New California Employment Laws for 2004

It is widely assumed that the new administration of California Governor Schwarzenegger will prove to be more sympathetic to the interests of employers than that of his predecessor, Gray Davis. California employers should take note, however, that during the past year the California Legislature passed numerous bills affecting employers that were subsequently signed into law by former Governor Davis prior to his recall. The following is a brief summary of the most significant employment-related laws, most of which became effective on January 1, 2004.

EMPLOYER LIABILITY FOR SEXUAL HARASSMENT BY NON-EMPLOYEES (AB 76)

In Salazar v. Paratransit, Inc., 103 Cal. App. 4th 131 (2002), a female bus driver sued her employer for, among other things, sexual harassment under California’s Fair Employment and Housing Act (“FEHA”) after she was repeatedly subjected to allegedly harassing conduct by a passenger. The Court of Appeal held that FEHA did not hold employers liable for harassing conduct by third parties not employed by the employer, such as customers or clients. Although the California Supreme Court granted review of the case in early 2003, the California Legislature subsequently passed AB 76 expressly rejecting Salazar. Under the new law, California employers may be held liable for sexual harassment of employees by customers, vendors, and other third parties if the employer knows or should have known of the harassment, and failed to take immediate and appropriate corrective action. This law took effect on January 1, 2004.

GENDER IDENTITY DISCRIMINATION AND HARASSMENT (AB 196)

AB 196 expands the definition of “sex” in the FEHA, Government Code section 12926, to include a person’s “gender.” The term “gender” now includes “the employee’s or applicant’s actual sex or the employer’s perception of the employee’s or applicant’s sex, and includes the employer’s perception of the employee’s or applicant’s identity, appearance, or behavior, whether or not that identity, appearance, or behavior is different from that traditionally associated with the employee’s or applicant’s sex at birth.” The result of this expanded definition is that discrimination against transgender employees or applicants is now explicitly prohibited under the FEHA. Despite this prohibition, AB 196 also includes a new statutory provision, Government Code section 12949, which makes clear that employers may require their employees to adhere to reasonable workplace appearance, grooming and dress standards consistent with state and federal law. However, employees must be allowed to appear or dress consistently with their “gender identity,” which appears to include cross-dressing. This law took effect on January 1, 2004.

THE LABOR CODE PRIVATE ATTORNEYS GENERAL ACT (SB 796)

The Labor Code Private Attorneys General Act of 2004 allows aggrieved employees to sue employers for civil penalties for the violation of any Labor Code provision other than the workers’ compensation provisions. In addition to their other remedies, aggrieved employees will be entitled to retain 25% of any civil penalties so awarded and to recover their attorneys’ fees and costs. The remaining 75% of any penalty award will go to the State of California’s general fund (50%) and the State’s Labor and Workforce Development Agency (25%). Under prior law, civil penalties could be collected only by a state agency. Under SB 796, the civil penalty for any Labor Code violation that does not already have an assigned penalty amount will be $100 per pay period for a first violation and $200 per pay period for any subsequent violations. Employees claiming to be aggrieved need not exhaust administrative remedies by filing an administrative complaint, and they may sue not only on their own behalf but on behalf of all similarly-situated current and former employees. This law took effect on January 1, 2004.

INCREASED PENALTIES FOR WAGE AND HOUR VIOLATIONS (AB 276)

AB 276 significantly increases the penalties for various types of labor code violations. Prior law provided that an employer who failed to pay wages or unlawfully withheld wages faced a penalty of $50 for the first violation and $100 for subsequent or intentional violations. AB 276 increases these penalties to $100 and $200, respectively. In addition, where an employer pays any of its employees less than the minimum wage, AB 276 increases the employer’s penalty from $50 per underpaid employee for each pay period to $100 per underpaid employee for each pay period. This law took effect on January 1, 2004.

ATTORNEYS’ FEES IN LABOR COMMISSIONER PROCEEDINGS (AB 223)

Under prior law, if an employee believed an employer had failed to pay wages required by contract or statute, the employee could either file a civil action against the employer or file a wage claim with the Division of Labor Standards Enforcement (“DLSE”) seeking administrative relief. In Smith v. Rae-Venter Law Group, 29 Cal. 4th 345 (2002), the California Supreme Court held that an employee who appeals a DLSE ruling and fails to obtain a larger award in court is responsible for paying the employer’s attorneys’ fees. AB 223 overrules this decision and amends section 98.2 of the Labor Code to allow an employee to recover attorneys’ fees when the reviewing court awards judgment in the employee’s favor for any amount greater than zero. The fact that the judgment awarded is more or less than what was awarded in the DLSE proceeding is irrelevant. This law took effect on January 1, 2004.

HEALTH CARE COVERAGE FOR UNCOVERED EMPLOYEES AND DEPENDENTS (SB2)

SB2 phases in, over a period of three years, employer-financed health care for California workers. This bill creates a State Healthcare Purchasing Program, which will be administered by the Managed Risk Insurance Board. The bill sets up a system in which California employers must either provide minimum health care coverage to their employees who have worked for at least three months and work at least 100 hours per month or pay into a state fund which will provide such coverage. Large employers, defined as entities with 200 or more employees, must provide coverage by January 1, 2006; medium-sized employers (those with 20 to 199 employees) must provide coverage by January 1, 2007, although participation by employers with 20 to 49 employees is conditioned upon the enactment of a tax credit. Small employers with fewer than 20 employees are exempt from the law’s requirements. An employer’s failure to timely submit its contribution will result in a fine of 200% of any contribution owed, plus accrued interest. Additionally, the bill makes it a separate unlawful act for an employer to attempt to evade the provisions of the law by: (1) making an employee an independent contractor or temporary employee; (2) reducing an employee’s hours of work; or (3) terminating and then rehiring an employee.

WHISTLEBLOWER PROTECTIONS (SB 777)

Under prior law, it was unlawful for an employer to make, adopt or enforce a policy, rule or regulation preventing an employee from disclosing a violation of a state or federal statute, or a violation of or noncompliance with a state or federal regulation to a government agency, or to retaliate against an employee for doing so. SB 777 expands that law by making it unlawful for an employer to retaliate against an employee for refusing to participate in any activity that would result in a violation of a state or federal statute, rule or regulation. Accordingly, an employer may now be liable even if the employee has not reported an alleged violation of a law or regulation to someone other than the employer. This new law also adds an additional civil penalty of up to $10,000 per violation, and establishes a whistleblower hotline which will receive calls from individuals who may have information regarding possible violations of state or federal statutes, rules or regulations. Lastly, employers are now required to display a list of employees’ rights under the whistleblower laws, as well as the telephone number of the hotline. This law took effect on January 1, 2004.

SERVICE OF ADMINISTRATIVE COMPLAINTS (AB 1536)

Under prior law, when a complaint alleging an unlawful practice was filed with the Department of Fair Employment and Housing (“DFEH”), the DFEH was required to serve the complaint upon the person, employer, labor organization or employment agency that committed the alleged unlawful employment practice within 45 days. AB 1536 provides that if the employee filing the complaint is represented by private counsel, private counsel and not the DFEH will serve the complaint and service must be completed within 60 days. This law took effect on January 1, 2004.

INCREASED PRIVACY FOR EMPLOYEE SOCIAL SECURITY NUMBERS (AB 763)

Civil Code section 1798.5 imposes limitations on how an individual’s social security number may be used and specifically prohibits: 1) publicly posting or publicly displaying in any matter an individual’s social security number; 2) printing an individual’s social security number on any card required for the individual to access products or services provided by the person or entity; 3) requiring an individual to transmit his or her social security number on the internet, unless the connection is secure or the social security number is encrypted; 4) requiring an individual to use his or her social security number to access an internet website, unless an additional authentication device, such as a password or personal identification number, is also required for access; and 5) printing an individual’s social security number on any materials that are mailed to the individual, unless state or federal law requires the social security number to be on the document or mailed. (Note that applications and forms sent by mail may include social security numbers.) AB 763 further amends Civil Code section 1798.85 by prohibiting the printing of an individual’s social security number on a postcard, a mailer not requiring an envelope, an envelope, or in such a way that the social security number is visible without the envelope being opened. This law took effect on January 1, 2004.

TIME OFF FOR CRIME VICTIMS (SB 478)

SB 478 creates section 230.2 of the Labor Code, adding a new category of leave for certain individuals to attend criminal court proceedings. Specifically, this provision requires employers to permit an employee who is a victim of a violent felony, a serious felony, or a felony involving theft or embezzlement to be absent from work so that he or she may attend judicial proceedings related to the crime. The bill also requires an employer to permit an immediate family member, registered domestic partner, or child of a registered domestic partner of a victim to be absent from work so that he or she may attend judicial proceedings related to the crime. If possible, the employee must give the employer notice of his or her planned absence from work by providing the employer with reasonable notice of each scheduled proceeding. However, the employer may not take any adverse action against the employee if the employee is unable to provide advance notice, provided the employee gives the employer documentation evidencing the judicial proceeding within a reasonable period of time after his or her absence. An employee who is absent from work pursuant to this provision may choose to use his or her accrued vacation time, personal leave time, sick leave time, compensatory time off, or unpaid leave for the absence. An employer may not discriminate or retaliate against an employee who is absent from work pursuant to this provision, and any employee who is discriminated against or retaliated against because he or she has exercised his or her rights under this provision may file a complaint with the Division of Labor Standards Enforcement within one year from the date in which the violation occurred. This law took effect on January 1, 2004.

FAMILY TEMPORARY DISABILITY INSURANCE—PAID LEAVE (SB 1661 AND SB 727)

In 2002, SB 1661 was signed into law creating the Family Temporary Disability Insurance (“FTDI”) program. Under that law, FTDI provides up to six weeks of wage replacement benefits to employees who take time off to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new child (including the child of a domestic partner). SB 727 makes additional changes to this law. It requires the Employment Development Department (“EDD”) to develop a certificate to be filed with the EDD by any employee taking leave to care for a family member. It also applies certain existing unemployment insurance provisions to family disability insurance benefit provisions. In addition, SB 727 defines the disability benefit period for purposes of the family temporary disability benefit program, clarifies the amount of benefits an employee is eligible to receive under the program for each full day that he or she is on leave, and authorizes the director of EDD to require the care recipient to submit to reasonable examinations, as provided. Lastly, it permits as a lien against any compensation to be paid an employee, the amount of FTDI benefits that have been paid to the employee. These benefits will be available beginning July 1, 2004.

WORKERS’ COMPENSATION REFORM BILLS (AB 227 AND SB 228)

AB 227 and SB 228 are complex bills that attempt to reform California’s ailing workers’ compensation system. Although many provisions of these laws do not directly affect employers, employers should be aware that SB 228 reduces the time period from 60 days to 45 days for an employer to provide payment to a physician who has provided medical treatment to an injured employee. SB 228 also increases the penalty to employers from 10% to 15% for amounts not paid to physicians. In addition, it establishes procedures for an employer to follow when objecting to a treating physician’s recommendation for spinal surgery, and requires every employer to establish a utilization review process, either directly or through its insurer, in accordance with specified criteria. This law took effect on January 1, 2004.

EMPLOYERS WITH STATE CONTRACTS MUST PROVIDE DOMESTIC PARTNER BENEFITS (AB 17)

AB 17 requires employers who enter into contracts with state agencies for $100,000 or more to provide equal benefits to employees’ spouses and domestic partners. The new law applies to contractors within the state, contractors with employees who work on property owned by California located outside the state, and contractors with employees who work at facilities where work on the contract is being performed. AB 17 does not take effect until January 1, 2007, for new contracts, and on January 1, 2008, for existing contracts. Every contract subject to the requirements must contain a statement certifying the contractor is in compliance.

SUFFICIENT FUNDS FOR WAGES IN CERTAIN LABOR CONTRACTS (SB 179)

AB 179 creates Labor Code section 2810 and requires that any labor contract for construction, farm labor, garment, janitorial or security guard services must provide funds sufficient to allow the labor contractor to comply with all applicable laws and regulations governing the labor or services to be provided. This law also imposes certain substantive requirements regarding covered contracts. The remedy for violation of the law is the greater of an employee’s actual damages or $250 per employee per violation for an initial violation, and $1,000 per employee for each subsequent violation. The employee also may recover attorneys’ fees and obtain injunctive relief. This law took effect on January 1, 2004.

EMPLOYMENT OF MINORS IN THE ENTERTAINMENT INDUSTRY (SB 210)

The law regulates contracts for employment between an unemancipated minor and third parties, including employment of the minor as an actor, dancer, musician, comedian, singer, stunt person, voice-over artist, or other performer or entertainer, or sports participant, and requires that a trust account be established for the purpose of preserving for the benefit of the minor at least 15% of the minor’s gross earnings. SB 210 defines a minor’s “gross earnings” and an “employer” for the purposes of establishing this trust account. SB 210 also limits the trust amounts to 15% of the minor’s gross earnings; specifies the time period within which a minor’s employer must receive a copy of the trustee’s statement; instructs the employer as what to do if it does not receive this copy; and conditions the issuance of certain work permits for a minor in the entertainment industry on the establishment of the trust account. Lastly, the bill limits the period during which the Labor Commissioner’s written consent for the employment of a minor in the entertainment industry remains valid. This law took effect on January 1, 2004.