2012 Brings A Whole New Set Of Obligations And Challenges For California Employers

Governor Brown signed a significant number of bills into law during the 2011/12 legislative term, many of which will have a direct impact on almost every California employer, regardless of size. Many laws impose new obligations on employers and prevent employers from engaging in what they may otherwise thought was previously permissible. Below is a summary of the employment-related legislation that goes into effect on January 1, 2012 (except where noted).

1. AB 22 – Consumer Credit Checks.

Adds Labor Code section 1024.5, which will prohibit an employer or prospective employer (with limited exceptions for financial institutions) from obtaining consumer credit reports unless the person for whom the report is sought has or will have a position in one of the following categories:

a. A managerial position;

b. A position with the state Department of Justice;

c. A sworn peace officer or other law enforcement position;

d. A position for which the information in a credit report is required to be disclosed or obtained by another law;

e. A position that involves regular access to someone’s bank or credit card accounting information, SS number, and date of birth (does not include routine solicitation and processing of credit card applications in a retail store);

f. A position where the person is, or would be, any of the following: i) a named signatory on the bank or credit card account of the employer; ii) authorized to transfer money on behalf of the employer; or iii) authorized to enter into financial contracts on behalf of the employer;

g. A position that involves access to certain confidential or proprietary information; or

h. A position that involves regular access to cash totaling $10,000 or more of the employer, or its customers or clients, during the workday.

It also amends Civil Code section 1785.20.5 to require that the written notice provided to prospective employees prior to requesting a credit report for employment purposes, to identify the specific basis (per Labor Code section 1024.5) for the use of such a report. All other notice and disclosure requirements currently in effect under the state Consumer Credit Reporting Agencies Act remain in place. Violation of the new law can result in lawsuits for damages, attorney’s fees and costs, as well as additional penalties of up to $5,000 for each violation.

2. Written Commission Agreements.

While the Labor Commissioner and certain courts have already held that an employer must have a written commission plan explaining the calculation of, and entitlement to, commissions, there was no state law that mandated such writing until now.

AB 1396 (not effective until January 1, 2013) will amend Labor Code section 2751 and require that all commission compensation arrangements “shall be in writing and shall set forth the method by which the commissions shall be computed and paid.” The new law defines “commissions” as “compensation paid to any person in connection with the sale of the employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include short-term productivity bonuses or bonus and profit sharing plans, unless based on an employer’s promise to pay a fixed percentage of sales or profits as compensation. Failure to comply with the new law can expose the employer to an action for penalties of $100 per pay period per aggrieved employee under PAGA.

3. Wage Theft Prevent Act of 2011

AB 469 is effective January 1, 2012 and amends and adds a number of provisions to the California Labor Code. Below are a few of the provisions of the new law employers will want to know.

a. Amends Labor Code section 98 to permit the Labor Commissioner to award liquidated damages to an employee who succeeds in a claim for a violation of the minimum wage law. Previously only a court could award liquidated damages;

b. Amends Labor Code sections 240 and 243 to permit the Labor Commissioner to require an employer who is convicted of a wage violation or who fails to satisfy a judgment for unpaid wages to maintain a bond for up to two years and, if an employer fails to do so, impose penalties of up to $10,000;

c. Amends Labor Code section 1174 to increase the number of years an employer must keep employee identification and payroll records as required under that section from two years to three years. Also provides that an employer may not prohibit an employee from maintaining their own “personal” record of hours worked or piece rate units earned. (ASIDE: The DOL’s new app for IPhones will help employees do that);

d. Amends Labor Code section 1194.2 to increase the amount of liquidated damages a court can award to twice the amount of the unpaid wages plus interest in any action before the court under Labor Code sections 98, 1193.6 or 1194;

e. Provides that an employer who willfully fails to pay (and has the ability to pay) a final court judgment or final order issued by the Labor Commissioner for all wages due, is guilty of a misdemeanor and subject to fines between $1,000 to $20,000, and possible jail time;

f. Requires employers to provide each non-exempt employee at the time of hire with a notice that includes the following: i) the rate or rates of pay and basis thereof (e.g. hourly, shift, day, week, salary, piece, commission, etc., including overtime rates); ii) allowances, if any, claimed as part of the minimum wage (e.g. meal or lodging credits/allowances); iii) the dates of regular payday(s); iv) the name of the employer, including any dba’s; v) the physical address of employer’s main office or principal place of business, and a mailing address, if different; vi) the employer’s telephone number; vii) the name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and viii) any other information the Labor Commissioner may deem necessary and material (which means employers will likely see further requirements from the Labor Commissioner before the effective date of the new law). Finally, if any of the information required to be in the notice changes, a new written notice of such change must be provided to each employee within 7 calendar days of the change unless the change is reflected on a timely wage statement.

4. Continuation of Health Coverage under the PDL.

Unlike under the FMLA and CFRA which require an employer to continue group health insurance benefits for an employee out on a family medical leave (up to a maximum of 12 weeks), there was no requirement to do so when an employee was out on pregnancy disability leave (PDL).

SB 299 will require employers to maintain and pay for coverage under a group health plan for an employee out on PDL. PDL provides for an employee to take up to a maximum of four months of leave for disabilities related to pregnancy, child birth, or a related medical condition. Therefore, the obligation to continue health insurance coverage could potentially be for up to a four month period.

5. Misclassification of Independent Contractors.

This is a very important new law and will only bolster the heightened scrutiny over the misclassification of workers by a number of state and federal agencies. In fact the federal DOL has entered into MOU’s with a number of states (California has not yet signed, but is expected to) which provide for collaboration between the DOL and states to audit and take enforcement action against companies that misclassify workers as individual contractors.

SB 459 adds section 226.8 to the Labor Code. The new law prohibits the willful misclassification of an employee as an independent contractor by a consultant or an employer, and prohibits charging misclassified individuals a fee, or taking a deduction from their compensation, if it would otherwise violate the law had the individual been classified as an employee. “Willful misclassification” means that an employer is trying to “avoid employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

Violation of the new law can result in serious consequences, including: a) a court or the California Labor and Workforce Development Agency (LWDA) can impose civil penalties between $5,000 and $15,000 for each violation, or $10,000 to $25,000 for a pattern and practice of violations; b) the LWDA or court can contact the state’s Contractors License Board and require the Board initiate action; and c) the LWDA or court will require any person or employer who willfully misclassifies a worker to prominently displace a notice on its website, or if no website, in an area that is accessible to all employees and the general public, a notice stating: i) it has committed a serious violation of the law by willfully misclassifying employees as independent contractors; ii) it has changed its business practices to avoid further violations; iii) that any worker who believes he/she is being misclassified may contact the LWDA (contact information must be included); and iv) that the notice is being posted pursuant to a state order. The notice must be signed by an officer of the company and remain posted for one year.

The bill also adds section 2753 to the Labor Code. This new law provides that any person, who for money or other valuable consideration, knowingly advises an employer to treat a worker as an independent contractor to avoid employee status for that worker, shall be jointly and severally liable with the employer if the worker is found not to be an independent contractor. The new law does not apply to attorneys providing legal advice in the course of the practice of law or a person who provides advice to his or her employer.

6. Out of State Workers’ Compensation Coverage.

Previously, if a California employer had employees who performed work out of state from time to time, they had to obtain a separate workers’ comp policy to cover the employees under the laws where they worked.

AB 228 amends Insurance Code section 11780.5 to provide that the State Compensation Insurance Fund (SCIF) may also insure a California employer against his or her liability for workers’ compensation benefits, under the law of any other state, for California employees

temporarily working outside of California on a specific assignment if SCIF insures the employer’s other employees who work within California.

7. No Mandated E-Verify by Government Agencies.

E-Verify is a federal program administered by the U.S. Department of Homeland Security and the US Social Security Administration. Some federal laws require certain employers to utilize the program. Otherwise, other employers can voluntarily use the program to verify that the employees they are hiring are authorized to work in the U.S. (e.g. that the identification documents utilized to complete the federal I-9 Form are in fact legitimate).

AB 1236 (known as the “Employment Acceleration Act of 2011” adds Article 2.5 (section 2811, et. seq.) to the Labor Code. It provides that, except as required by federal law, or as a condition of receiving federal funds, neither the state nor a city, county, city and county, or special district shall require an employer to use an electronic employment verification system, including under the following circumstances: (a) as a condition of receiving a government contract; (b) as a condition of applying for or maintaining a business license; or (c) as a penalty for violating licensing or other similar laws.

8. Expanding the Definition of “Gender”.

AB 887 amends, among other statutes, the Fair Employment and Housing Act (FEHA) (Government Code §§12920, et. seq.) to include gender expression in the definition of “gender.” “Gender expression” is defined as “a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth. The new law makes it unlawful to discriminate on the basis of gender identity and gender expression and also requires employers to allow an employee to appear or dress in a manner consistent with the employee’s gender expression.

9. Protection of “Genetic Information.”

Consistent with the federal Genetic Information Nondiscrimination Act (GINA), SB 559 amends, among other statutes, the FEHA (Government Code §§12920, et. seq.) to include “genetic information” as protected from forming the basis for employment discrimination. “Genetic information” is a separate category from “genetic characteristics” which were already protected under FEHA. “Genetic information” includes any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by an individual or any family member of the individual. It does not include information about the sex or age of any individual.

On the other hand, “genetic characteristics” means either of the following: (a) any scientifically or medically identifiable gene or chromosome, or combination or alteration thereof, that is known to be a cause of a disease or disorder in a person or his or her offspring, or that is determined to be associated with a statistically increased risk of development of a disease or disorder, and that is presently not associated with any symptoms of any disease or disorder; or (b) inherited characteristics that may derive from the individual or family member, that are known to be a cause of a disease or disorder in a person or his or her offspring, or that are determined to be associated with a statistically increased risk of development of a disease or disorder, and that are presently not associated with any symptoms of any disease or disorder.


Wow…. that was a lot to digest wasn’t it. What should employers do now? Well, because of the immensity of the new laws, and the consequences for failing to comply with them, employers are advised to work with their employment counsel to ensure that their policies and procedures are updated appropriately, and that they take all steps necessary to train their supervisors and managers to comply with the new obligations. The employment lawyers at Weintraub Genshlea Chediak Tobin & Tobin are available to assist employers in their understanding of, and compliance with, these new laws. Please feel free to contact us.