Employment Law update August 2017

August 2017 Legal Update

By Jennifer Douglas Phillips

DP&F Labor and Employment Partner


Richard Esparza v. KS Industries, L.P.  (August2, 2017) 2017 Cal.App. LEXIS 674

This case is a step forward for employers seeking to enforce arbitration agreements and limiting potential runaway Private Attorney General Act (“PAGA”) claims.   Employers with valid arbitration agreements can force employees to arbitrate unpaid wage claims even if the unpaid wages are sought as penalties under the Labor Code.  Since the 2014 California Supreme Court ruling in Iskanian v. CLS Transportation Los Angeles, LLC any penalties under the Labor Code, including those for unpaid wages, were considered exempt from arbitration if brought as part of a PAGA action. 

Esparza sought a PAGA action against KS Industries seeking civil penalties that would go to the state and unpaid wages that would go to individual aggrieved employees under Labor Code Section 558.  Under PAGA an aggrieved employee can stand in the shoes of the Labor Commissioner to collect civil penalties for all aggrieved employees impacted by specific Labor Code violations.  The civil penalties collected are then distributed 75% to the state and 25% divided among all the aggrieved employees.  In contrast, the unpaid wages are paid directly to the aggrieved employees. 

Esparza signed a valid arbitration agreement with KS Industries.  The trial court denied KS Industries motion to compel arbitration based on Iskanian.  The appellate court examined Iskanian and the Federal Arbitration Act and held that PAGA claims are excluded from arbitration if the recovery sought is strictly civil penalties.  The reasoning is that because the state of California is not a party to the arbitration agreement and the PAGA action for civil penalties is essentially an action in its name, those claims cannot be subject to the arbitration agreement between the employee and employer.   However, if the employee seeks unpaid wages for himself, even if those unpaid wages are considered “penalties” under the Labor Code, then those claims are subject to the binding arbitration agreement.

The appellate court sent the case back to the trial court for Esparza to clearly indicate if he was seeking unpaid wages.  If he is seeking unpaid wages the trial court is directed to stay the PAGA action pending the outcome of his individual arbitration hearing.  If he drops his wage claims then the PAGA action can proceed with the civil penalty portion only. 

This is a significant victory for employers.  It is also an opportunity to consider implementing an arbitration agreement if you do not currently have one.

Minnick v. Automotive Creations, Inc., (July 28, 2017) 13 Cal.App. 5th 1000

This case clarifies an employer’s right to limit vesting of vacation time for new employees.  It is well established law under the seminal case of Suastez v. Plastic Dress-Up Co., that once vacation is earned in California it cannot be taken away.  In this case Automotive Creations’ policy stated employees earned one week of vacation “after completion of one year service and a maximum of two weeks’ vacation after two years of service.”

Minnick left Automotive Creations after six months of service.  Automotive Creations did not pay him for any accrued vacation time in his final paycheck because he had not worked for the company for one year.  Minnick sued for accrued vacation wages on behalf of himself and similarly situated employees who left before completing one year of service.

The key is when vacation was earned under the employer’s policy.  In Suartez the policy at issue stated that employees earned a one-week vacation during the first year of employment.  In looking at that policy the court found the employee began accruing vacation time on the first day of employment and thus had “earned” the vacation wages as each day progressed.  If the employee left before the end of the first year the accrued vacation wages up until the last day of work would need to be paid out in the final paycheck.  In contrast, the Automotive Creations policy clearly stated that the vacation was not earned until after completion of one year service. 

California employers are not required to provide paid vacation.  Employers can also lawfully restrict the amount of vacation employees can accrue at any one time by placing caps on employees’ accrual.  By logical extension, the Minnick court clarified that an employer can properly decide it will provide paid vacation after a specified waiting period.  

The wording of the vacation policy is critical.  Make sure that any entitlement to vacation time is clearly defined to minimize any ambiguity as to when it is earned.

Revised New Form I-9 – Must Use Starting September 18, 2017

Just to keep us all on our toes the United States Citizen and Immigration Services (“USCIS”) issued a revised Form I-9.  The changes are not significant but employers must use it starting September 18, 2017. 

Notice of Rights of Domestic Violence, Sexual Assault and Stalking

Employers with 25 or more employees must give employees notice of their rights under Labor Code Sections 230 and 230.1 to take leave and/or to receive accommodations related to being the victim of domestic violence, sexual assault or stalking.  The notice must be provided at the time of hire and to current employees upon request. The notice requirement took effect July 1, 2017. The Labor Commissioner’s office recently published a notice with the required information.  Employers do not have to use the notice as long as substantially the same information is provided.  Employers can find the notice on the Labor Commissioner’s website at:   https://www.dir.ca.gov/dlse/Victims_of_Domestic_Violence_Leave_Notice.pdf

Four Pending Bills in California Legislature to Watch

1.       AB-1008 – Ban the Box:  This would extend to private employers the prohibition of asking applicants if they have ever been convicted of a crime.

2.       AB-168 – Prohibition of Salary History Inquiry:  We’ve been advising employers not to ask a job applicant salary history questions since passageto pay equity act prohibiting salary history as the sole basis of pay discrepancy.  Best not to even have that information in the file.  Now the legislature is hoping to make this law. If passed, this bill would also require employers to provide a pay scale for the position applied for to applicants upon request.

3.      SB-63 – Extends Baby Bonding Leave to Employers with 20 or more Employees:  California Family Rights Act (“CFRA”) requires employers to provide up to 12 weeks unpaid leave to employees to bond with a new child within one year of the child’s birth, adoption or foster care placement.  This law would extend the same entitlement to employees who work for employers with 20 or more employees within a 75 mile radius.  It extends only the baby-bonding entitlement of CFRA.  There would be no entitlement for time off for the employee’s serious health condition or the serious health condition of a family member.

4.       AB-1565 – Increase in Minimum Exempt Salary:   In reaction to the DOL’s failed overtime regulation, this law would increase the minimum threshold for exempt salary as of January 1, 2018 to $47,472 annually.  More specifically, this law would make the minimum monthly salary $3,956 or an amount no less than twice the state minimum wage for full-time employment, whichever is higher.   If not passed the minimum thresholds for exempt salary January 1, 2018 will be $43,680 ($10.50) for employers with 25 or fewer employees and $45,760 ($11.00) for those with 26 or more.  As of January 1, 2019 under existing law the salaries would be $45,760 ($11.00) and $49,920 ($12.00) respectively.  This proposed law would accelerate the increase in minimum salaries for the years 2018 and 2019 only.  Thereafter, the state minimum thresholds would automatically be higher.

2017 Employment Law Update – Top Ten Changes

Carle Mackie Power and Ross

Happy New Year!  Now that we are back from the holidays, it’s time to dust off the employee handbook, review your policies and procedures, and make sure they are compliant with the new employment laws taking effect in 2017.  This year, we have a combination of new laws, and existing laws that have been updated with additional protections.

1. California Minimum Wage Raised – On January 1, 2017, employers of 26 or more employees must pay $10.50 per hour as the minimum wage.  Employers of less than 26 employees will not be required to raise the minimum wage to $10.50 until beginning January 1, 2018.  Action: Review your pay policies to ensure they meet the minimum wage requirements.  Please note that many cities and counties in California have passed higher minimum wage requirements (Berkeley, Cupertino, El Cerrito, Emeryville, Los Altos, Los Angeles City and County, Malibu, Mountain View, Oakland, Palo Alto, Pasadena, Richmond, San Diego, San Francisco, San Jose, San Leandro, San Mateo, Santa Clara, Santa Monica and Sunnyvale).

2.  Federal Salary Basis Adjustment – Under state and federal law, employees may be deemed exempt from overtime if their positions meet certain criteria, including salary paid above a set rate.  In May of 2016, the DOL amended the federal rule to increase the minimum salary requirement from $455 per week to $913 per week ($47,476/year) exceeding the minimum salary set by California.  This new salary minimum was scheduled to go into effect on December 1, 2016.  However, the rule change was put on hold while the question of whether the DOL exceeded its authority in making this new rule is litigated.  The DOL may end up withdrawing the rule when the new administration takes over.  Thus, the California minimum salary requirement of two times the minimum wage (now $41,600 for employers under 26 people and $43,680 for larger employers) remains in effect.  Action: Ensure your pay policy meets the minimum salary requirement for all exempt employees as the minimum wage increases.  Also, keep an ear out for any policy shifts from the DOL as the administration changes.

3. Change to the I-9 Form – The government has issued a new I-9 form that must be used beginning January 1, 2017 for all new employees.  The form is available online at the USCIS website:  www.uscis.gov/i-9

4. California’s Legalization of Recreational Marijuana Use – With the passage of Proposition 64, California now allows people over the age of 21 to smoke or ingest marijuana, grow up to 6 plants and transfer up to 28.5 grams of marijuana without compensation.  Employers may implement policies limiting the use of marijuana by their employees, up to and including total prohibition.  Action: (i) Confirm your company’s stance on employee marijuana use (both on and off the clock); (ii) review your employee handbook to make sure it is consistent with your position; (iii) make necessary changes to the handbook; and (iv) communicate those changes to employees.

5. Trade Secrets [Handbook Edits Suggested] – In May of 2016, a federal law was created governing trade secrets, which supplements existing California law.  The federal law is substantially similar to the laws in California, but provides a better mechanism for immediate relief from trade secret misappropriation, along with the ability to seek punitive damages and reasonable attorney’s fees and costs.  Action: To take advantage of the new federal law, employers must notify their employees that whistleblowers of trade secret violations will receive criminal and civil immunity against claims of trade secret misappropriation so long as the report was made confidentially to a federal, state or local government official, an attorney or under seal in a lawsuit.  The inclusion of this notice into new agreements governing confidential information or trade secrets and in handbooks is voluntary, but makes these significant additional remedies available to the employer.

6.  Notice Required of Leave Available for Victims of Domestic Violence, Sexual Assault or Stalking [Handbook Edits Required] – Several years ago, Labor Code 230.1 was enacted, requiring employers of 25 or more employees to provide time off to victims of domestic violence, sexual assault or stalking to obtain medical attention, obtain services from a shelter or program, counseling or to plan for their safety.  Beginning in 2017, employers are required to notify new employees of certain rights under this law.  Current employees need only be notified of their rights upon request.  Action: Employers must notify new employees of several rights under the law: (1) that the employer prohibits retaliation against employees who use this leave, (2) that employees can use vacation, sick or any other time off they are already entitled to, and (3) that the right does not extend the amount of time off they are entitled to under the FMLA.  The Labor Commissioner will be creating a form for employers to use for this purpose.  In lieu of the form, handbooks can include the required language.

7.  Single-Occupant Restrooms Must Be Identified as “All-Gender” – By March 1, 2017, all business establishments that have single-user toilet facilities are required to change the sign to identify the restroom as “all-gender” and conform generally with normal signage requirements.

8.  Venue and Choice of Law – Labor Code section 925 now prohibits employers from obligating California-based employees to sign agreements that require lawsuits to be brought outside of California or under other states’ laws, if the employee “primarily” works in California.  This new law expands California’s right to adjudicate disputes between employers and employees.  Previously, out of state employers could insert terms into their employment contracts applying their home state’s law and forums, making it difficult for California employees to sue their employer.  Action: Review your employment contracts for any offending language and amend them to identify California as the choice of venue and law for California employees.

9.  EEOC Defines Rules Regarding National Origin Discrimination – The federal EEOC implemented new guidelines that are similar to California law.  The EEOC prohibits discrimination based on “national origin.”  The guidelines state that the place of origin can be a country, former country, or geographic region closely associated with a particular national origin group. National origin discrimination includes discrimination based on:

  • Ethnicity: A person can not be discriminated against because he or she either belongs, or doesn’t belong, to a particular ethnic group;
  • Physical, linguistic, or cultural traits: Subjecting a person to adverse employment action due to his or her accent, style of dress, or other traits associated with a certain origin may constitute discrimination;
  • Perception: Regardless of a person’s actual origin, if he or she is discriminated against due to the belief that he or she is of that origin;
  • Association: A person’s  association with someone of a particular national origin (for example, his or her spouse or child);
  • Citizenship: Employers may not make hiring decisions based on an applicant’s status as a citizen or permanent resident (other than the fact that the applicant must be legally able to work in the U.S.).

Employers must have a legitimate business reason for making employment decisions based on accents, such as: (1) the ability to communicate in spoken English is required to perform job duties effectively; and (2) the individual’s accent materially interferes with job performance.  There must be a legitimate business reason to make decisions based on fluency, if it is necessary for the effective performance of the position.  Finally, “English-only policies” are only legal if they are required to promote safe and efficient job performance or business operations, and are only enforced for those purposes.  Action: Review handbook language and other management training documents to ensure they are compliant with the law.

10.  Workers’ Compensation Coverage Exclusions Narrow for Business Owners – Previously, officers, directors and working partners were not required to be covered by a company’s Workers’ Compensation (WC) policy unless they opted in for coverage.  Beginning January 1, 2017 (and including in-force policies), officers, directors and partners are required to be covered unless they meet the narrow exception to allow them to opt out. For corporations, only corporate officers and members of the Boards of Directors who own 15% or more of the issued and outstanding stock of a corporation may opt out of WC. General partners of partnerships and managing members of limited liability companies can also opt out of coverage.  This law is intended to prevent employers (usually in high risk industries) from giving employees a small (e.g., 1%) ownership interest to avoid paying Workers’ Compensation insurance premiums. Action: contact your WC insurance carrier to ask for details on the new rules and for an opt in/opt out form.

Change on the Horizon:  Agricultural Workers Right to Overtime Phase In Beginning 2019-AB 1066.  The overtime rules for agricultural employees working for employers with 25 or more employees are changing beginning January 1, 2019.  Agricultural workers who work more than 9.5 hours per day and/or 55 hours per week will be entitled to 1.5 times their regular hourly rate.  The law will continue to roll-out between 2020 and 2025 until the overtime rules are in alignment with those for non-agricultural employees.  Action: No action is required this year.  However, we encourage agricultural employers to review their policies and increase their staffing if necessary to ensure they will be ready when the law goes into effect on January 1, 2019.

Have a great 2017, and please contact Dawn Ross or Samantha Pungprakearti for help with your labor and employment law needs – (707)526-4200; dross@cmprlaw.com; orspungprakearti@cmprlaw.com