Podcast: California Employment Law Changes to Watch in 2021

Littler employment shareholders Bruce Sarchet and Emily Patajo join XpertHR Legal Editor David Weisenfeld for an in-depth look at the many new developments affecting California employers in 2021. Some of the more notable developments include the:

  • Expansion of the California Family Rights Act to apply to employers with five or more employees;
  • New pay data-reporting requirements for employers with 100 or more employees;
  • Emergency COVID-19 workplace safety regulations;
  • Changes to the California Consumer Privacy Act; and
  • Added diversity requirements for the boards of publicly held corporations.

"You can't get away with fewer people in HR," said Sarchet, in light of these compliance requirements because it takes more to deal with employee problems than it did 12 months ago (especially regarding leave time). "This is the time to be adding to HR departments, not taking away from them."

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Additional Resources

California Family Rights Act

Pay Data Reporting

California Adopts Emergency COVID-19 Workplace Safety Regulations

New California Laws Add Diversity Requirements for Companies


David Weisenfeld:  I'm David Weisenfeld for XpertHR.com, published by the LexisNexis Risk Solutions Group.

On this podcast it's time for what's become an annual occurrence as we turn to California to examine the dizzying array of new developments affecting employers there. The Golden State is often at the forefront when it comes to employment law changes, and its action this year did nothing to diminish that reputation.

From leave law to Covid-19 developments to notable ballot initiatives and more, there's a lot to discuss. And we'll do it all with a pair of employment attorneys from Littler, the world's largest firm devoted exclusively to representing employers.

Bruce Sarchet has been our go-to guest in Sacramento on several podcasts. He's a member of the firm's Workplace Policy Institute, which represents employers before state and federal legislatures, as well as regulatory agencies.

And this year he's joined by Emily Patajo, from Littler's Los Angeles office. Emily is a seasoned litigator who, like Bruce, speaks often on a wide range of employment issues.

Welcome to you both. It's great to have you on. [0:01:24.8]

Bruce Sarchet: Thank you, David. Great to be here.

Emily Patajo: Thank you, David.

David Weisenfeld: Bruce, I'll start with you on a subject that's certainly of great interest in any year, but especially in this one, and that's leave time. Effective January 1, the California Family Rights Act applies to all employers with five or more employees. So what does the CFRA do, and what steps must employers take to comply? [0:01:49.5]

Bruce Sarchet: Yeah David, leaves of absence have definitely become the important topic in employment law in 2020. We're starting with one of the older ones, the California Family Rights Act, which actually (a lot of people don't realize this) predates the FMLA, the federal leave law. 1994 the threshold was set at 50 or more employees in California, and that's been reduced over the years.

In 2018 parts of the CFRA were reduced, so that was for baby bonding leave, to businesses with 20 or more employees, and then effective the first of next year, the California Family Rights Act is going to apply to businesses with five or more employees, a dramatic change for small businesses here in the Golden State.

David Weisenfeld: So Bruce, before I turn to Emily I want to follow up on that and ask, what does this mean for small business? What do they have to do? [0:02:45.5]

Bruce Sarchet: Well anytime you look at a leave of absence law the first thing is who's eligible, and in this case in order to be eligible an employee must have worked for a business for at least 12 months and at least 1,250 hours during the 12-month period prior to the commencement of the leave.

So you can't just show up on the doorstep, work for a day, and then be eligible to take CFRA, California Family Rights Act leave. So small businesses need to keep track of when people are hired, most of you probably do that already, and the number of hours worked. And if they haven't worked that time they're not eligible for this leave.

Then the next question is, "Well what's the benefit? What do we get?" And we get 12 work weeks of unpaid leave in a 12-month period for the birth or adoption of a child or to bond with a new baby, but also for your own serious health condition. So this is basically unpaid sick leave. Or the serious health condition of the employee's child, parent, spouse, registered domestic partner, or registered domestic partner's child.

And added to the list now, added to the list are grandparents, grandchildren and siblings. So not just for small business but larger businesses as well, we have new categories of family members. If your employee is giving care to them they're eligible for this leave.

And then that brings up kind of a potential dilemma or situation because federal family leave law does not allow leave for an employee to care for their grandparent, but state leave law does. So this leads to the possibility that an employee might take 12 weeks of federal leave law to care for their spouse, and in the same 12-month period ask for another 12 weeks of unpaid California Family Leave Law to care for their grandparent, a question which sadly is not answered in the legislation as it exists today.

David Weisenfeld: We just had a podcast on the Families First Coronavirus Response Act and its pending expiration. Emily, I'll bring you in for this one. How does California, and many of its cities for that matter, fill the gap that's been left by this federal leave law? [0:04:57.6]

Emily Patajo: Just to do a little recap so the listeners have an idea of why there is even a gap to begin with, the Families First Coronavirus Response Act applies to businesses with fewer than 500 employees. And then it also excluded, for example, healthcare workers and emergency responders and independent contractors. So that left a gap. Cities in California recognized that there was this gap and so at least 10 different cities started passing their own gap laws in order to provide more coverage.

And then California went ahead and passed AB1867, which then would apply for the entire state. And this would basically provide 80 hours of paid Covid-related leave to hiring entities that employ 500 or more employees. And then now this applies to healthcare workers and emergency responders, and in addition to that applies to food sector workers and to delivery network companies.

So it started off as almost like a patchwork of different laws between the cities to try and fill the gap, until California then filled it entirely with AB1867. This became effective starting September 19, 2020. It is set to expire at the end of the year on December 31.

David Weisenfeld: Back in July you two were saying that businesses should consider the approach of just saying yes when it comes to leaves under the Families First Coronavirus Response Act. Why was that, Emily, and are you still saying that today, several months' later? [0:06:39.7]

Emily Patajo: That's a very good question. I think the timing was back earlier in the year when there was more of an encouragement to say yes. From a practical standpoint one of the reasons that we were encouraging that was because your employees were being provided 80 hours of paid Covid-related leave. So if you have employees requesting some of that leave earlier in the year it's easier and more manageable for a business to spread those 80 hours from basically July to the end of the year, as opposed to having all of your employees, or a lot of them, ask for that 80 hours all lumped together at the end of the year.

But more importantly, why we were encouraging employers to look for a way to say yes is a balancing of what would be disruptive to your business. We recognize that employee absences can be very disruptive to a business, but we also acknowledge that these leave laws are super-complex. And because it's Covid-19, these leave laws apply to factual scenarios we've never seen before. So that's all to say that there are way more landmines to avoid this year than in years past when you're trying to determine whether your employees qualify or don't qualify for leave.

So in weighing the disruption of absences to a business against the disruption of a DOL investigation and having to pay damages, the former scenario is far better for a business.

Bruce Sarchet: Yeah, and let me just add that if you have fewer than 500 employees and you're subject to the federal law, you're supposed to get a payroll tax credit for this. So one of the reasons we were saying, "Maybe you can just say yes," is because the government was going to pay for it. Now with the end of the year approaching, I've had many conversations with businesses that are struggling to get their rosters filled here at the end of the year and are seeing more and more requests for Covid-related leaves.

David Weisenfeld: Continuing on the Coronavirus theme, and certainly a lot to talk about there, Cal/OSHA has amended its enforcement procedures effective January 1 in the event of a Covid-19-related exposure. Bruce, what do employers need to know with this one? [0:09:05.6]

Bruce Sarchet: Well two things going on here. First, there's a notice requirement that comes into effect on the first of the year. And that is basically for businesses in California, if they have a Covid-related incident then they've got to give notice to their employees of it. It's pretty broadly written and talks about if you've got an outbreak at a work site, which is not really precisely defined. So employers need to be on top of that and need to be ready for that new obligation on the first of the year.

But probably even more important than that is an obligation that's in effect today. Cal/OSHA has adopted what's called an emergency temporary standard. We've seen this in a number of states across the country. Really when Covid first broke out, federal OSHA was largely quiet for a number of months.

Virginia became the first state in July with its own standard, and California joins now in November. A lot of requirements there and well beyond the scope of a quick podcast like we're engaging in here today, but that's effective today. You've got to have a prevention plan in place, and there's a testing component, and there's an income replacement component. It's relatively complex and detailed, and if you're doing business in California you need to become conversant with our emergency temporary standard pronto.

David Weisenfeld: And definitely something to watch as we head into 2021 for sure. Shifting gears a bit, election day ballot initiatives sometimes can be as notable for what doesn't happen as what does happen. Many thought that California voters may well sound a death knell for the gig economy but that didn't happen. Instead on November 3, they approved an amendment that essentially allows app-based drivers to be independent contractors. Bruce, tell us about this ballot initiative and what you see as its significance. [0:11:04.8]

Bruce Sarchet: Sure. Proposition 22 got a lot of press, of course, in the wake of the California Supreme Court and then the legislature discarding a 30-year-old test here for determining independent contractor status, and replacing it with the ABC test. And the business has to show all three prongs, including the B prong which is, "Is what your contractor doing central or core to the business operations of the business itself?"

And AB5, our independent contractor law, made it very challenging for some of these gig economy platforms to continue to operate under the independent contractor model. There was an attempt to work on the legislative process but that didn't succeed, so the companies went and got an initiative on the ballot and got it passed by about 60% of the voters.

It does create sort of a third way for these contractors that allows them to retain their independent contractor status, but gives them some of the trappings or benefits, you might say, of a more traditional employment model.

What does this mean for the future in California? Well perhaps it will be a wake-up call to our legislature that the whole AB5 test itself should be looked at with more scrutiny. I mean, the law was adopted without a really serious policy discussion about these people who are doing this driving and say they really like the ability to drive when they want to and I'm my own boss, right? The legislature never really had a discussion about that, and perhaps Prop 22's passage will spur more discussion along those lines.

And then nationwide I think California sometimes has an earthquake, and the aftershocks are felt elsewhere. This may be the case. I know that in other states in the union they've been looking at modifying their independent contractor tests, and perhaps Prop 22 will influence their thought processes there as well.

David Weisenfeld: Did that surprise you, Bruce, that this one came out the way it did? [0:13:06.0]

Bruce Sarchet: A little bit. The polling was all over the place. I'm surprised at the margin, 60%. But I tell you, people really like… the consumers really like these platforms. Before the lockdown the ability to have an on-demand ride somewhere when you wanted it, really quickly, and to be able to see the thing on your smartphone, consumers really like it.

Now after the lockdown consumers really like the delivery of food to their door. They don't have to go out. Someone brings their groceries to them. Someone brings to-go orders from the local restaurant to them. So I think consumers took that into consideration, and then there's a million or so people that actually do this driving, and I think a fair number of them voted yes as well, because as I said, those considerations of "I get to be my own boss. I get to work when I want to." People really like that. So I'm not really that surprised that it passed. Maybe the only surprise was the margin of victory.

David Weisenfeld: Well let's turn back to Emily. The California Consumer Privacy Act was also on the ballot. Emily, tell our audience what happened here. [0:14:16.7]

Emily Patajo: So the ballot measure was Prop 24, and Prop 24 was approved by California back in November. So to understand the significance of this proposition we need to look at the California Consumer Privacy Act, and that took effect in the beginning of this year, January 1. And under this Privacy Act, employees would have their personal information protected, but under the Act there were also certain exemptions, including an exemption for employee personal information.

So this exemption was supposed to last until the end of just this year, and then in October Governor Newsom signed AB1281, which extended the exemption to 2022. The proposition, Prop 24, what that did was, if it passed, which it did, what California voters there approved was an extension of that exemption to January 1, 2023.

So what all that really means is that it provides employers with additional breathing room before any of this really takes any effect for personal information, for their employee's personal information that is.

However, I think what HR really needs to know is that despite the exemption a notice of collection must still be provided to employees, and that employers are still going to be liable for any data breaches of their employees' information.

David Weisenfeld: Privacy is such a big issue these days Emily. Have you gotten a lot of questions on this? [0:15:47.9]

Emily Patajo: We have special attorneys within Littler who specialize in privacy matters for our clients, and let me tell you, they are very busy. Leading up to the California Consumer Privacy Act being in effect the beginning of this year, they've been busy since last year. And then just making sure that all of our clients are getting up to speed on what they should have in effect and what they need to make changes with.

So it is a hot topic. We have subject matter experts within our firm who are busy because this is something that employers are very concerned about and want to be in compliance with.

David Weisenfeld: There are new California diversity requirements that will soon take effect. Back in 2018, California became the first state in the country to require publicly held companies to have at least one woman on their board of directors, and now this law is expanding well beyond women to include other groups. Emily, what can you tell us about it? [0:16:51.6]

Emily Patajo: That's right. There are new requirements that now apply to publicly held corporations with principal executive offices in California. The business must have a minimum of one director from an underrepresented community. And so the number of directors from an underrepresented community will depend on the size of the business board.

So the minimum is one, but if you have a board that is between five-to-eight members, then you need to have a minimum of two directors who are from an underrepresented community. And if you have a board with nine or more, the minimum number of directors from an underrepresented community will be three.

An individual from an underrepresented community means an individual who self-identifies as:

  • Black;
  • Africa-American;
  • Hispanic;
  • Latino;
  • Asian;
  • Pacific Islander;
  • Native American;
  • Native Hawaiian or Alaskan native; or who
  • Self-identifies as gay, lesbian, bisexual, or transgender.

David Weisenfeld: So this is quite a bit broader than the previous requirement? [0:18:00.7]

Emily Patajo: Yes, it is much broader.

David Weisenfeld: Well speaking of other upcoming compliance deadlines, there is a new pay data requirement taking effect for California employers with 100 or more employees having to submit by March 31. Bruce, how do these new requirements differ from past pay data requirements? [0:18:22.3]

Bruce Sarchet: Yeah, well it is brand new. The history here is that our federal Equal Employment Opportunity Commission embarked on an effort to collect pay data to see whether or not men are paid more than women in an organization, or people of particular ethnicities are paid more than others.

And those are all laudable things. I mean, we read the headlines year after year about the gender gap, right? That men doing the same job seem to get paid more than women. And year after year there's been struggle to try to do something about that. The EEOC came up with this idea of making employers report, and maybe that shining a light on it might help.

But the plan ran into some pretty challenging issues right out of the bat. First of all it was based on W-2 information. And think about what goes into a W-2. Well, I'm going to work overtime and then my co-worker decides, "I don't want to work overtime." We're doing the same job, but I get more on my W-2 than they do just because of that personal choice. Or two other employees, one of whom contributes the maximum amount to their 401(k), and the other does not. Well they're doing the same job but their W-2s report different incomes, again just based on these personal choices.

And then how do you categorize the jobs? One of the early criticisms of this EEOC approach was that they had a hospital who looked at their jobs, and in the category of professionals they had both a surgeon and a bookkeeper. So the devil is often in the details, and it was here as well.

But notwithstanding that, California this year adopted SB973. And David, as you said it applies to employers with 100 or more employees, and such businesses are required to submit a pay data report no later than March 31, 2021. It's broken down by race, ethnicity and sex in 10 broadly defined job categories. And again it's based on W-2 pay data.

And the two big questions that have been coming up are, "Okay, what about this 100 employees? How do you count to 100? Does that mean 100 employees in California or 100 employees anywhere?" And our Department of Fair Employment and Housing recently issued some FAQs on their webpage. You can check those out. And they're taking the position that this applies to businesses with 100 or more employees anywhere, not just in California.

And then the second question is, "Who do you report on? Do you report pay data on only those employees who are in California or all employees anywhere?" And our Department of Fair Employment and Housing is taking the position that it's only on those employees here in California. So a hypothetical business might have 95 employees in Michigan and five in California. It would have to do the report under these DFEH FAQs but only with regard to those five employees who are actually working in California.

David Weisenfeld: I'm so glad you clarified that, Bruce, because whenever I host webinars for XpertHR, the number one question we get without fail is, "I have three employees in California and 99 employees in State X. Does this California law still apply to me?" (if California's the state). So that definitely is a good thing to point out, and I appreciate you doing that. [0:21:55.8]

Bruce Sarchet: Yes. But remember David, that's only guidance from our Department of Fair Employment and Housing. It's possible a court could read the statute a different way. We've seen courts throw aside regulatory interpretations. Just this year in New York, a court threw out some of the FFCRA FAQs that were published by our Department of Labor.

But I think this is a pretty solid approach. I think businesses can rely on that FAQ. But if you've got employees in California and you have over 100 across the country, get ready for this pay data reporting required by SB973.

David Weisenfeld: Again our guests are Bruce Sarchet and Emily Patajo, employment law shareholders with Littler. And I want to turn next to the California mini-WARN Act just briefly. It's essentially been on hold for many months, provided that the Covid-19 pandemic caused a business closing or mass layoff, and the employer provides as much notice as practical.

And Bruce, I was just wondering how is this partial suspension of California's mini-WARN law been working out for employers? [0:23:03.0]

Bruce Sarchet: Yeah, great question, David. We've been in this pandemic for so long now I actually had forgotten that our governor did suspend our California WARN Act, or parts of it I should say, and that's Executive Order N-31-20. If you just Google that you can find the order pretty quickly. And as you said, California requires advance notice of plant closings and mass layoffs, but if it's related to Covid you can shorten that and still comply with the California law.

Beware though. This area of WARN, and the intersection between federal WARN and California WARN, is extremely complicated. We probably should have said at the outset of this podcast that this does not substitute for the advice of legal counsel, and nowhere is that more true than here in the area of WARN. It's very complicated, my friends. So if you're thinking of reducing your staff in California, or indeed anywhere in the country, please, please consult with competent employment law counsel. These WARN laws are particularly tricky.

David Weisenfeld: Bruce, certainly so much that we can talk about and hard to get it all in in 30 minutes' time, but what haven't we addressed that really jumps out at you as something that might concern employers in California? [0:24:19.9]

Bruce Sarchet: David, we started off today talking about leaves of absence, and I think that's where we should end as well. Leave of absence compliance is just so much more complicated today than it was 12 months ago, with the overlapping federal, state and city leave requirements all with different qualifications, all with different ways to accrue it. Some of them carry forward, some of them don't. Some of them require reporting on wage statements, some of them don't. Leave of absence compliance is very, very challenging.

And I've had this conversation with companies. They're reducing headcount, right, because we're in a pandemic, business is down. We don't need as many employees so we're letting people go, like we were just talking about with the WARN Act. And so the CFO comes in and says, "Okay, we have fewer employees," (not to make too much fun of CFOs - many are very, very fine people), but you know what they're doing here. They're saying, "We've got fewer employees so we can get away with fewer people in human resources." And what I'm telling people today is no, you can't. Because it takes more human resources allocations today to deal with employee problems than it did 12 months ago.

So you can't go for a correlation between reduced employee headcount and reduction of your FTE allocation in human resources. This is the time to be adding to those departments, not taking away from them. And if you're listening and if you've got a CFO that's saying that to you, call me up! Get me on the phone. I'll explain this to them. It's really important.

David Weisenfeld: Well we've focused a lot on requirements taking effect January 1 or soon after. Emily, is there any parting thought that you'd like to add that you'll be watching in the coming year that hasn't happened yet but could develop and affect HR? [0:26:10.0]

Emily Patajo: Yes, absolutely. I think AB51 was a very hot topic at the end of 2019. It was a law that was going to prohibit mandatory arbitration agreements in California, and it was set to take effect January 1 of 2020. There was a lot of legal development throughout the year that halted the enforcement of AB51, and so for most of the year employers have just been standing and waiting for a response to:

  • "What's going to happen?
  • What is the state of AB51?
  • Do we have to follow it yet or is it enforceable, or is the injunction still in place?"

And right now we're still in that same holding pattern, but slowly but surely we're seeing some progress here with what will come of AB51. So what we're looking at is sometime next year, I only have the answer of whether California's law prohibiting mandatory arbitration agreements will in fact become law or will it just go away.

Bruce Sarchet: Yeah, I don't know if we will have the answer next year, Emily, because if the government loses or if the trade associations lose, I think there will be a request for the Supreme Court of the United States to hear this case. And it's the kind of case that just might get there. So I think stay tuned in the short run and maybe in the little bit longer run as well.

Emily Patajo: Yep. Contract lovers and arbitration agreement lovers will just have a couple of exciting years while they follow the events of AB51.

David Weisenfeld: Definitely one to watch. I know California and the Supreme Court have done battle more than once over mandatory arbitration. So as you said, it wouldn't be surprising to see that come up again.

Well Bruce, in our final minute did you have a last thought that you wanted to offer for our HR listeners? [0:28:06.4]

Bruce Sarchet: Just this, that these are really difficult and very sad times with the pandemic. Businesses, human resources, in-house employment, law counsel, frontline supervisors and employees, I mean, we all have really responsibilities to each other. Let's make our workplaces safe. Let's wear our face coverings deliberately when we need to be in public, and hopefully 2021 will be better in many respects than 2020 was. But it's been an exciting year in employment law in 2020 because of the pandemic, and sometimes notwithstanding it.

But we look forward to working with businesses again in 2021. And thanks, David, for the opportunity to share this time with you today.

David Weisenfeld: Well it's been great to have you both on. Again, Bruce Sarchet and Emily Patajo are of Littler's Sacramento and Los Angeles offices respectively. I know our subscribers were anxiously awaiting this update on California law. And Bruce and Emily as well, I want to thank you both for your many insights. [0:29:10.1]

Emily Patajo: Thank you for having us.

Bruce Sarchet: Thanks, David.

David Weisenfeld: I'm David Weisenfeld. Thanks for listening. Continue checking our website regularly for more podcasts affecting the workplace, including What the Biden Presidency Could Mean for Employers.

The opinions expressed in this program do not represent legal advice, nor should they necessarily be taken as the views of XpertHR or its employees. XpertHR.com is published by the LexisNexis Risk Solutions Group.

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