Los Angeles, Calif. (December 30, 2020) - In addition to bringing a global pandemic, 2020 was an unprecedented year filled with important judicial rulings and legislative changes throughout the Golden State. Below is a summary of the most critical legal updates affecting employers and employment litigation in California.
AB 51 – Prohibition on Mandatory Arbitration Agreements
AB 51 prohibits mandatory arbitration agreements for nearly all types of employment law claims. AB 51 was set to take effect on January 1, 2020. However, this new bill sparked concern among employers who wished to maintain the benefit of resolving disputes in a private, more defense-friendly forum. As a result, the U.S. Chamber of Commerce and other business organizations filed suit against the State of California in the United States District Court for the Eastern District of California. The plaintiffs also requested a temporary restraining order (TRO) to have AB 51 declared preempted by the Federal Arbitration Act (FAA).
On December 30, 2019, Judge Kimberly Mueller granted a TRO preventing the defendants, California Attorney General, California Labor Commissioner, the Labor and Workforce Development Agency (LWDA), and the Department of Fair Employment and Housing (DFEH), from enforcing AB 51. On January 31, 2020, Judge Mueller granted a preliminary injunction extending the blockade on AB 51's enforcement.
In light of the District Court's decision, the defendant-appellants filed an opening brief with the United States Court of Appeals for the Ninth Circuit on May 28, 2020. According to the appellants, the District Court erroneously assumed that the FAA applied to AB 51. On August 17, 2020, the plaintiff-appellees filed a response brief defending the preliminary injunction. The appellees argued that AB 51 was yet another attempt by California to promote anti-arbitration legislation.
On December 21, 2020, the Ninth Circuit heard oral arguments by both parties. As of now, we are awaiting a decision by the Court.
AB 5 – ABC Test for Independent Contractor Classification
AB 5, which went into effect on January 1, 2020, codifies the “ABC test” for the classification of independent contractors. Under the ABC test, a worker may be properly classified as an independent contractor only if (1) the worker is free from the employer's control, (2) the worker performs work outside of the employer's regular course of business, and (3) the worker is customarily engaged in an independently established business of the same nature as the work performed. Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. AB 5 expanded the Dynamex ABC test to workers in all industries subject to specific exceptions. In September 2020, AB 2275 carved out freelancers from 15 additional industries such as writing and photography.
AB 5 was subject to several court challenges by rideshare companies Uber Technologies, Inc. and Lyft, Inc., as well as by the California Attorney General and the City Attorneys of Los Angeles, San Francisco, and San Diego. On August 10, 2020, Judge Ethan P. Schulman of the Superior Court of San Francisco issued a preliminary injunction ordering Uber and Lyft to classify drivers as employees. Uber and Lyft requested a stay until either their case was heard by the Ninth Circuit or until the November 2020 election results for Proposition 22 were finalized. Judge Schulman denied the stay but granted a ten-day grace period for appeal. On October 22, the California First District Court of Appeal upheld the injunction.
California's victory was short-lived, however, as on November 3, 2020, over 58% of California voters approved Proposition 22, which exempted app-based transportation and delivery companies from the requirements of AB 5. Proposition 22 “classifies drivers for app-based (rideshare) and delivery companies as ‘independent contractors,' not ‘employees,' unless company: sets drivers' hours, requires acceptance of specific ride and delivery requests, or restricts working for other companies.” Independent contractors are not subject to various state employment laws, including minimum wage, overtime, unemployment insurance, and workers' compensation. Under Proposition 22, independent-contractor drivers will instead be entitled to other compensation, including minimum earnings for time driving (but not time waiting), healthcare subsidies, and vehicle insurance.
AB 673 – Broadens Scope of Labor Code Section 210
AB 673 broadens the scope of California Labor Code section 210 to permit recovery of statutory penalties for late wage payments by affected employees.
Prior to this legislation, only the Labor Commissioner could recover civil penalties by either bringing an independent suit or participating in administrative proceedings to recover unearned wages. Under AB 673, however, an employee may recover statutory penalties under section 98 of the Labor Code on an individual basis through a private right of action. The penalties are paid to the affected employee only. The Labor Commissioner no longer has the right to bring an independent action.
For initial violations, AB 673 imposes a $100 penalty. For subsequent, willful, or intentional violations, the new law imposes a penalty of $200 plus 25% of the unlawfully withheld amount.
Notably, AB 673 provides that “[a]n employee is only entitled to either recover the statutory penalty provided for in this section or to enforce a civil penalty as set forth in subdivision (a) of Section 2699, but not both, for the same violation.” Accordingly, an employee must choose whether to recover in a private right of action or through a Private Attorneys General Act (PAGA) action.
SB 1383 – Expands California Family Rights Act
SB 1383 expands the California Family Rights Act (CFRA) and makes it an unlawful employment practice for any employer with five or more employees to refuse to grant a request by an employee to take up to 12 workweeks of unpaid protected leave during any 12-month period. With this expansion, the CFRA will now also apply to much smaller employers – those with five or more employees – with no geographical restrictions.
Additionally, while the CFRA already allowed an eligible employee to take unpaid leave to care for a “family member” with a serious health condition, SB 1383 builds on this premise and expands the scope of who should be identified as a “family member.” Under SB 1383, a “family member” now includes grandparents, grandchildren, siblings, and domestic partners. With the expanded definition of “family member,” employers with 50 or more employees who are subject to both CFRA and Family Medical Leave Act (FMLA) requirements may now face the possibility of providing 12 weeks of leave for a CFRA-qualifying family member, and also have to provide an additional 12 weeks of leave under the FMLA for an FMLA-qualifying event.
Finally, SB 1383 removes the CFRA exception that the employer need not provide more than a total of 12 weeks of leave for the birth, adoption, or foster care placement of a child if both parents work for the employer. Now, the employer must provide both of those employees with 12 weeks of leave. SB 1383 officially goes into effect on January 1, 2021.
LEGISLATION RELATED TO COVID-19
The Families First Coronavirus Response Act (FFCRA)
Effective April 1, 2020, the FFCRA requires all public entities and private entities with fewer than 500 employees to provide either:
Two weeks (up to 80 hours) of paid sick leave at the employee's regular rate of pay where the employee is unable to work because they are quarantined and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee's regular rate of pay for employees with a bona fide need to care for a quarantined individual, to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or if the employee is experiencing a substantially similar condition.
Under the FFCRA, both part-time and full-time employees are eligible if their employment has lasted at least 30 days. However, small businesses with fewer than 50 employees are exempt from the requirement to provide leave due to school closings or child-care unavailability if the leave requirements would risk the viability of the business as a going concern.
Statewide Supplemental Paid Sick Leave for Food Sector Workers
On April 16, 2020, Governor Newsom signed an executive order extending supplemental emergency paid sick leave to food sector workers. Under the order, food sector workers are entitled to 80 hours of COVID-19 Supplemental Paid Sick leave if:
- The worker is full-time; and
- The worker worked or was scheduled to work, on average, at least 40 hours per week in the two weeks preceding the date the worker took COVID-19 Supplemental Paid Sick Leave.
Workers who do not meet the above criteria may still be entitled to some leave if:
- The worker has a normal weekly schedule, the worker is entitled to leave equal to the total number of hours the worker is normally scheduled to work over two weeks; or
- The worker works a variable number of hours, the worker is entitled to leave equal to fourteen times the average number of hours the worker worked each day in the six months preceding the date the worker took COVID-19 Supplemental Paid Sick Leave, or the entire period the worker has worked if fewer than six months.
Such leave is to be paid at the worker's regular rate of pay for the last pay period, the state minimum wage, or the local minimum wage to which the worker is entitled, whichever is the highest, subject to a cap of $511 per day and $5,110 in the aggregate. Also, a hiring entity may require the worker to use any other paid or unpaid leave, paid time-off, or vacation time provided by the entity before using COVID-19 Supplemental Paid Sick Leave under the order.
Los Angeles Emergency Sick Leave
On April 7, 2020, Los Angeles Mayor Eric Garcetti signed an emergency order that supplemented the FFCRA by requiring paid sick leave for companies operating within the city of Los Angeles with either 500 employees in the city or 2,000 employees nationally. Pursuant to the emergency order, such companies must provide two weeks (up to 80 hours) of paid sick leave based on the employee's regular rate of pay (capped at $511 per day and $5,110 in the aggregate) for all full-time and part-time employees if:
- The employee takes time off due to COVID-19 infection or because a public health official or healthcare provider requires or recommends the employee isolate or self-quarantine;
- The employee takes time off work because the employee is at least 65 years old or has a health condition such as heart disease, asthma, lung disease, diabetes, kidney disease, or weakened immune system;
- The employee takes time off work because he or she needs to care for a family member who is not sick but is recommended by public health officials or healthcare providers to isolate or self-quarantine; or
- The employee takes time off work because the employee needs to provide care for a family member whose senior care provider or whose school or child care provider caring for a child under the age of 18 temporarily ceases operations in response to a public health or public official's recommendation and is unable to secure a reasonable alternative caregiver.
The ordinance does provide several exemptions, including for (1) new businesses that started or relocated to the City of Los Angeles on or after September 4, 2019 through March 4, 2020, (2) businesses that were forced to close for two weeks or more due to an emergency COVID-19 order, (3) government agencies, (4) emergency and health services personnel, including hospital workers, and (5) global parcel delivery services. Additionally, the ordinance further excludes employers with a paid time-off policy that provides a minimum of 160 hours of paid leave on an annual basis.
San Francisco Emergency Sick Leave
Effective April 17, 2020, San Francisco's Emergency Sick Leave ordinance extends paid sick leave to employees of businesses with 500 or more employees who have worked more than 56 hours in the City or County of San Francisco. Specifically, full-time employees, as of February 25, 2020, are entitled to 80 hours of paid sick leave, whereas as part-time employees, as of February 25, 2020, are entitled to the average number of hours over a two-week period that the employee was scheduled over the previous six months. However, the ordinance exempts employers who employ healthcare providers or emergency responders in order to address the need for emergency personnel during the ongoing health crisis.
San Jose Emergency Sick Leave
Effective April 7, 2020, San Jose's Emergency Sick Leave ordinance requires all employers who are not required to provide paid sick leave benefits under the FFCRA to provide 80 hours of paid sick leave to all full-time employees and paid sick leave equaling the number of hours the employee works on average over a two-week period for all part-time employees. Such leave is to be paid at the employee's regular rate of pay (up to $511 a day and $5,110 in the aggregate) or two-thirds their regular rate of pay (up to $200 a day and $2,000 in the aggregate) if the reason for the leave is to care for another person.
To be eligible for paid sick leave, employees must have worked at least two hours in the city of San Jose and:
- The employee is subject to quarantine or isolation by federal, state, or local order due to COVID-19, or is caring for someone who is quarantined or isolated due to COVID-19;
- The employee is advised by a health-care provider to self-quarantine due to COVID-19 or is caring for someone who is so advised by a health-care provider;
- The employee experiences symptoms of COVID-19 and is seeking a medical diagnosis; or
- The employee is caring for a minor child because a school or daycare is closed due to COVID-19.
It is important to note that the San Jose ordinance is limited to only workers who are required to leave their residence to perform “essential work,” as defined by the Santa Clara County Public Health Officer, and does not cover employees who are able to work from home. Additionally, the ordinance exempts all employers whose policies are similar to the provisions of the San Jose Ordinance on the date of the enactment.
AB 1867 – Expands Supplemental Paid Sick Leave
AB 1867 provides COVID-19-related supplemental paid sick leave of up to 80 hours to food sector workers, employees of companies with over 500 employees nationwide, and employees of healthcare providers and emergency responders. The bill remains effective until the latter of December 31, 2020, or the expiration of any extension of the federal FFCRA.
Under AB 1867, an employee who must leave their home to perform work is entitled to sick leave if:
- The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
- The employee is advised by a healthcare provider to self-quarantine or self-isolate due to concerns related to COVID-19; or
- The employee is prohibited from working by their employer due to health concerns related to potential transmission of COVID-19.
AB 1867 mandates that the employer make COVID-19 supplemental paid sick leave available for immediate use upon the employee's request. Also, the employer cannot require an employee to use any other paid or unpaid leave, paid time off, or vacation time before COVID-19 supplemental paid sick leave.
Additionally, under AB 1867, an employee may be entitled to sick leave of up to 80 hours. An employee's supplemental sick leave pay must be paid at the worker's regular rate of pay for the last pay period, the state minimum wage, or the local minimum wage to which the worker is entitled, whichever is the highest, subject to a cap of $511 per day and $5,110 in the aggregate.
AB 685 – Notice Requirements for Employers Who Learn of Potential COVID-19 Exposure
AB 685 establishes new comprehensive notice requirements for employers who learn of a “potential exposure” to COVID-19 in the workplace. Within one business day of receiving “notice of potential exposure” to COVID-19 in the workplace, employers must:
- Provide written notice to all employees and the employers of subcontracted employees who were on the premises at the same worksite as the infected individual within the infectious period and may have been exposed to COVID-19;
- Provide written notice to employee representatives, such as unions and attorneys;
- Provide written notice to employees and/or employee representatives regarding COVID-19 benefits that the employees may be entitled to, and stating the employer's anti-discrimination, anti-harassment, and anti-retaliation policies; and
- Provide notice to employees regarding the company's Centers for Disease Control and Prevention (CDC)-compliant protocols for disinfection and elimination of continued exposure to COVID-19.
There are separate steps the employer must take if the number of cases at the workplace meets the definition of a COVID-19 outbreak. If an outbreak is present, the employer must, within 48 hours, notify the local public health agency of the names, contact numbers, occupations, and worksites of the employees who have:
- A laboratory-confirmed case of COVID-19;
- A positive COVID-19 diagnosis from a licensed healthcare provider;
- A COVID-19-related order to isolate provided by a public health official;
- Died due to COVID-19; and
- Any subsequent laboratory-confirmed cases of COVID-19 at the worksite.
AB 685 takes effect January 1, 2021, and remains effective until January 1, 2023.
SB 1159 – Rebuttable Presumption Against Workplace Injury
SB 1159 provides employers with a rebuttable presumption against an employee who suffers illness related to COVID-19 during an “outbreak” at their specific workplace and is thus eligible for workers' compensation benefits. An “outbreak” exists where one of the following events occurs within 14 days at the workplace:
- For employers of 100 or fewer employees, if four employees test positive for COVID-19;
- For employers of more than 100 employees, if 4% of the specific workplace tests positive for COVID-19; or
- The specific workplace is ordered to close by a local health department, the State Department of Public Health, the Division of Occupational Safety and Health, or a school superintendent due to risk of infection of COVID-19.
Employers have the opportunity to rebut this presumption by introducing evidence that the employee did not contract COVID-19 at the workplace, including evidence of measures the employer put in place to reduce transmission of the disease. The bill remains effective until January 1, 2023.
OSHSB Emergency Standards
On November 19, 2020, the California Occupational Safety and Health Standards Board (OSHSB) proposed sweeping and significant new emergency standards to reduce employee exposure to COVID-19. These standards have been accepted by the Office of Administrative Law and are effective as of November 30, 2020.
The standards include COVID-19 prevention in the workplace, multiple COVID-19 infections and outbreaks in the workplace, “major” COVID-19 outbreaks in the workplace, prevention in employer-provided housing, and prevention in employer-provided transportation to and from work. They apply to all California employers and places of employment, except places with one employee who does not have contact with others, employees working from home, or employees in specified healthcare facilities, services, or operations when covered by section 5199.
Kim v. Reins International California, Inc.
In Kim v. Reins International California, Inc., the California Supreme Court held that employees did not lose standing to pursue a claim under PAGA if they settled and dismissed their individual claims for Labor Code violations.
The California Supreme Court determined that the plain language of section 2699(c) made clear that there were only two requirements for a current or former employee to have standing to bring a representative action: (1) the plaintiff must have been aggrieved, meaning someone “who was employed by the alleged violator;” and (2) one or more of the alleged Labor Code violations must have been committed against the plaintiff. Relying upon the language of the statute, the statutory purpose supporting PAGA claims, and the overall statutory scheme, the Court reasoned that standing under PAGA relied on an employee suffering a violation, not an injury. Thus, the remedy for a Labor Code violation through settlement was different than the violation itself.
The Court also noted that civil penalties available under PAGA had a different purpose from damages, as damages were intended to be compensatory and to make one whole, while civil penalties were intended to punish the wrongdoer and deter future conduct. The Court further reasoned that a PAGA claim, although representative in nature, was different from a class action. The plaintiffs act only as the state's representative or proxy; there is no individual component to a PAGA claim.
Frlekin v. Apple, Inc.
In Frlekin v. Apple Inc., the California Supreme Court held that employees who fall under Wage Order 7 must be compensated for mandatory exit searches.
Under the “Control Clause” of Wage Order 7, “hours worked” is defined as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” Employees can be subject to employer control when not performing work duties, and under Frlekin, the mandatory nature of the activity is no longer the sole factor considered. In determining if an employee is subject to the control of an employer, courts must now examine (1) the location of the activity, (2) the degree of the employer's control, (3) whether the activity primarily benefits the employee or employer, and (4) whether the activity is enforced through disciplinary measures.
Apple's exit searches were retroactively compensable under the Control Clause because they “are required as a practical matter, occur at the workplace, involve a significant degree of control, are imposed primarily for Apple's benefit, and are enforced through threat of discipline.”
Anthony v. TRAX Int'l
Typically, the discovery of after-acquired evidence in a case cannot lead to a complete bar in liability. Therefore, even if such evidence has been established, a plaintiff may still recover certain damages. However, in April 2020, the Ninth Circuit amended this rule as it pertained to disability discrimination claims under the Americans with Disabilities Act (ADA), permitting a complete bar to liability in certain circumstances.
Specifically, in Anthony v. TRAX Int'l, the Ninth Circuit explained that the ADA had specific language that only prohibited an employer from discriminating against “qualified individuals” based on a disability. As a result, if it is proven that a plaintiff should not be afforded protection under the ADA as a “qualified individual,” employers are not obligated to provide a reasonable accommodation or engage in the interactive process.
In California, courts have generally required that in disability cases, employees must establish that they are “qualified individuals” to satisfy their prima facie case for discrimination. Therefore, California employers may argue that the TRAX decision is not only highly persuasive, but also can be utilized as a complete defense if it can be demonstrated that a plaintiff is not a “qualified individual” under the ADA.
Franco v. Arakelian Enterprises, Inc. and Jarboe v. Hanless Auto Group
In Franco v. Arakelian Enterprises, Inc., the California Court of Appeal stayed a PAGA claim under Code of Civil Procedure section 1281.4 pending arbitration of the plaintiff's individual Labor Code claims. In doing so, the court appeared to recognize that lawsuits involving individual claims for damages under the Labor Code coupled with claims for civil penalties under PAGA could have conflicting results if only the Labor Code claims were compelled to arbitration.
In Jarboe v. Hanlees Auto Group, et al., the plaintiff-employee brought a putative class action against his former employer, alleging numerous Labor Code violations, including a representative claim for civil penalties under PAGA. The employer moved to compel arbitration under an arbitration agreement that the plaintiff signed during the hiring process, and the trial court found that the plaintiff's Labor Code violations were properly subject to arbitration. However, rather than staying the PAGA claim pending arbitration, the trial court permitted the PAGA claim to proceed notwithstanding the arbitration.
On appeal, the employer cited Franco to argue that the trial court abused its discretion in denying a stay of the PAGA claim. In rejecting this argument, the Court of Appeal reasoned that “[w]hen there is a severance of arbitrable from inarbitrable claims, the trial court has the discretion to stay proceedings on the inarbitrable claims pending resolution of the arbitration.” The appellate court further stated that “ecause a PAGA claim is representative and does not belong to an employee individually, an employer should not be able to dictate how and where the representative action proceeds.” The Court of Appeal found that the trial court did not abuse its discretion by declining to stay the PAGA claim.
When determining whether to stay PAGA claims pending arbitration, trial courts will now have to decide whether to follow Franco or Jarboe.
Noori v. Countryside Payroll & HR Solutions, Inc.
Section 226(a)(8) of the state's Labor Code requires California employers to provide employees with accurate itemized statements, including the name and address of the legal entity that is the employer. Following a strict interpretation of the section, a ruling in California's Third Appellate District decided that an acronym for an out-of-state fictitious business name did not meet the requirements mandated by the Labor Code.
Specifically, the court in Noori v. Countryside Payroll & HR Solutions, Inc. emphasized that while the “minor truncations” of an employer's name and fictitious business names comply with the statute, “severe truncations or alterations” of the employer's name violate the statute where they have the potential to cause confusion to employees.
Given the Noori decision, California employers must ensure that wage statements include the entity's legal name or registered “dba” rather than an unregistered acronym for a fictitious business name. An employer's failure to do so can lead to potential statutory damages, court costs, attorneys' fees, and injunctive relief.
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