CA Adopts Extensive New Employee Protections for 2012 and Beyond

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:

  • a managerial-level job covered by the executive overtime exemption;
  • a position in the state Department of Justice;
  • a sworn peace officer or other law enforcement position;
  • a position for which the information contained in the report is required by law;
  • a position involving regular access to bank or credit card information, or the Social Security number and the date of birth of any one person;
  • a position that involves being named signatory on the employer’s bank or credit card account;
  • a position that includes the authority to transfer money or enter into financial contracts on the employer’s behalf;
  • a position with access to proprietary information; and
  • a position that involves regular access to an employer’s funds totaling $10,000 or more.

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:

  • the rate or rates of pay and the basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime, as applicable;
  • allowances, if any, claimed as part of an employee’s minimum wage, including meal or lodging allowances;
  • the regular payday designated by the employer;
  • the employer’s name, including any “doing business as” names used by the employer;
  • the physical address of the employer’s main office or principal place of business, and a mailing address, if different;
  • the employer’s telephone number;
  • the name, address and telephone number of the employer’s workers’ compensation insurance carrier; and
  • any other information the California Labor Commissioner deems material and necessary.

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:

  • provide a written commission agreement that specify the method for calculating an employee’s commission;
  • provide a copy of the agreement to the employee; and
  • obtain a signed confirmation from the employee acknowledging receipt.

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.