November 17, 2011
California Governor Jerry Brown recently signed into law several bills taking effect on January 1, 2012 (and one on January 1, 2013) that impact employers in California. Below is a brief summary of some of the most significant new and amended California employment-related laws, some of which impose significant penalties for non-compliance. Employers should seek legal counsel to review any policies or procedures that may be impacted by these changes before their effective date.
Dramatic Limits to the Ability to Use Consumer Credit Reports
On January 1, 2012, California will join Washington, Oregon, Hawaii, Illinois, Maryland, and Connecticut in restricting employers’ use of credit reports for employment purposes. AB 22 prohibits employers and prospective employers from obtaining a consumer credit report in connection with employment applications or for other employment purposes unless the position of the person for whom the report is sought is any of the following:
If obtaining a consumer credit report is permitted under AB 22, employers should continue to comply with all other requirements applicable to background checks. However, AB 22 adds a new requirement that the employer must also give advance written notice to the applicant or employee of the specific bases and exceptions for the request. Note that AB 22 does not impose any new restrictions on employers conducting criminal background checks in accordance with federal and California law, or checking references or verifications of income or employment so long as the information sought does not include credit-related information.
New Requirement to Add a Detailed Notice to Private Employee New-Hire Packages
As of January 1, 2012, AB 469 adds Section 2810.5 to the California Labor Code, requiring private employers to provide overtime-eligible employees at the time of their hiring with a notice that specifies:
If an employer subsequently changes the above-listed information, it must notify employees in writing within seven calendar days, unless such changes are otherwise reflected on a timely wage statement.
Steep New Penalties for Willful Misclassification of Independent Contractors
Beginning January 1, 2012, SB 459 will add Sections 226.8 and 2753 to the California Labor Code, which impose steep new penalties on employers who willfully misclassify employees as independent contractors. The statute imprecisely defines “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” This vague definition, coupled with the already murky criteria for proper classification as an independent contractor, undoubtedly will lead to significant amounts of misclassification litigation post-January 1, 2012.
Specifically, the new Section 226.8 provides for civil penalties of $5,000 - $15,000 for each misclassification violation. If the employer is found to have engaged in a pattern or practice of such violations, the penalties increase to $10,000 - $25,000 for each such violation. Additionally, the employer may be required to publicly post a notice of the violation for one year following any violation determination.
Moreover, new Section 2753 imposes potential personal liability on any person who, “for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status” if the individual is found not to be an independent contractor.
New Obligations for Employers Who Pay Employees Commissions
AB 1396 amends California Labor Code Section 2751 to require that, beginning on January 1, 2013, all contracts for employment involving commissions as a method of payment must be in writing and set forth the method by which the commissions are required to be computed and paid. The law defines commission wages as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include bonus and profit-sharing plans, unless the amounts are a fixed percentage of sales or profits as compensation for work to be performed, and do not include short-term productivity bonuses.
The new independent contractor law requires employers to:
The new law also provides that the commission agreement will remain in effect, even if expired under its own terms, until superseded by a new agreement or the employment relationship is terminated.
For additional information regarding these new regulatory requirements and the impact of the same on operations with employees in California, please contact the authors or any other member of the McGuireWoods Labor and Employment Group.