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Employment & Labor E-Alert February 2008: Changes You Need to Know: New Legislation in California for the New Year

2/11/2008

Changes You Need to Know: New Legislation in California for the New Year

Governor Schwarzenegger vetoed almost all of the significant employment legislation that crossed his desk during his first three years in office. The California Legislature learned from this, and in 2007 the Legislature placed only a few employment-related bills in front of him, all relatively tame. As a result, none of this year’s new legislation will dramatically shake up the employment landscape.

The most significant change this year is a result of legislation passed in 2006, which raised California’s minimum wage. As discussed below, as of January 1, 2008, California’s minimum wage rate is now currently tied with Massachusetts for the second highest wage rate in the nation (behind only the State of Washington).

This article summarizes the most significant employment legislation that went into effect on January 1, 2008.

Minimum Wage Increase (Assembly Bill 1835)

Effective January 1, 2008, the minimum wage for California employees increased from $7.50 to $8.00 per hour. As a result of a City of San Francisco ordinance, the minimum wage for employees who work in San Francisco has increased to $9.36 per hour.

The increase in California’s minimum wage will affect a handful of other wage rates and overtime-exempt classifications under state law. For example,

It raises the minimum salary requirement for the executive, administrative, and professional exemptions to $2,773.33 per month ($33,280 per year).

Employees covered by collective bargaining agreements who are overtime-exempt must be paid “not less than 30 percent more than the state minimum wage.” Cal. Lab. Code § 514. Under the new increase, employers must pay such employees a minimum of $10.40 per hour to preserve their exempt status.

Commissioned employees who are exempt from California’s overtime requirement must be paid in excess of one and one-half the state’s minimum wage. See Cal. Wage Order Nos. 4 and 7, § 3(D). Following the new increase, employers must pay commissioned employees more than $12.00 per hour to preserve their exempt status, and more than half of that compensation must represent commissions. (Outside salespeople who receive commissions are not subject to normal minimum wage and overtime requirements.)

Employees who work split shifts must be paid one hour’s pay “at the minimum wage,” in addition to the minimum wage for that workday. Cal. Wage Order Nos. 1 through 15, see § 4 in each.

Employers should review their policies and procedures to ensure that employees are receiving no less than the new minimum wage. Employers who posted 2007 California minimum wage posters are still in compliance with their posting obligations because those posters governed years 2007 and 2008. See official poster available at http://www.dir.ca.gov/iwc/Minwage2007.pdf.

Reduction of Wage Requirement for Computer Professionals (Senate Bill 929)

SB 929 amends California Labor Code section 515.5 to reduce the minimum hourly wage necessary for computer professionals to meet the salary requirement for the computer professional exemption test. Before SB 929, Section 515.5 provided that employees in the computer software field could be exempt from overtime requirements, if those employees were primarily engaged in work that was intellectual or creative, the employee’s hourly rate of pay was not less than $41, and the employee met certain other duties requirements. To meet the exemption under SB 929, the employee must satisfy the same duties test, but now must be compensated at a rate of only $36.00 per hour, or the annualized full-time salary equivalent of that rate (i.e., $74,880.00 per year for a standard 40-hour workweek). As before the amendment, this minimum wage requirement will adjust annually based on the California Consumer Price Index.

Employers should review computer software positions formerly classified as non-exempt from overtime to determine whether these employees can now be classified as exempt under the amended professional exemption test. Re-classifying these employees as exempt will reduce overtime expenses and eliminate the need to pay the employees an extra hour of pay if they are not provided a meal or rest break.

Military Spouse Leave (Assembly Bill 392)

With AB 392, the Legislature has created a new category of leave for employees whose spouses are deployed to combat zones. Under the new law, an employee can take up to 10 days of unpaid leave when his or her spouse is on leave from deployment.

The law has a number of limitations:

It applies only to employers with 25 or more employees. The number threshold contains no further qualifications, so presumably these 25 employees can serve in any number of offices located anywhere, including outside of California.

Employers are required to grant leave only to employees who work an average of 20 hours per week, and the law does not apply to independent contractors.

The employee must give notice to the employer of the intention to take leave within two business days of receiving official notice that his or her spouse will be on leave from deployment.

The law applies only to employees with spouses who are in the active duty military or the National Guard or Reserves and who are deployed during a “period of military conflict.” The meaning of the ambiguous term “period of conflict” may well spark disputes. Nevertheless, the Legislature made clear that the law applies to employees with spouses serving in Iraq or Afghanistan.

The new law also bars an employer from retaliating against an employee for requesting or taking the new military spouse leave. It also specifies that the new leave rights do not affect any other rights that an employee has.

Harmonization of Anti-Discrimination Provisions (Assembly Bill 14)

California has a number of specific anti-discrimination statutes that apply to particular industries or practices, such as statutes that regulate horse racing tracks, tennis clubs, and car dealerships. Because these statutes were passed in a piecemeal fashion over decades, they do not all include the same list of protected classifications. For example, some do not include sexual orientation. The purpose of AB 14 is to harmonize these different statutes, so that they now refer to the same list of protected classifications. In general, if an anti-discrimination statute applies to public accommodations, it now applies to the same protected classifications as either the Unruh Act (sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation) or Government Code 11135 (race, national origin, ethnic group identification, religion, age, sex, sexual orientation, color, or disability).

AB 14 should not have any significant impact on most employers. It does not expand coverage of the Fair Employment and Housing Act or the Unruh Act – California’s primary anti-discrimination laws.

Interestingly, in this year in which the California Legislature passed this law harmonizing the anti-discrimination statutes, the California Legislature also passed a law, SB 836, which would have added “familial status” to the list of protected classifications under the Fair Employment and Housing Act. Governor Schwarzenegger vetoed this bill, however, on the basis that the term “familial status” is ambiguous and would have unnecessarily restricted employers’ abilities to make personnel decisions.

Extension of Eligibility Time for Temporary Disability Payments (Assembly Bill 338)

AB 338 amends California Labor Code section 4656 to extend the time period that an employee suffering from a single injury may collect temporary disability payments. Employees who sustain a single injury occurring on or after January 1, 2008 may now collect the aggregate of 104 weeks of temporary disability payments from the date of injury up to five years after the date of injury. Formerly, employees who suffered a single injury occurring on or after April 19, 2004 were eligible to collect 104 weeks of temporary disability for only up to two years following the date of the injury.

Notice of Earned Income Tax Credit (Assembly Bill 650)

Under AB 650, every employer must provide a notice to each California employee that he or she may be eligible for the federal earned income tax credit. This notice must be provided within one week before or one week after the W-2 is sent to the employee. It must be hand-delivered or mailed to the employee’s last known address. A notice posted on the bulletin board is not sufficient, nor is the use of office mail. AB 650 is currently in effect. Therefore, employers must be sure to comply this year when they distribute W-2s.

The new law specifies the language that should be used in the notice:

Based on your annual earnings, you may be eligible to receive the Earned Income Tax Credit from the federal government. The Earned Income Tax Credit is a refundable federal income tax credit for low-income working individuals and families. The Earned Income Tax Credit has no effect on certain welfare benefits. In most cases, Earned Income Tax Credit payments will not be used to determine eligibility for Medicaid, Supplemental Security Income, food stamps, low-income housing or most temporary assistance. Even if you do not owe federal taxes, you must file a tax return to receive the Earned Income Tax Credit. Be sure to fill out the Earned Income Tax Credit form in the federal income tax return booklet. For information regarding your eligibility to receive the Earned Income Tax Credit, including information on how to obtain the IRS Notice 797 or Form W-5, or any other necessary forms and instructions, contact the Internal Revenue Service by calling 1-800-829-3676 or through its web site at www.irs.gov.

California’s “Hands Free” Cell Phone Policy (Senate Bill 1613)

California’s Wireless Telephone Automobile Safety Act (SB 1613) takes effect on July 1, 2008 and will prohibit drivers from using their cellular phones unless they are using a hands-free device. The new law, however, has a few notable exceptions. For example, the law does not specifically address the use of personal digital assistants (PDAs), such as Blackberries and Treos. However, the wireless telephone functions of these devises likely would be prohibited. In addition, drivers of commercial vehicles may use push-to-talk phones until July 1, 2011. Also, the law does not apply to persons using wireless phones to contact a law enforcement agency or other safety entity for emergency purposes.

This new law, while merely a hassle for most drivers, may have a more serious impact on employers. Even before passage of this new law, employers could be held responsible for employee misconduct undertaken in the course and scope of their employment, i.e., an auto accident caused by an unobservant employee conducting business via cell phone while driving. However, under SB 1613, an employer’s liability may extend to, for example, employee accidents occurring before and after the workday if caused by an employee conducting business on his or her cell phone. In light of these concerns, employers should consider implementing policies regarding their employees’ use of cell phones and PDAs while working. An extensive article on this subject can be found on Rutan’s website at: http://www.rutan.com/siteFiles/Publications/915FEE9F1A9C49ADF0AC226E759D95C8.pdf

Enforcement of Workers’ Compensation Laws (Senate Bill 869)

Labor Code Section 90.3, which was enacted in 2002, requires the Labor Commissioner to establish and maintain a program for identifying employers who do not carry workers’ compensation insurance. As part of the program, the Labor Commissioner looks for employers with payroll but no record of workers’ compensation coverage. If no valid reason for the lack of coverage is shown, the Labor Commissioner inspects such employers on a priority basis.

SB 869, approved by the Governor in October 2007, amends Labor Code Section 90.3 by augmenting the Labor Commissioner’s reporting requirements. The amendment requires the Labor Commissioner to issue a report annually detailing the effectiveness of the enforcement program. The report must now include, among other things, the number and amount of penalties assessed as a result of the program.

SBl 869 is a part of a patchwork of growing laws aimed at curbing the underground economy, in which employers do not obtain workers’ compensation coverage or comply with other employment laws. Enforcing laws requiring employers to carry workers’ compensation coverage helps level the playing field for all employers.

Elimination of Social Security Numbers from Employee Paystubs (Senate Bill 1618)

SB 1618 amends California Labor Code section 226 to require that employers use no more than the last four digits of an employee’s social security number on all itemized pay statements. SB 1618 also permits employers, in the alternative, to use employee identification numbers other than social security numbers.

Whistleblower Protection at Health Care Facilities (Assembly Bill 632)

California Health & Safety Code section 1278.5 provides whistleblower protections for employees of health care facilities. Prior to the 2007 amendment, Section 1278.5 prohibited health care facilities from discriminating against employees who present a complaint, or who cooperate in the investigation of a complaint, relating to the care, services, or conditions of the facility.

As amended by AB 632, which was signed into law over the strong opposition of the California Hospital Association, this prohibition in Section 1278.5 is expanded to include discrimination against any patient or facility employee for: (1) presenting a grievance, complaint, or report to any entity responsible for evaluating or accrediting the facility or any other governmental agency, and (2) initiating, participating or cooperating in an investigation or administrative proceeding related to the quality of care, services, or conditions at the facility.

Two other provisions of AB 632, however, have proved to be more controversial:

Under AB 632, a rebuttable presumption that a facility’s actions with regard to a facility employee were retaliatory is established if “responsible staff . . . had knowledge of the actions, participation, or cooperation of” the person responsible for the “discriminatory action” against the whistle-blower, and that action occurs within 120 days of the employee’s filing of his/her grievance or complaint or other activities described above.

AB 632 also permits physicians aggrieved under the expanded protections described above to seek relief in court. This new provision, however, leaves open the possibility that a physician may initiate a lawsuit prior to the completion of the facility’s peer review process. This parallel-track dispute resolution model could drastically change the manner in which facilities must deal with physician complaints, and may incentivize physician lawsuits.