New laws that take effect at the turn of the year increase the risk of liability to those employers that do not plan for compliance. Some steps that employers should consider include:
- Taking a close look at how they classify workers, either as independent contractors or as employees, and determining whether, under the ABC test (see part II, below), if applicable to the employer’s industry, previously classified contractors need to be reclassified as employees.
- Assessing, on one hand, the risk of continuing to include arbitration agreements in employment arrangements against, on the other hand, the value of such agreements and the possibility that the law prohibiting such agreements will ultimately be struck down as preempted by the Federal Arbitration Act.
- Improving documentation of grounds for termination, changes in terms or conditions of employment or decisions not to hire an applicant, in light of the tripling of the length of the statute of limitation to bring a claim for discrimination, harassment or retaliation under the Fair Employment and Housing Act.
- Modifying settlement agreements to eliminate “no rehire” clauses, and improving documentation of determinations not to rehire former employees who have brought claims against the employer.
- Implementing measures to comply with those provisions of the California Consumer Privacy Act for which the effective date was not extended to January 1, 2021, including notice of personal information an employer is gathering from employees and applicants resident in California and bolstering security measures for such data, to avoid the private right of action for unauthorized access caused by a security breach.
II. AB5 – The Enshrinement of the Dynamex Decision in the Labor Code—with Exceptions
Building on the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (see https://weinbergerlawblog.com/2018/05/09/the-abcs-of-the-worker-classification-the-california-supreme-courts-new-dynamex-standard-expands-employee-protections/), the California legislature passed AB 5, enshrining the ABC test for independent contractor/employee classification in the California statutes.
AB5 makes clear that the ABC test for worker classification applies to the California Labor Code, the California Unemployment Insurance Code, and California Wage Orders. Under the ABC test, a worker is “considered an employee rather than an independent contractor” unless the hiring entity sustains its burden to show all of the following factors are met:
A. The worker “is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.”
B. The worker “performs work that is outside the usual course of the hiring entity’s business.”
C. The worker “is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
AB5 contains a host of exceptions – specified industries in which the ABC test does not apply to classification of workers. Most of those industries had heavily lobbied the Legislature for an exception. In many instances, where the statute states that the ABC test does not apply, it states that the long-time multifactor test for classifying a worker as a contractor or an employee, as stated in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, will apply.
Under Borello, the main factor in the classification determination is whether the person to whom the worker renders services has control or the right to control the worker with regard to the work done and the manner and means in which it is performed. Other factors considered include: whether the person performing services is engaged in an occupation or business distinct from that of the person for whom the work is performed; whether the work is a part of the regular business of the latter person; which party supplies the instrumentalities, tools, and the place for the person doing the work; the level of skill required for the services rendered; whether in the locality, the work done by the worker is usually done under the direction of the person for whom the work is performed or by a specialist without supervision; the worker’s opportunity for profit or loss depending on the work performed; the length of the work relationship; and whether the work is paid by time or by the job.
One or more ride-share companies are organizing to place an initiative on the California ballot to make AB5 and the ABC test inapplicable to their drivers. And some industries that the Legislature did not except from AB5 are contemplating constitutional challenges to the statute. For now, on or before January 1, 2020, companies treating workers as independent contractors will need to consider seriously whether to change their classification to employees.
III. AB51 – No Forced Arbitration Clauses with Employees
AB51, effective January 1, 2020, adds section 432.6 to the Labor Code to prohibit employers “as a condition of employment, continued employment, or the receipt of any employment-related benefit” from “requir[ing] any applicant for employment or any employee to waive any right, forum, or procedure for a violation of” the California Fair Employment and Housing Act (“FEHA”) or the Labor Code. The statute’s nonexhaustive list of rights, forums or procedures that an employer is prohibited from requiring an employee or applicant to waive includes “the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any violation.” The prohibition extends to any agreement that would require an employee “to opt out of a waiver”. The legislation also adds section 12953 to the California Government Code (where the FEHA is located), to make it “an unlawful employment practice for an employer to violate section 432.6 of the Labor Code.”
The legislation contains a savings clause, stating that it is not “intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act. . . .” And it excepts from the prohibition “postdispute settlement agreements or negotiated severance agreements.”
While the U.S. Supreme Court has ruled heavily in favor or enforcement under the Federal Arbitration Act of arbitration agreements between employers and employees, as well as class action waivers, it has based such ruling in large part on upholding the intention of the parties as disclosed in the arbitration agreements. It has not ruled on state laws that prohibit compelled arbitration agreements. How the Court views this new law may depend upon (1) whether it accepts the premise that, under the FAA, one condition of employment, that is, an arbitration agreement, can be singled out for prohibition, and (2) whether it sees the law as having a “disproportionate impact” on arbitration, which could make it subject to preemption by the FAA.
Pending a ruling on the statute’s enforceability, an employer runs the risk of liability under the FEHA for including as a condition of employment, the employee’s acceptance of an arbitration agreement.
IV. AB9 – Lengthened Statute of Limitations for Discrimination and Harassment Claims under the Fair Employment and Housing Act
AB9, effective January 1, 2020, amends the FEHA, in particular section 12960 of the Government Code, increasing from one year to three years the statute of limitations for filing with the Department of Fair Employment and Housing (“DFEH”) a complaint alleging discrimination, harassment or retaliation in violation of the FEHA. Filing a complaint with the DFEH and obtaining notice from that department that it will not pursue a civil action with regard to the complaint is a necessary prerequisite to a plaintiff filing a civil action in court for FEHA violations.
AB9 does not revive claims that have lapsed under the current statute of limitations, and it does not change the one-year limitations period for a plaintiff to file a civil action for FEHA violations, which starts to run from the date of the DFEH’s notice that it will not pursue a civil action.
Because a complaint for FEHA violations may now be filed up to four years after an alleged violation of that statute, employers should take greater care to document all decisions and actions taken with regard to hiring, discipline, promotions, demotions, termination and other terms and conditions of employment. Statutes of limitation are adopted to provide sufficient time for an injured party to bring a lawsuit to seek redress and at the same time place an outer limit on such claims, to avoid the fading of memories, loss of records and other impacts on evidence that parties may need to offer to pursue or defend against a claim. AB9 resets the balance in favor of allowing later claims over the risk that evidence will be lost by the passage of time.
V. AB749 – Prohibition on “No Rehire” Provisions in Settlement Agreements
AB749 adds section 1002.5 to the California Code of Civil Procedure effective January 1, 2020, to ban inclusion in an agreement settling an employment dispute of any provision that “prohibit[s], prevent[s], or otherwise restrict[s] a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim, or any parent company, subsidiary, division, affiliate, or contractor of the employer.” Any provision that violates this provision is void.
The new law will not prohibit an agreement between an employer and aggrieved employee to end an employment relationship or a provision to prohibit the aggrieved employee from further employment, where “the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault.” In addition, the new law will not require an employer “to continue to employ or rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.”
In light of this law, where an employer is considering terminating employment of an employee who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process, the employer should be even more careful to assure that it has documented defensible reasons to terminate the employee. Likewise, if a former employee who has filed such a claim applies for re-employment, the employer should have documented defensible reasons not to employ him or her.
VI. SB688 – Expansion of Labor Commissioner Authority to Issue Citations for Failure to Pay Wages
SB688 amends section 1197.1 of the Labor Code to expand the Labor Commissioner’s Authority to issue a citation for underpaid wages. In addition to the Labor Commissioner’s authority to issue a citation to an employer for having paid less than the minimum wage to its employees, the Commissioner is empowered, effective January 1, 2020, to issue a citation to an employer that has “paid a wage less than the wage set by contract in excess of the applicable minimum wage” in order to obtain restitution of the amounts underpaid. This amendment provides an additional means for employees to recover wages they allege an employer failed to pay in accordance with a contract.
The law requires an employer that challenges a Labor Commissioner finding of unpaid wages in court to post a bond for the amount of found by the Commissioner to be due and owing. The bond is forfeited to the Labor Commissioner if the court affirms or modifies the Commissioner’s finding and the employer fails to pay that amount within 10 days of the court’s ruling.
VII. SB778 – Extension of Deadline to Provide Harassment and Abusive Conduct Training
This legislation extends the time from January 1, 2020 to January 1, 2021 for employers with five or more employees to provide at least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees and at least one hour of classroom or other effective interactive training and education regarding sexual harassment to all nonsupervisory employees in California.
VIII. AB25 – Partial Reprieve on Applicability of the California Consumer Privacy Act (“CCPA”) to Employers
AB25 gives employers with employees who reside in California limited breathing room to prepare for the full application of the new law to data they gather from such employees. For an employer to which the CCPA applies – that is, a for-profit entity that either (1) has annual gross revenues over $25 million; or (2) alone or in combination, annually buys, receives for its commercial purposes, sells, or shares for commercial purposes, alone or in combination, the personal information of 50,000 or more consumers, households, or devices; or (3) derives 50 percent or more of its annual revenues from selling consumers’ personal information – the application to employees’ personal information is delayed until January 1, 2021, but only to the extent that such information is used for purposes of the employment relationship.
Employers to which the CCPA is applicable must still be prepared for the law as of January 1, 2020, because of the following provisions:
- Absent adoption of a further delay in the CCPA’s applicability to employers, as of January 1, 2021, businesses will be required to disclose data collected during the prior 12 months upon a request. Tracking of such data should start on January 1, 2020.
- AB25 does not delay the January 1, 2020 implementation date for the requirement that a company notify its employees resident in California of the categories of personal information to be collected and the purposes for which that personal information will be used. Likewise, without further notice to employees of additional data to be collected or other uses to which the information collected will be used, the company will be limited to collecting the data and using it as described in the notice.
- AB25 does not delay the January 1, 2020 implementation date for the requirement that employers comply with the other CCPA requirements if they use employee data for non-employment purposes, for example, to market goods or services to employees; those requirements include disclosure and right to opt out of sales of personal information.
- AB25 does not delay the January 1, 2020 date authorizing an employee to bring a private right of action for data breaches impacting his or her data.