requirement if the employer’s operations would be seriously disrupted by providing that time to employees desiring to express milk; and

• subjects employers who violate these provisions to a civil penalty of $100 per violation and authorizes the Labor Commissioner to issue citations for those violations.

SB 142 amends Labor Code section 1030 by requiring a "reasonable amount of break time" to express breast milk "each time the employee has a need to express milk."  The bill would also amend Labor Code section 1031 by adding additional requirements for a lactation room. As a result, a lactation room or location:

• must be private;

• may include the place where the employee normally works if that space otherwise meets the requirements of the Labor Code;

• shall not be a bathroom;

• shall be in close proximity to the employee's work area;

• must be shielded from view and free from intrusion while the employee is expressing milk;

• must be safe, clean, and free of hazardous materials;

• must contain a surface area to place a breast pump and personal items;

• must have a place to sit; and

• must have access to electricity, extension cords, or charging stations necessary to operate an electric or battery-powered breast pump.

The new law also requires that the employer provide access to a sink with running water and a refrigerator for storing milk in close proximity to the employee's workspace. 

Finally, Labor Code section 1034 has been amended to require an employer to develop and implement a policy regarding lactation accommodation that includes the following:

• A statement about an employee’s right to request lactation accommodation;

• The process by which the employee makes the request;

• An employer’s obligation to respond to the request; and

• A statement about an employee’s right to file a complaint with the Labor Commissioner for any violation of a right under this chapter.

The employer shall include the policy in an employee handbook or set of policies that the employer makes available to employees. The employer shall distribute the policy to new employees upon hiring and when an employee makes an inquiry about or requests parental leave.  If an employer cannot provide break time or a location that complies with the policy, the employer shall provide a written response to the employee.

The amendment thus provides employees with an undefined number of "additional breaks" for expressing milk. The expansion of these Labor Code sections creates significant potential liability for employers who fail to provide "reasonable breaks" "each time" the employee "has a need to express milk."

New Posting Requirements on Parental Leave 

The New Parent Leave Act (NPLA) took effect in January 2018 and expanded the availability of baby-bonding benefits to smaller employers (those with at least 20 employees). As amended by the NPLA, the California Family Rights Act (CFRA) provides 12 weeks of unpaid, job-protected leave for the birth, adoption, or foster care placement of an employee’s child if the employer has 20 or more employees. Under both the NPLA and the CFRA, employers must guarantee reinstatement to employees who avail themselves of this statutory benefit.

New posting requirements regarding the NPLA took effect as of April 1, 2019. Employers with 20-49 employees now have to post information on the available baby-bonding benefits, and employers with 50 or more employees have to update their previous postings. The new required postings primarily address the addition of the NPLA in the CFRA’s definition section, and the removal of gender-specific pronouns and references in the CFRA’s Certification of Health Care Provider form.

The posters must be displayed prominently where employees and applicants for employment can easily see them. If 10 percent or more of the workforce speaks a language other than English, a version must also be posted in that language. The Department of Fair Employment and Housing provides translated posters in several languages, and will work with an employer if another translation is needed. Some employers choose to purchase and display an “all-in-one” poster from a Chamber of Commerce, or other private organization. Employers may also need to update handbooks and train human resources personnel on the new leave policies and updated medical certification form. Employers with 20 or more employees should ensure their postings, handbooks, and trainings are up to date with the new requirements for baby-bonding leave to ensure compliance with the NPLA.

NO RE-HIRE PROVISIONS REMOVED FROM SETTLEMENT AGREEMENTS

As a result of AB 749, California employers need to review their standard settlement agreements to remove any "no-rehire" provisions.  Under the new law, which goes into effect on January 1, 2020, settlement agreements cannot contain any provision that prohibits, prevents, or otherwise restricts an employee from obtaining future employment with that employer or its parent companies, subsidiaries, divisions, affiliates, or contractors. Any such provisions found in settlement agreements entered into on or after January 1, 2020 are void as a matter of law and against California public policy.

The prohibition only applies to agreements with an “aggrieved person,” which is defined as a person who has “filed a claim against the person’s employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.” As a result, employers and employees remain free to enter into severance agreements with terminated employees that contain no-rehire provisions. However, any severance or agreement resolving an employment dispute would be implicated by AB 749. The new law also clarifies that it does not require employers to rehire employees where (1) the employer has made a “good faith determination” that the employee engaged in sexual harassment or sexual assault, or (2) the employer has a legitimate non-discriminatory or non-retaliatory reason for refusing to rehire the person. The new statute, however, does not define what constitutes a “good faith determination.”

Update on Sexual Harassment Training

Existing law that went into effect on January 1, 2019, expanded requirements for sexual harassment training such that it applies to employers with five or more employees (previously the sexual harassment training requirements applied to employers with 50 or more employees). The existing law includes requirements that employers provide:

1. at least two hours of classroom or other effective training and education regarding sexual harassment prevention to supervisory employees every two years;

2. at least one hour of sexual harassment prevention training and education to nonsupervisory employees every two years;

3. new employees with sexual harassment training within six months of hire; and

4. temporary or seasonal employees with sexual harassment prevention training within 30 calendar days after the hire date or within 100 hours worked, if the employee is expected to work for less than six months.

SB 778 extended the initial deadline for providing new training to those non-supervisory employees who were not previously covered under prior state law from January 1, 2020, to January 1, 2021. It also clarifies that employees who completed sexual harassment training in 2019 do not need to be retrained for another two years (i.e., until 2021), and then every two years thereafter (i.e., 2023, 2025). 

Statute of Limitations for FEHA Claims Extended to Three Years

Under existing law, the California Fair Employment and Housing Act (FEHA) requires that an employee alleging discrimination, harassment, or retaliation must first file a verified complaint with the Department of Fair Employment and Housing (DFEH) before he or she may file a civil action in court. Currently, an employee must file this DFEH complaint within one year from the date of when the wrong occurred. Once an employee receives a Right to Sue Notice from the DFEH, he or she has one year to file a lawsuit.

On October 10, 2019, Governor Gavin Newsom approved AB 9, known as the Stop Harassment and Reporting Extension (SHARE) Act, which extends the deadline to file an allegation of unlawful workplace discrimination, harassment, or retaliation under the FEHA with the DFEH from one year to three years. Employers should note that AB 9 does not revive claims that have already lapsed under the current one-year statute of limitations rule. 

Exclusion of Mandatory Arbitration Agreements at Outset of Employment

AB 51 prohibits employers from requiring employees to enter into arbitration agreements covering claims under the Fair Employment and Housing Act (FEHA) and the Labor Code as a condition of employment. The bill will be codified as a new section 432.6 in the California Labor Code, and it prohibits any person from requiring an applicant or employee to "waive any right, forum, or procedure" for a violation of the FEHA or the Labor Code, which includes the right to file a civil complaint in court or a complaint with government agency. It makes a violation of Labor Code section 432.6 an "unlawful employment practice" under the FEHA, and also prohibits employers from retaliating against an applicant or employee who refuses to agree to an arbitration agreement. However, AB 51 does not apply to "post-dispute settlement agreements or negotiated severance agreements." Further, it applies to agreements "entered into, modified, or extended on or after January 1, 2020."

Employer groups have already challenged AB 51 in federal court on the basis that it is preempted by the Federal Arbitration Act (FAA). The drafters of AB 51, anticipating a legal challenge, have attempted to address this by including subsection (f) which states, "nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the [FAA]."

The California Consumer Privacy Act Requirements for Employers

In 2018, the California Legislature passed the California Consumer Privacy Act (CCPA), a law designed to provide consumers with more control over the personal data that businesses collect on those consumers and to have that data deleted, among others. Under the prior iterations, the term "consumer" was broadly defined to include employees and job applicants. Because of this overbroad definition, the California Legislature enacted AB 25, which provides employers with a one year exemption to come into compliance with the law.

Specifically, covered employers have until January 1, 2021, to meet all of the CCPA’s requirements except for two. First, by January 1, 2020, covered employers must ensure they have implemented reasonable security measures, both physical and electronic, to safeguard the personal information of employees and job applicants. In the event of a data breach resulting from failure to implement reasonable security measures, an affected employee can file an individual lawsuit or a class action and potentially recover between $100 and $750 per consumer per data breach incident or their actual damages, whichever is greater. Accordingly, any employer covered by the CCPA should review their electronic and physical security measures to ensure they are appropriately protecting their employees’ data.

Second, starting January 1, 2020, covered employers must disclose to employees and job applicants the categories of “personal information” collected about them and the purposes for which the information will be used. The disclosure must be made before or at the time the employer receives the personal information of any employee or job applicant. The disclosure does not need to list every piece of information collected about the employee, but rather only categories of information. Under the CCPA, covered employers will be prohibited from using any employee personal information that is not listed in the disclosure provided to employees. Therefore, the disclosure should be as comprehensive as possible in terms of identifying all business purposes for which the information is used. Examples of business purposes in the employment context include:

1. to comply with state and federal law requiring employers to maintain certain records;

2. to effectively process payroll;

3. to administer and maintain group health insurance benefits, 401K and/or retirement plans; and

4. to manage employee performance of their job duties.

For current employees, the disclosure can be made to them as a group in the employee handbook or through a memo to all employees. Since the CCPA requires the disclosure be made at or before the transaction in which the personal information is collected, the best approach is to include the disclosure with the job application for job applicants or future employees.

Employers should be cautious; the term “personal information” is defined so broadly by the CCPA that it potentially covers all information employers collect, maintain, or share about job applicants, employees, and their family members or dependents that could identify the individual or be used in conjunction with other information to identify the individual. Specifically, personal information includes “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer.” The definition then identifies 11 categories and data elements, including “professional or employment-related information,” “education information,” and “characteristics of a protected category.”

So What is a Covered Business? 

The CCPA only applies to for-profit businesses that:

• do business in California,

• collect the personal information of consumers including employees, and

• satisfy any of the following criteria:

  • Have annual gross revenues over $25 million;

  • annually receive, sell, or share personal information about more than 50,000 or more California residents or households or 50,000 devices;

  • derive 50% or more of their annual revenue from selling personal information of consumers.

AB 25 delays requirements (as they apply to employers) that permit consumers to request the deletion of their personal information, the categories of personal information collected, and the categories of third parties with whom the business shares their personal information.