In Case You Missed It… New Employment Laws in Effect for 2019 (Part 2)
As we collect the legal developments that every employer will need to know for 2020, we wanted to provide a recap of the most important employment law changes that took place for 2019. In Part 1 of this article we examined key federal and state developments in the areas of harassment, discrimination, and wage and hour laws that employers needed to know for 2019. In Part 2 we will summarize the remaining essential changes that employers should make sure they know, and have prepared for, in 2019.
- Employee Classification
- The “ABC” Independent Contractor Test: Last year, in the class action case of Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court did away with the old, flexible rules and instituted the more restrictive, albeit easier to apply, “ABC test” for determining whether a worker is an employee or an independent contractor under the California Wage Orders. Under the “ABC test,” the Court presumes all workers qualify as employees. A worker may be classified as an independent contractor only if the employer can demonstrate that the worker: (A) is free from the control and direction of the employer in connection with the performance of the work; (B) performs work that is outside the usual course of the employer’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Stay tuned, as the California Legislature is hard at work turning this decision into statutory law.
- Increased Compensation Threshold for Computer Software Exemption: Effective January 1, 2019, the California Department of Industrial Relations issued a higher compensation threshold for exempt computer software employees, which requires that they be paid at least $94,603.25 annually ($7,883.62 monthly), or an hourly wage of at least $45.41. In addition, the computer software employee must also meet the duties test set forth in Labor Code Section 515.5, which is also included in all Wage Orders except Orders 14 and 16.
- New Minimum Salary for Exempt Status: As of January 1, 2019, the new minimum salary for employees exempt from state overtime is $49,920 annually for employers with at least 26 employees, and $45,760 annually for employers with fewer than 26 employees.
- Injunction Against Part of Immigrant Workers Protection Act: Last summer, a California district court forbade California and its officials from enforcing several portions of AB 450 during the pendency of a lawsuit by the federal government that seeks to invalidate a series of recent California “sanctuary” statutes, including AB 450. The court’s ruling temporarily put on hold AB 450’s fines against employers for voluntarily allowing access by ICE to non-public areas or for not requiring ICE to present a judicial warrant or subpoena in order to conduct a search. However, the court upheld the notice requirements of AB 450, meaning California employers are still required to provide pre-inspection notice within 72 hours of receiving a federal immigration agency’s notice of inspection and a post-inspection notice to affected employees within 72-hours written notice of a federal immigration agency’s inspection results.
- Alternative Dispute Resolution
- Class Action Waivers Upheld by Supreme Court: In Epic Systems v. Lewis (May 2018), the U.S. Supreme Court approved enforcement of class action waivers in employment arbitration agreements, resolving a split among U.S. circuit courts.
- Express Consent Required for Class Arbitration: In a boon to employers, the U.S. Supreme Court in Lamps Plus v. Varela (Oct. 2018) held that a court may not compel class arbitration unless the parties have expressed their clear consent to class arbitration. Despite the favorable ruling for employers, the best practice is to avoid any ambiguity by including a class action waiver in employment arbitration agreements.
- Background Checks
- New Fair Credit Reporting Act Form: As of September 21, 2018, employers need to use the newly issued model Summary of Your Rights Under the Fair Credit Reporting Act form (or their own form based on the model) when providing the required written notice to an employee or a job applicant that a background check will be conducted. The revised federal form is also required if an employer plans to take adverse action against an employee or applicant based on the report. The new model form in English and Spanish can be found here.
- Stricter Background Check Standard: In a case involving potential overlap between two California background check laws – the Investigative Consumer Reporting Agencies Act (ICRAA) and the Consumer Credit Reporting Agencies Act (CCRAA) – the California Supreme Court held in Connor v. First Student, Inc. (Aug. 2018) that employers must comply with the stricter of the two laws, the ICRAA. Background checks of character, reputation, personal characteristics, or mode of living require written authorization under ICRAA. Whenever more than credit records are sought, the employer must comply with both ICRAA and the CCRAA.
- Data Privacy
- New Privacy Bill of Rights: The California Consumer Privacy Act of 2018 gives companies a ramp-up period in order to prepare for compliance. Starting on January 1, 2020, the Act gives Californians the following privacy-related rights: (1) the right to know what personal information (“PI”) is being collected about them; (2) the right to know whether their PI is sold or disclosed and to whom; (3) the right to “opt-out” of the sale of PI; (4) the right to access their PI; (5) the right to equal service and price, even if they exercise their privacy rights; (6) the right to have their data deleted; (7) the right to know the sources from which PI was acquired; (8) the right to know the commercial purpose of collecting PI; and (9) the right to an “opt-in” process whereby parents or guardians expressly authorize the sale of PI of children under 16.
- The General Data Protection Regulation (GDPR): Effective May 25, 2018, the GDPR is the comprehensive data protection regime that has been implemented by all 28 European Union member countries to protect the personal data of their citizens. GDPR applies worldwide to any company processing the personal data of EU citizens and empowers EU citizens with the right to ask companies to reveal, correct, erase, or stop processing their data in certain ways. The GDPR is vaguely written, thus, it is not at all clear how it will be applied in relation to various other laws, such as laws relating to retention of data concerning former employees.
- Leave Laws
- Paid Family Leave for Active Duty: SB 1123 amends, repeals, and adds to the California Unemployment Insurance Code a requirement that any employee called to active duty or any spouse, domestic partner, parent, or child of a person called to active duty will be covered for paid family leave beginning on January 1, 2021.
- No Waiting Period: AB 2587 amended Section 33013.1 of the California Unemployment Insurance Code to delete the requirement that an employee wait 7 days before becoming eligible for temporary disability benefits. The employer’s ability to require an employee to take up to 2 weeks of earned but unused vacation before, and as a condition of, the employee’s receipt of benefits is unaffected by the amendment.
- More Exclusions from Workers’ Compensation: SB 189 expanded the list of persons who may be excluded from Workers’ Compensation laws. Certain owners, officers, board members, general partners, and managing members may be excluded if they sign a waiver.
- Updated FMLA Forms: The U.S. Department of Labor issued updated Family and Medical Leave Act (“FMLA”) forms, with an expiration date of August 31, 2021. Other than the expiration date, these forms are identical to the prior forms expiring on August 31, 2018, but should be used in place of the prior forms. A comprehensive list of all of the forms can be found here.
- Lactation Locations: AB 1976 amended Section 1031 of the California Labor Code to require employers to engage in reasonable efforts to provide locations for lactation accommodation. A bathroom does not qualify as a reasonable effort to provide a location. A temporary location is acceptable if the space is private and free from intrusion, is used only for lactation while the employee expresses milk, meets all other state requirements, and no permanent option is available due to operational, financial, or space limitations.
- Affordable Care Act: The U.S. Department of Labor issued updated Affordable Care Act model notice forms (OMB No. 1210-0149), found here. The new forms contain an expiration date of May 31, 2020, and replace all earlier versions. Employers must provide these notices.
- Medical Leave Tax Credit: Employers may claim a general business tax credit which is based on wages paid to qualifying employees while they are on family and medical leave. The tax credit is a percentage of the amount of wages paid to the employee while on the family and medical leave for up to 12 weeks per taxable year.
- No Tax Deduction for Confidential Sexual Harassment Settlements: Referred to as the “Harvey Weinstein Tax” (even though it is not a tax), Section 162(q) of the Internal Revenue Code denies a deduction for “(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment.”
- IRS Deductibility Limits for Employee Compensation: Last summer, the IRS issued initial guidance on changes made to tax deductibility limits for publicly traded companies (Notice 2018-68). Under pre-tax reform rules, a company would generally have a maximum of four “covered employees” each year: its CEO and three highest paid officers (excluding the CFO) who were employed as of the last day of the tax year, as reported in the company’s proxy statement and the $1 million deduction limitation did not apply to performance-based compensation or commissions. The new rules expanded and revised the definition of “covered employee” and repealed the exclusion for performance-based compensation or commissions.
- Non-Solicitation: A California Court of Appeal hinted at overturning the long-held assumption in California that while non-competes are generally barred, reasonable employee non-solicitation provisions are enforceable. In AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc. (Nov. 2018), the court ruled that an employer could not enforce its employee non-solicit against former company recruiters, after finding that the clause would keep the recruiters from performing their jobs in violation of California Business and Professions Code §16600.
The author would like to gratefully acknowledge the assistance of Joanne Warriner.
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