In This Issue:

California Significantly Expands Family Rights Act

New California Pay Data Reporting Obligation

Stringent New Requirements for Employers to Respond to COVID-19 Workplace Exposure

DOL Revises FFCRA Guidance in Response to Court Ruling

New York State Sick Leave Law Goes into Effect and NYC Amends Local Law in Alignment

Employee vs. Independent Contractor Developments

Trump Executive Order Penalizes Federal Contractors for Advancing Allegedly Divisive DEI Training Concepts

CA Supreme Court Articulates Rule of Reason for Business Contracts That Restrain Trade 


California Significantly Expands Family Rights Act

California Governor Gavin Newsom recently signed into law SB 1383, which significantly expands the coverage and scope of the California Family Rights Act (CFRA). CFRA, the state analogue to the federal Family and Medical Leave Act (FMLA), requires covered employers to provide eligible California employees with up to 12 weeks of unpaid family and medical leave during each 12-month period. Among its many notable changes, the expanded law will apply to much smaller businesses, and include leave to care for additional family members.

The new law will go into effect on January 1, 2021, and includes the following changes:

Smaller Businesses Covered: Currently, CFRA applies to private employers with 50 or more employees within 75 miles of the worksite and all government employers. On January 1, 2021, CFRA will apply to all employers who employ five or more employees, and there will no longer be a requirement that the employee work within 75 miles of the worksite. Employees must still meet CFRA’s eligibility requirements of 12 months of service, and 1,250 hours worked for the employer in the previous 12-month period, to qualify for leave.

Repeal of the California New Parent Leave Act: In light of CFRA’s expanded employer coverage, California’s New Parent Leave Act (NPLA), which requires employers with 20 or more employees in California to provide family and medical leave, will be repealed effective January 1, 2021.

Leave for Additional Family Members: Currently, employees may use CFRA leave for, among other things, the birth, adoption or foster placement of the employee’s child, and to care for an employee’s spouse, domestic partner, child or parent with a serious health condition. “Child” is currently defined to include minor children (under 18 years of age) and adult dependent children. Under the new law, CFRA leave may be taken to care for the following additional family members with a serious health condition: grandparents, grandchildren and siblings. In addition, the definition of child will expand to include all minor and adult children, regardless of whether they are dependent, and will also include children of a domestic partner.

Removal of Right to Refuse Reinstatement to Certain Employees: Currently, covered employers may refuse reinstatement to salaried employees returning from leave who are among the highest paid 10 percent of employees within 75 miles of the worksite, and where such refusal is necessary to prevent substantial and grievous economic injury to the employer’s operations. Effective January 1, 2021, this refusal right will no longer apply.

Addition of Military Exigency Leave: CFRA, unlike FMLA, currently does not provide leave to employees for certain military-related exigency purposes. The new law, however, will provide leave due to a qualifying exigency related to the covered active duty or call to covered active duty of an employee’s spouse, domestic partner, child or parent in the U.S. Armed Forces.

24 Weeks of Combined Leave for Parents Employed by the Same Employer: Currently, if an employer employs both parents of a child, it is authorized to grant a combined total of 12 weeks of leave to both employees for the birth, adoption or foster care of a child. Under the new law, however, employers must grant up to 12 weeks of leave to each employee for such purposes.

California employers should carefully review and update their existing family and medical leave policies and employee handbooks to account for the above changes.

New California Pay Data Reporting Obligation

On September 30, 2020, California Governor Gavin Newsom signed SB 973, also known as the California Gender, Race Pay-Gap Law, which goes into effect January 1, 2021. California’s new law creates a pay data reporting obligation for private (i.e. non-government entity) California employers with 100 or more employees that are required to file an annual, federal Employer Information Report (EEO-1). Covered employers must submit to the state’s Department of Fair Employment and Housing (DFEH), by March 31, 2021, and March 31 each year thereafter, a pay data report covering the prior calendar year for specified employee job categories, broken down by race, gender and ethnicity.

The specified job categories are broad and include:

  • Executive or senior level officials and managers
  • First or mid-level officials and managers
  • Professionals
  • Technicians
  • Sales workers
  • Administrative support workers
  • Craft workers
  • Operatives
  • Laborers and helpers
  • Service workers

Additionally, the pay data report must include the number of employees by race, ethnicity and sex whose annual earnings fall within each of the pay bands the U.S. Bureau of Labor Statistics uses in the Occupational Employment Statistics survey; the total number of hours worked by each employee counted in each pay band during the reporting year; and the employer’s North American Industry Classification System (NAICS) code.

Employers with multiple establishments must submit a report for each establishment and a consolidated report that includes all employees. All covered employers must provide the data in a format that allows the DFEH to search and sort the information using readily available software. Lastly, the DFEH must make the reports available to the Division of Labor Standards Enforcement (DLSE) upon request and maintain the pay data reports for no less than 10 years.

Stringent New Requirements for Employers to Respond to COVID-19 Workplace Exposure

California Governor Gavin Newsom recently signed into law AB 685, which is aimed at protecting employees from exposure to COVID-19 in the workplace through employer notice, reporting and other accountability measures. Below are three main mandates of the new law.

Written Notice of Possible Exposure to Employees

First, if an employer has notice that a qualifying individual—i.e., someone who has a laboratory-confirmed case of COVID-19, who has a positive COVID-19 diagnosis from a licensed health care provider, who is subject to a COVID-19-related order to isolate by a public health official, or who died due to COVID-19—was present in the workplace, the employer must, within one business day of the notice, provide written notice of possible exposure to all employees who were onsite at the same site as the qualifying individual within the infectious period (i.e., the time that an individual with COVID-19 is infectious, as defined by the California Department of Public Health). This employee notice must include the following:

  • That the employees may have been exposed to COVID-19 at the worksite
  • Information about COVID-19-related benefits and options for which they may be eligible under applicable law (local, state and federal), including workers’ compensation, COVID-19-related leave and sick leave, as well as employee anti-retaliation and anti-discrimination protections
  • The Centers for Disease Control and Prevention-compliant disinfection and safety plan that the employer plans to implement and complete

Employee representatives (e.g., unions) and employers of subcontracted employees are also entitled to the above notice. Employers are required to keep records relating to any notices they provide to employees for at least three years.

Notification to Local Public Health Agencies

Second, if an employer has a COVID-19 outbreak (currently defined by the California Department of Public Health as three or more laboratory-confirmed cases of COVID-19 among employees who live in different households within a two-week period) at a worksite, it must (a) notify the local public health agency within 48 hours of the outbreak, including the number, names, occupations and worksites of any qualifying individuals and the business address and North American Industry Classification System (NAICS) industry codes of the worksites where the qualifying individuals work and (b) continue to notify the local health department of subsequent laboratory-confirmed cases of COVID-19 at the worksite.

Imminent Hazard Notice at the Workplace

Third, AB 685 empowers the California Division of Occupational Safety and Health to prohibit the entry into or operation of a workplace that exposes employees to the risk of infection with COVID-19—to the extent it constitutes an “imminent hazard” to employees—and to require the posting of a related notice at the workplace.

Given this new law, employers should ensure that they have a solid COVID-19 exposure response plan in place and are adequately prepared to meet the quick employee and government agency notice requirements and other steps required by AB 685.

AB 685 will be in effect from January 1, 2021, until January 1, 2023. The California Department of Industrial Relations has published FAQs to help employers navigate the new requirements.

DOL Revises FFCRA Guidance in Response to Court Ruling

In response to a recent New York federal trial court ruling invalidating key aspects of the U.S. Department of Labor’s (DOL) Families First Coronavirus Response Act (FFCRA) regulations, which limited the availability of emergency paid sick leave (EPSL) and expanded family and medical leave (EFML) in certain contexts, the DOL issued revised regulations to clarify workers’ rights and employers’ responsibilities regarding these paid leave entitlements.

The court’s decision vacated the following provisions of the DOL’s FFCRA regulations:

  • Limits on FFCRA leave when no work is available
  • Limits on employee use of intermittent leave
  • Notice and documentation requirements for leave
  • The definition of health care provider

The court ruled that DOL’s initial rules unlawfully were overly broad and limited an employee from taking FFCRA leave without sufficient explanation. Notably, the DOL’s revised regulations only expand the availability of paid leave with respect to narrowing the definition of “health care provider,” but otherwise reaffirm and provide additional explanation and support for its initial rules.

In response to the court’s decision to vacate the DOL’s work-availability requirement, which prevents furloughed employees from being eligible for paid leave, the DOL maintained its original reasoning noting that the requirement is consistent with U.S. Supreme Court precedent of applying the ordinary meaning of a statute, and Family Medical Leave Act principles. The FFCRA states that “an employer shall provide its employee FFCRA leave to the extent that the employee is unable to work (or telework) due to a need for leave “because” of or “due to” a qualifying reason for leave under FFCRA sections 3102 and 5102(a).” The revised regulations explain that the terms “because,” “due to,” and similar statutory phrases have been repeatedly interpreted by the Supreme Court to require “but-for” causation. On this basis, the DOL reaffirmed its rule that an employee may take paid sick leave or expanded family and medical leave only to the extent that any qualifying reason is a “but-for” cause of his or her inability to work.

With respect to the DOL’s original rule requiring employer approval for intermittent FFCRA leave, the DOL notes that "[i]t is a longstanding principle of FMLA intermittent leave that such leave should, where foreseeable, avoid 'unduly disrupting the employer's operations.'” The DOL further explains that this general principle best meets the needs of businesses by being carried through to the COVID-19 context, by requiring employer approval for such leave.

The DOL did however amend its notice and documentation rule to clarify that the documents employees are required to provide their employer regarding their need to take FFCRA leave need not be provided “prior to” taking EPSL or EFML, but rather may be given as soon as practicable, which in most cases will be when an employee provides notice of the need for the leave.

While most employers’ responsibilities in response to the revised DOL regulations remain unchanged, health care employers will need to consider how the new regulations impact the availability of EPSL and EFML for those employees who are no longer considered “health care providers,” under the now narrow definition. The court believed the original definition of “health care provider” was overly broad and resulted in the exclusion of too many employees from being able to utilize FFCRA leave (e.g., anyone employed at health care facilities, medical schools and/or locations "where medical services are provided"). Under the revised regulations, an employee is a healthcare provider only if the individual is capable of providing health care services.

Additionally, the DOL has updated its FAQs to address the revised regulations, which can be found here (see FAQs 101-103).

New York State Sick Leave Law Goes into Effect and NYC Amends Local Law in Alignment

As of September 30, 2020, all New York State employers must provide their employees with sick leave, and for most employers, such leave must be paid. While New York City and Westchester County already have existing local laws in place guaranteeing employees sick leave—and New York City has amended its local sick leave law to align with the new state law—all Empire State employees are now expressly allotted time off for sick leave purposes pursuant to the New York State Sick Leave law.

Leave Entitlements and Permissible Use

The amount of sick leave that must be provided (and whether such leave is paid or not) varies based on employer size and income as follows:

  • Employers with 1 to 4 employees: Five days (40 hours) of unpaid sick leave per calendar year, but if the employer’s net income was greater than $1 million in the previous tax year, then leave must be paid.
  • Employers with 5 to 99 employees: Five days (forty hours) of paid sick leave per calendar year.
  • Employers with 100 or more employees: Seven days (fifty-six hours) of paid sick leave per calendar year.

New York-based employees may use sick leave for absences related to: (1) a mental or physical illness, injury or health condition of an employee or the employee’s family member, regardless of whether such illness, injury or health condition has been diagnosed or requires medical care at the time the employee requests leave; (2) the diagnosis, care or treatment of an existing health condition of, or preventive care for, an employee or an employee’s family member, or award for whom the employee is the guardian; or (3) an employee or an employee’s family member who is a victim of domestic violence, a sexual offense, stalking or human trafficking in order to avail themselves of services or assistance.

Accrual and Carryover

Employees begin accruing paid sick leave as of September 30, 2020, and can begin utilizing such leave on January 1, 2021. Sick leave accrues at a rate of one hour for every 30 hours worked, although instead of an accrual system, employers can elect to frontload all sick leave at the beginning of the year. Unused sick leave may be carried over to the next calendar year, but employers are permitted to limit the use of sick leave to the maximum allotment per year—40 hours (for employers with fewer than 100 employees) or 56 hours (for employers with 100 or more employees). Employers are not required to pay employees for accrued, but unused, sick leave upon termination of employment.

Interaction with Existing Policies and Local Laws

Employers that already offer their employees leave that may be used for sick leave purposes (including those that provided “unlimited” or “discretionary” time off) do not have to offer additional sick leave, so long as the existing leave entitlements meet or exceed the requirements of the new law.

Critically, the new state law does not preempt existing local paid sick leave laws and employers must comply with all sick leave laws applicable to them. Accordingly, New York City amended its Earned Safe and Sick Time Act (ESSTA), also effective as of September 30, 2020, primarily in order to mirror the allotments, accruals and other provisions of the state law noted above. In addition, the ESSTA now requires that employers must:

  • Eliminate the prior 120-day post-hire waiting period to use ESSTA leave (as well as the requirement that employees must work 80 hours in a year to be eligible for ESSTA leave)
  • Cover costs charged by a health care provider or other entity for providing a note or documentation supporting the leave
  • Provide notice to employees of the changes under the ESSTA by October 30, 2020 and
  • Identify the amount of ESSTA time accrued and used during a pay period and an employee’s total balance of accrued ESSTA on a pay statement or other documents each pay period

Recordkeeping Requirements

Employers are required to maintain records of the amount of sick leave provided to and used by employees for a period of six years, and, upon request, employers must provide employees with a summary of how much sick leave they have accrued and used within three business days of the request.

Discrimination, Retaliation and Confidential Information

Discrimination and retaliation against employees that request or use sick leave is prohibited and employees must be restored to the same position with the same pay, terms and conditions of employment prior to the leave.

Employers also cannot require disclosure of confidential information relating to a physical or mental illness, injury or health condition, or confidential information relating to an absence due to domestic violence, sexual offence, stalking or human trafficking as a condition for providing sick leave.

Next Steps

New York employers should review (and revise accordingly) their existing sick leave practices and policies to ensure they meet the requirements of the New York State Sick Leave law, and for employers in New York City, the amendments to the ESSTA.

Employee vs. Independent Contractor Developments

The classification, and more specifically the alleged misclassification, of independent contractors continues to dominate the headlines. The following is a summary of three significant and ongoing developments in this area under both federal and California law.

DOL Seeks to Clarify Independent Contractor Test Under Federal Law

The U.S. Department of Labor (DOL) issued a proposed rule on September 22, 2020, clarifying when a worker should be considered an employee under the Fair Labor Standards Act (FLSA), or an independent contractor. The proposed rule largely incorporates the long-standing “economic reality” test factors that were historically developed by the courts, but emphasizes the importance of certain factors over others.

As set forth in the proposed rule, the two core factors for consideration are:

  • The nature and degree of the worker’s control over the work
  • The worker’s opportunity for profit or loss based on initiative or investment

With respect to the first core factor, the DOL explained that the following examples may evidence substantial control by the contractor:

  • Setting his or her own work schedule
  • Choosing assignments
  • Working with little or no supervision
  • Being able to work for others, including a potential employer’s competitors

With respect to the core second factor, the DOL explained that an individual is a contractor if he or she has an opportunity to incur profit or loss on either:

  • The exercise of personal initiative, including managerial skill or business acumen
  • The management of investments in or capital expenditure on, for example, helpers, equipment or materials

The DOL’s proposed rule also outlines three additional, secondary factors for consideration:

  • The amount of skill required for the work
  • The degree of permanence of the working relationship between the worker and the potential employer
  • Whether the work is part of an integrated unit of production

The DOL explained that, in the event the two core factors point toward the same classification, whether employee or contractor, there is little need to assess the secondary factors, as the secondary factors are unlikely to outweigh the combined weight of the two core factors.

The DOL has given the public 30 days to comment on the proposed rule. If approved as written, the proposed rule should afford businesses and workers greater flexibility with respect to how they decide to structure their working relationship for purposes of federal law. However, the proposed rule will have no effect on state wage and hour laws (like AB 5, discussed below) which may espouse more stringent tests with respect to independent contractor classification.

New Law Expands Exempt Occupations Under AB 5 Independent Contractor Test

California Governor Gavin Newsom has signed into law AB 2257, which revises and expands the categories of exemptions under Assembly Bill 5. As discussed in our post here, AB 5 adopts the restrictive “ABC” test for independent contractor status imposed by the California Supreme Court in its April 2018 Dynamex decision. However, certain occupations are excluded from the application of the ABC test, including persons providing professional services under specified circumstances.

AB 2257 adds a number of new exemptions to AB 5. These exemptions include, among others, digital content aggregators in certain circumstances, licensed landscape architects, home inspectors, individual performance artists, and persons engaged in conducting international and cultural exchange visitor programs.

Moreover, the new law revises the current exemption for certain freelance workers. Under existing law, freelance writers, editors and newspaper cartoonists were exempt from the application of the ABC test if they contracted for less than 35 content submissions in a year. However, AB 2257 deletes this 35-submission limit and expands exempt categories to include freelance writers, translators, editors, copy editors, illustrators and newspaper cartoonists who work under a written contract that specifies certain terms (including the rate of pay, intellectual property rights, and obligation to pay by a defined time), subject to certain restrictions.

Importantly, and as noted in our prior article on AB 5, these excluded occupations are not exempt from contractor classification scrutiny altogether. Instead, they will be analyzed under the less rigid economic realities (or the Borello) test, which considers various factors in determining independent contractor status. In light of this new law, employers should carefully re-examine the classification of their workers.

Uber and Lyft Continue to Battle Challenges to Worker Classification

On August 10, 2020, the San Francisco Superior Court issued an injunction in People of the State of California v. Uber Technologies; Lyft ordering the two companies to reclassify their drivers from independent contractors to employees. The court reasoned that these companies could not credibly argue that the drivers are performing work outside of the usual course of the hiring entity’s business, which is one of the required conditions under California’s AB 5 independent contractor test. Although the two companies contend that they are “multi-sided platforms” rather than transportation companies, the court disagreed and found that the “drivers are central, not tangential, to Uber and Lyft’s entire ride-hailing business.”

Pursuant to this order, the companies were initially given 10 days to comply and reclassify their drivers, but the California Court of Appeal extended this window indefinitely, staying the order
pending resolution of Uber and Lyft’s challenge to the order.

In the meantime, Uber, Lyft and other prominent gig economy companies are continuing to push for the passing of Prop 22, appearing on November’s ballot, which essentially exempts ride-sharing and food delivery companies from AB 5.

Trump Executive Order Penalizes Federal Contractors for Advancing Allegedly Divisive DEI Training Concepts

On September 22, 2020, President Trump issued an executive order designed to discourage federal contractors from conducting workplace training on purportedly divisive concepts in the area of diversity, equity and inclusion (DEI), and to penalize contractors that violate the order. The order also applies limits to purportedly divisive DEI training within the military and federal agencies, and with respect to federal grant recipients.

The order compels federal contractors and subcontractors that are otherwise subject to federal contract compliance (pursuant to Office of Federal Contract Compliance Programs (OFCCP) regulations and other applicable federal law) to agree, as a condition of entering into such a contract, not to deliver workplace training that includes race or sex stereotyping or scapegoating. Such purported stereotyping or scapegoating includes the following concepts: (i) inherent race or sex superiority; (ii) inherent racism or sexism (whether conscious or unconscious); (iii) an individual’s moral character is necessarily determined by his or her race or sex; (iv) meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race; and (v) assigning fault, blame, or bias to a race or sex, or to members of a race or sex because of their race or sex. A full list of the prohibited concepts is set forth in the order.

All applicable contracts must include a commitment by the contractor to comply with the order. In addition, contractors must post a notice regarding the order in a conspicuous place available to all employees and applicants, and to notify labor union representatives as applicable. The federal contractor must also include, in every applicable federal subcontract, a provision that the terms of the order will be binding upon all such subcontractors or vendors. Lastly failure to comply with the order may result in the termination or suspension, in whole or in part, of the applicable federal contract.

The provisions of the order affecting covered federal contractors applies to all federal contracts entered into on or after November 21, 2020.

CA Supreme Court Articulates Rule of Reason for Business Contracts That Restrain Trade

In August 2020, the California Supreme Court, in response to a request from the U.S. Court of Appeals for the Ninth Circuit to clarify California law in a pending federal case, held that California Business and Professions Code Section 16600 does not render void all restraints of trade in business contracts. Rather, in determining whether a B-to-B contractual restriction violates Section 16600, a rule of reason should apply. Yet the court also made clear that its holding does not overturn or diminish its seminal holding in Edwards v. Arthur Andersen—that non-competition agreements and other restraints of trade in employment agreements, including “narrow restraint” restrictions that penalize but do not necessarily prohibit competition, are invalid unless they fall within the Section 16600 sale of business exception.

At the heart of the case is an otherwise standard drug development collaboration agreement between Ixchel Pharma (Ixchel) and Forward Pharma (Forward) through which Ixchel and Forward sought to jointly develop a drug to treat a neurogenerative disorder. At the same time, Forward was embroiled in a patent dispute with a separate biotech, Biogen, involving Biogen’s development of a multiple sclerosis drug containing the active ingredient DMF, the same active ingredient in the Ixchel–Forward drug. Biogen and Forward settled their patent dispute, and in the settlement agreement, Forward agreed not to pursue drug development involving DMF, and to terminate all contracts and other obligations related to such a development, including the Ixchel-Forward collaboration.

The Ixchel-Forward collaboration agreement allowed Forward to terminate the contract “at-will.” It did so, resulting in Ixchel’s lawsuit against Biogen for tortious interference with the collaboration agreement. On appeal from a federal trial court’s dismissal of Ixchel’s claims, the Ninth Circuit referred to the California Supreme Court two questions: (1) does a claim for tortious interference with an at-will contract require an underlying wrongful act; and (2) what is the proper legal standard to determine whether Section 16600 renders void and unenforceable a business contract like the Biogen-Forward settlement agreement, by which one business (Forward) is restrained from engaging in lawful trade or business with another (Ixchel).

The supreme court first concluded that Ixchel must plead and establish an underlying wrongful act to pursue a tortious inference of contractual relations claim against Biogen, given the at-will nature of the collaboration agreement. Then, the court held that while Section 16600 applies not only to employment and sale of business contracts but also to commercial business contracts like the collaboration agreement, a different standard should apply when scrutinizing contractual restrictions on trade or business in such contracts and whether they violate Section 16600. Specifically, the court held that a “rule of reason” should be applied, i.e., an assessment of whether a restriction on the ability of a business to engage in trade or business is nevertheless reasonable based on a host of factors, including whether the contractual restriction promotes, rather than harms, competition. The case will now return to federal court, where Ixchel and Biogen will continue to litigate under this standard.

This decision confirms that Section 16600 applies to B-to-B contracts, and provides helpful guidance as to the kinds of restraints on trade or business that could lawfully be installed in a B-to-B contract. The decision also makes clear that such restrictions in the employer/employee relationship context continue to be void and unenforceable under California law (subject to the express statutory exceptions within Section 16600).

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