Several new laws in California are placing new or additional requirements on employers. We have highlighted several of them.

Independent Contractors

A new law prohibits the “willful misclassification” of individuals as independent contractors. The law defines willful as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The law also prohibits the deduction of fees or other charges from the compensation paid to misclassified individuals that could not be deducted from regular employees. For example, employers sometimes deduct from independent contractors’ compensation the costs of renting workspace, licensing individuals and providing equipment.

The penalty for violating the law ranges from $5,000 to $15,000 per violation, or $10,000 to $25,000 when a repeated pattern or practice of violations is found. In addition, an employer could be forced to post a scarlet letter (notice of violation) on its website or in a public area at its business for one year. Joint and several liability can be assigned to individuals who knowingly advise an employer to misclassify an individual as an independent contractor to avoid employee status. The exceptions are employees providing the employer advice internally and advice from legal counsel.

Wage Theft Prevention Law

This new law requires employers to provide nonexempt employees with a notice detailing the employee’s rate of pay, the basis upon which the wages are calculated (whether hourly, daily, commission, etc.), and the applicable overtime rate, and allowances, if any, claimed as part of the minimum wage (e.g., meals or lodging). The notice must be provided at the time of hire or in the event of changes in a current employee’s wage. It must also include the employer’s name (including any fictitious or trade names), physical and mailing address, telephone number and designated regular payday, as well as the employer’s workers’ compensation insurance carrier information, including name, address and telephone number. A template of the notice can be found at www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf. If any changes are made to this information, the employer must inform each employee in the form of a new notice within seven days after the changes become effective.

The law also clarifies that, in addition to the applicable civil penalties, employers are required to provide restitution to employees paid less in wages than the minimum required by the California Industrial Welfare Commission. It also criminalizes, as a misdemeanor, willful violations of specified wage statutes or orders, or the willful failure to pay wages due under a final court order or order of the Labor Commissioner. The statute of limitations to collect statutory penalties has also increased from one to three years.

Commission Agreements Must Be in Writing

This amendment to California’s Labor Code requires that by January 1, 2013, when an employer enters into a contract of employment with an employee for services to be rendered within California and the “contemplated method of payment” involves commissions, the contract must be in writing and must set forth the method by which the commissions are to be computed and paid. The meaning of the term commissions is the same as that set forth in Labor Code Section 204.1, which generally excludes short-term productivity bonuses and profit-sharing plans.

Use of Consumer Credit Reports

Employers’ use of consumer credit reports has been limited. California law now prohibits employers and prospective employers, except certain financial institutions, from obtaining or relying on consumer credit reports of employees or applicants, with limited exceptions. With regard to private employers, those exceptions are whether the position a) is managerial, qualifying for the executive exemption from overtime; b) requires credit information by law; c) involves regular access to specified personal information, including bank or credit card account information, Social Security numbers and dates of birth (except for routine processing of credit card applications in a retail business); d) involves the employee or applicant being a named signatory on the employer’s bank or credit card accounts, or given authority to transfer money or enter into financial contracts on behalf of the employer; e) involves access to confidential or proprietary information defined as a trade secret under California law; or f) involves regular access to cash totaling $10,000 or more that belongs to the employer, a customer or a client.

If an employer only conducts a background check (e.g., criminal convictions, lawsuits filed, DMV records), then the new requirements do not apply. However, in addition to the existing requirement to provide the name, address and telephone number of the reporting agency conducting the background check, employers now must also provide the reporting agency’s website address.

Pregnancy Disability Leave

The California Family Rights Act (CFRA) has been amended to clarify that it is an unlawful employment practice for an employer to interfere with, restrain or deny the exercise of any right provided under the CFRA, or due to disability by pregnancy, childbirth or related medical conditions.

A new law in California also requires employers with five or more employees to maintain and pay for health insurance coverage under a group health plan for any eligible female employee who takes up to four months of leave due to pregnancy, childbirth or a related medical condition in a 12-month period. The benefits must be maintained at the same level and under the same conditions as if the employee had not taken the leave.

Gender Identity and Expression Protection

California’s Fair Employment and Housing Act has been amended to define gender as including both gender identity and gender expression. Thus, the law now prohibits workplace discrimination on the basis of gender identity (i.e., how the person sees himself or herself) and gender expression (i.e., how other people view the person). Gender expression is a person’s “gender-related appearance and behavior,” “whether or not stereotypically associated” with the sex assigned at birth. An employee must be allowed to dress consistent with the employee’s gender identity and expression.

With regard to each of these new laws, employers need to review their existing policies and practices and update all forms necessary to avoid incurring stiff penalties.