United States: 2005 California Employment Law Legislative Update

The year 2004 did not bring the deluge of new labor and employment laws that characterized Governor Gray Davis’ tenure in Sacramento. However, the state legislation that was passed in 2004 and signed by Governor Schwarzenegger will nonetheless have a significant impact on California employers. The following is a brief summary of the newly passed legislation in the labor and employment area and the impact it will likely have on employers.

Shortly before he left office in 2003, former Governor Gray Davis signed AB 205, the California Domestic Partner Rights and Responsibilities Act of 2003. While California has long been a leader in extending legal protections to same-sex couples, the passage of AB 205 marks the state’s most comprehensive legislation yet. AB 205 eliminates many distinctions between registered domestic partners and married, opposite-sex couples under California law.

Effective Operative Date. AB 205 became effective on January 1, 2005 and is designed to grant registered domestic partners the same rights, benefits, duties, and responsibilities afforded spouses under California law. To qualify as "registered domestic partners," both individuals must file a declaration with the Secretary of State and satisfy additional requirements. Specifically, both partners must affirm under oath that they share a common residence, agree to be jointly responsible for each other’s basic living expenses, are not related by blood in a way that would prevent a civil marriage in California, and are at least 18 years old. Additionally, neither can be married to someone else. Domestic partners must be of the same sex or, if they are of opposite sex, at least one of the partners must be over the age of 62.

Employer Considerations. AB 205 generally provides that domestic partners registered with the State of California "shall have the same rights, protections, and benefits and shall be subject to the same responsibilities, obligations, and duties under law . . . as are granted to and imposed upon spouses." California Family Code Section 297.5(a). Although the Act does not explicitly state what changes employers must make to existing workplace policies, it instructs courts, when faced with any ambiguity regarding interpretation, to construe the provisions of the Act liberally. The following are specific protections provided under AB 205 for employees with registered domestic partners:

1. Public employers are prevented from discriminating against any person or couple because the person is a registered domestic partner; and
2. Registered domestic partners have the same rights regarding nondiscrimination as those provided to spouses.

California employers will likely be required to provide the following new benefits to employees with registered domestic partners: (a) the same health and welfare benefits as offered to employees’ spouses; (b) the right to take extended unpaid leave to care for a domestic partner; (c) non-ERISA benefits that are currently offered to spouses, such as moving expenses, membership, membership discounts, and travel benefits, and (d) the same rights regarding nondiscrimination as are provided to spouses.

Unresolved Issues. (1) Medical Leave: AB 205 amends only California law, not federal law. Because of this, AB 205 may create a conflict between the Family Medical Leave Act ("FMLA") and the California Family Rights Act ("CFRA") as they apply to spouses and domestic partners. When the provisions of both FMLA and CFRA apply, leaves run concurrently and may be simultaneously counted against the employee’s entitlement under both laws. However, when an employee takes leave that is recognized only under one of the two laws, only that law governs the leave rights and obligations, and the leave is charged to that law only. AB 205 will extend all benefits under CFRA to domestic partners, but the FMLA does not provide for any right for leave to care for the serious illness of a domestic partner. Thus, an employee who takes CFRA leave to care for a domestic partner will also be able to take FMLA leave for another qualifying event (e.g., to care for a parent or child with a serious health condition), while an employee who takes leave to care for a sick spouse may have to exhaust both CFRA and FMLA leaves concurrently. Consequently, in some instances, a domestic partner may be able to take up to 24 weeks of leave under certain circumstances, while a spouse will only be eligible for 12 weeks.

(2) Nondiscrimination Requirements: AB 205 extends to registered domestic partners the nondiscrimination provisions currently available under California law to spouses. However, AB 205 does not extend federal nondiscrimination laws such as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act.

AB 2208, also known as the "California Insurance Equality Act," was enacted on September 13, 2004 and generally requires insurance companies doing business in California to provide insurance policies that cover registered domestic partners to the same extent they cover spouses. AB 2208 applies only to insurance policies, so self-insured health plans are not subject to its equal benefit requirements. However, if HMOs or other insured arrangements are provided as part of the employers’ overall group health plan, AB 2208 is a concern. AB 2208 will apply to policies issued in California.

Employer Considerations. AB 2208 affects California employers indirectly by requiring HMOs and health insurers to provide equal coverage, under all policies, to spouses and registered domestic partners of covered employees. Existing law already requires HMOs and health insurers to offer policies that provide equal coverage to spouses and registered domestic partners. However, existing law does not require California employers to make such coverage available to employees under their HMO and insured health plans.

By limiting the HMO and health insurance products that are available for purchase in California, AB 2208 will essentially compel HMOs and health insurers to provide, rather than simply offer, equal coverage to spouses and registered domestic partners. In effect, AB 2208 indirectly requires California employers to make such coverage available to employees under their HMO and insured health plans. If a California employer wishes to purchase an HMO or insured health plan policy that covers employees’ spouses, such plans must cover employees’ registered domestic partners as well.

Because AB 2208 does not apply directly to California employers, it will not affect coverage under self-insured health plans sponsored by California employers.

Application of AB 2208 on Current Health Plans. AB 2208 is effective for group health insurance policies that are issued, amended, delivered, or renewed on or after January 2, 2005. Therefore, if a California employer’s HMO or group health insurance plan was issued on January 1, 2005, the new requirement will not apply until the plan’s renewal date.

Application of AB 2208 on Other Insurance. AB 2208 applies to other policies, such as life or disability, that are issued, amended, delivered, or renewed on or after January 1, 2005. Accordingly, any group life insurance policy that was issued on January 1, 2005 and defines an employee’s spouse as the beneficiary will be deemed to provide that, in the absence of a spouse, the employee’s registered domestic partner is the default beneficiary.

Unresolved Issues. If AB 2208 is interpreted to require employers, as opposed to only insurance companies, to provide equal domestic partner benefits, it may be preempted by ERISA. In general, ERISA preempts state laws that relate to ERISA plans. There is an exception for state laws that regulate insurance. However, ERISA provides that an insurance law that has the effect of regulating an ERISA plan will be preempted. Whether AB 2208 will be interpreted to impose any obligations on the employer, or whether the ERISA preemption argument will prevail, is an issue that will likely be determined through litigation.

This law, which was introduced by Senator Dunn as Senate Bill 796 ("SB 796") on February 21, 2003, created an altogether new section (Part 13, Sections 2698 - 2699) to Division 2 of the Labor Code. Fundamentally, SB 796 was intended to allow aggrieved employees to bring civil actions directly against their employers for penalties, rather than having to rely upon the state Labor and Workforce Development Agency ("LWDA") or its affiliates ("Labor Commissioner") to do so. The passage of this Act was a victory for the plaintiff’s bar as California employers are now forced to defend themselves both against claims before the Labor Commissioner and lawsuits by private individuals.

Effective Operative Date. SB 796 went into effect on January 1, 2004 and Sections 2698 - 2699 were effectively added to the Labor Code. Also called the "Labor Code Private Attorney General Act" (or in some circles, the "Sue Your Boss Law"), Section 2699 allows individual employees and attorneys to sue for alleged violations of the Labor Code if the appropriate governmental agency does not act on reported violations.

Ramifications. Section 2699 created new penalties for literally every violation of the Labor Code that did not already have an enumerated fine or penalty. It also enabled the plaintiff employee to share in 25 percent of the judgment.

Amendments/Modifications. In 2004, Governor Schwarzenegger signed reform legislation, Senate Bill 1809 ("SB 1809"). SB 1809 is a package of reforms to the Private Attorney General Act. However, plaintiff employees still get 25 percent of recovery from a Section 2699 suit, and attorney’s fees can still be awarded. Additional information regarding SB 1809 follows.

SB 1809 reformed the Labor Code Private Attorney General Act (the "Act"). It was passed as an emergency measure on August 12, 2004 and went into effect immediately. It both increased the complexity of the Act and restricted liability in some respects. SB 1809 changes the following code sections: (1) amends sections 98.6 and 2699 of the Labor Code; (2) adds sections 2699.3 and 2699.5 to the Labor Code; and (3) repeals section 432 of the Labor Code.

Two Changes Retroactive to January 1, 2004. (1) SB 1809 abolished civil penalties "for any violation of posting, notice, agency reporting or filing requirement of the [Labor] Code, except where the filing or reporting requirement involves mandatory payroll or workplace injury reporting." (2) Courts must now review and approve penalties in connection with any settlement agreement.

New Procedural Protections for Employers (Effective August 12, 2004). SB 1809 added procedural steps that an aggrieved employee must follow before filing suit. An aggrieved employee must now first give notice of the alleged violation to both the employer and the LWDA. The notice must include the specific code provision alleged to have been violated, and facts and arguments supporting the alleged violation.

The employee must wait 33 calendar days for the LWDA to initiate an investigation, and the LWDA has 158 total days in which to issue a citation. Only if the agency either declines to investigate, or determines that no citation is appropriate, can the employee go forward with the suit.

For Cal-OSHA violations, if the Department declines to cite the employer, the employee can go to court and must seek a reversal of the Department’s determination. If an alleged violation is issued by Cal-OSHA but no investigation occurs, the employer has an opportunity to cure the violation.

SB 1809 imposes a "cure" period for certain less frequently cited provisions of the Labor Code, allowing an employer to come into compliance by itself. "Cure" means to comply with the Code and make "aggrieved employees whole." This rather ambiguous definition will likely generate future litigation.

Anti-Retaliation Cause of Action. SB 1809 establishes a new cause of action for employer retaliation against an employee who asserts a claim or initiates a notice of an alleged violation. This will likely result in future litigation.

Penalties. Where the Labor Code sections at issue do not already contain a penalty provision, the penalty for a first-time violation is $100 per "aggrieved employee" times the number of pay periods during which the violation existed. This penalty doubles to $200 per aggrieved employee for repeat violations.

SB 1809 gives the courts authority to award a lesser amount than the maximum civil penalty if to do otherwise would result in an award that is "unjust, arbitrary and oppressive, or confiscatory."

Employer Precautions. Employers should aware of unique California Labor Code requirements and train human resources employees in these requirements. Employers should maintain accurate records, as documentation is essential. If an employee notifies the employer of an alleged violation, and the LWDA conducts an investigation, proper documentation is crucial to avoid a lawsuit under Section 2699.

Note: Labor Code Section 431 Repealed by SB 1809. Previously, under Labor Code Section 431, California employers were required to file all of their employment applications with the Division of Labor Standards and Enforcement ("DLSE"). However, SB 1809 repealed Labor Code Section 431, thereby eliminating this requirement.

On December 10, 2004, the Governor directed the DLSE to file proposed regulations to clear up confusion regarding meal and rest period rules. Public hearings on these regulations occurred in February and March 2005. The regulations are slated to become permanent following the public comment period that ended on March 2, 2005 and be located at Cal. Code Regs. ("CCR") Section 13700.

Two Significant Changes that will Provide Positive Results for Employers. (1) California employers who violate the meal and rest period requirements of the Labor Code (See Labor Code Section 226.7 and 512 et seq.) are required to pay, as a penalty, one hour of pay for each day for each employee, plus any compensation owed for the work. For years, the employer’s payments for these Labor Code violations were viewed as wages. With the inception of CCR Section 13700, all payments made by employers for such violations will be classified as "penalties," not wages. This seemingly simple change will provide far-reaching and positive results for employers:

1. It reduces the statute of limitations on Labor Code meal and rest period lawsuits to one year.
2. It may take alleged violations entirely outside the scope of the § 17200 Unfair Competition Law, depending on how the regulations are treated by the courts.
3. It eliminates the employer’s liability related to meal and rest breaks for "waiting time" penalties under Labor Code Section 203. The failure to pay a terminated employee all "wages" due upon termination normally subjects an employer to "waiting time" penalties under Labor Code Section 203 of up to 30 days worth of compensation. However, as "penalties" instead of "wages," alleged violations of meal and rest period requirements will no longer be subject to "waiting time" penalties.

(2) Under the stringent interpretation in the former regulations, employers had to provide a meal break immediately after five hours of work, even if the employee wanted to take a later break. The emergency regulations clarify that as long as the employer provides a meal break prior to the sixth hour of work, the worker can opt to take lunch during the sixth hour. In addition, under the new regulations, an employer will be deemed to have provided a meal period to an employee as long as the employer makes the meal period available to the employee and affords the employee the opportunity to take it, posts the applicable order of the Industrial Welfare Commission, and maintains accurate time records for covered employees. This gives more flexibility to both employers and employees.

Employer’s Obligations. When (and if) CCR Section 13700 takes effect, employers will need to do the following: (1) make meal breaks available and give employees an opportunity to take their break prior to the sixth hour of work; (2) post the Wage Order explaining the meal break requirements; and (3) maintain accurate time records.

Governor Schwarzenegger signed AB 1825 into law in September of 2004. AB 1825 adds section 12950.1 to the Government Code. In brief, the legislation requires California employers with 50 or more employees to provide supervisory employees with two hours of sexual harassment training before January 1, 2006 and then every two years thereafter. On its face, the law does not require all of the 50 employees to be located in California. Thus, the 50-employee test is likely based on an employer’s total U.S. employment, not just its California employees. Furthermore, the "employee" count includes temporary employees and independent contractors.

Applies to All Supervisory Employees. Training must be provided to all employees possessing supervisory authority. The Act does not define the term "supervisory authority;" however, a separate provision of the California Fair Employment and Housing Act ("FEHA") defines "supervisor" to include any person who can exercise independent judgment to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or direct the work of other employees, or effectively recommend any of these actions. Employers must be careful to keep track of employees who have been promoted or transferred to supervisory roles.

The Training Requirements. The training must include "information and practical guidance regarding federal and state [sexual harassment laws]," including prevention, correction, and remedies available. It must also include "practical examples aimed at instructing supervisors in the prevention of harassment, discrimination and retaliation, and shall be presented by trainers or educators with knowledge and expertise in the prevention of harassment, discrimination and retaliation." The Act does not require the trainer to hold any particular license or credential, but we recommend that all trainers be experienced human resource professionals or employment attorneys.

Training Records. Employers should keep detailed records of all the training provided to their employees. Records should include sign-in sheets showing which persons attended, the date the training occurred, the location of the training site, and the identity of the trainers. Additionally, employers should have experienced employment attorneys draft or review course material that is distributed to employees during training. Employers should receive signed acknowledgments from all employees verifying their receipt of the written material. Employers should retain the signed acknowledgments and a copy of the training materials on file.

Compliance Deadlines. Employees who have supervisory authority as of July 1, 2005 must receive two hours of training before January 1, 2006. If a supervisory employee has received training after January 1, 2003, he or she need not be retrained before January 1, 2006. After January 1, 2006, all supervisory employees must undergo training once every two years, and anyone promoted to a supervisory position must be trained within six months.

Violations. AB 1825 provides that the Fair Employment and Housing Commission ("FEHC") will "issue an order requiring the employer to comply with these requirements" to any employer found to be out of compliance. As a practical matter, failure to comply is likely to be viewed very negatively by judges and juries in the event of litigation.

Employer Considerations. Employers should understand that the two hours of sexual harassment training required under this legislation is a minimum threshold and there is no guarantee that meeting this requirement will reduce damages in cases of sexual harassment. The training will not provide a defense to supervisory harassment, because the law remains that a California employer is strictly liable for harassment committed by supervisors. More extensive training will be necessary depending on the circumstances. Although AB 1825 concerns itself with sexual harassment prevention, employers should also understand that harassment training that is limited to sexual harassment will not suffice under the current state of general California harassment prevention law. The training should be broad-based and should focus on preventing and eliminating harassment based on all forms of protected status (e.g., race, national origin, age, sex, sexual orientation, gender identity, religion, and disability). Also, training should not be limited to supervisors. Harassment prevention training and education should be routinely provided to all employees. Finally, and most importantly, the effect on punitive damages should be considered. The training should be set up and conducted in such a way so that the fact of training does not create a scenario where any harassment violation justifies punitive damages based on willfulness or knowledge attributed to upper management.

On December 10, 2004, the President signed the Veterans Benefit Improvement Act. This law creates two new requirements of particular importance to employers:

1. The Act requires employers to provide notice to employees of their rights under the Uniform Services Employment and Reemployment Rights Act ("USERRA") as of March 10, 2005. The Secretary of Labor can provide employers with the required form of notice.
2. The Act increases, from 18 months to 24 months, the maximum period of employer-sponsored health coverage that an employee covered by USERRA may elect to continue. This will provide a health benefit continuation for persons absent from work to serve in the military — even when their employers are not covered by COBRA. If such person’s health plan coverage would terminate because of an absence due to military service, the person may elect to continue the coverage up to 24 months. The effective date was December 10, 2004.

In September 2004, the Governor signed AB 2900. This bill amends existing labor and employment nondiscrimination provisions in California law to be consistent with the non-discrimination provisions in FEHA. Consequently, all laws, including the Education Code, Labor Code, Military and Veterans Code, Public Utilities Code, and Welfare and Institutions Code, now provide that an employer may not discriminate on the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, or sexual orientation. However, FEHA procedural requirements are not imported into these statutes, so that plaintiffs do not have to file a complaint with the Department of Fair Employment and Housing as they would in a normal FEHA case.

AB 2900 also affects an employer’s obligation with respect to unemployment insurance. Previously under the Unemployment Insurance Code, employees who voluntarily quit their jobs for "good cause" were eligible to collect unemployment insurance. AB 2900 clarifies that an employee has "good cause" to quit where the employer deprives him or her of equal employment opportunities in violation of the State’s job bias law.

In September 2004, the Governor signed AB 2028. This bill amends Section 1265.1 of the Unemployment Insurance Code to clarify that WARN Act and Cal-WARN Act payments are not wages for the calculation of Unemployment Insurance Benefits. The Cal-WARN Act already contains a provision (Labor Code § 1407) that indicates that Cal-WARN Act payments are not to be construed as wages or compensation for purposes of unemployment insurance. AB 2028 amends the Unemployment Insurance Code to be expressly consistent with this provision. AB 2028 also reduces exposure to liability for statutory penalties in the event of late or nonpayment.

This bill was passed in September 2004 and will not go into effect until January 1, 2008. On January 1, 2008, California employers will be required to list only the last four digits of an employee’s Social Security number, or an employee identification number, on pay statements. Until this change takes effect, the law requires employers to list both an employee’s name and entire Social Security number on pay stubs. A violation of the statute would result in a misdemeanor. Employers may not make this change until the effective date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.