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Fenwick Employment Brief - September 2015

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California Legislature Acts to Outlaw Pre-Employment Mandatory Agreements to Arbitrate Labor Code Claims
Other Employment-Related Bills Awaiting Action by California Governor

News Bites
DOL Unpaid “Trainee” Test Rejected By Another Federal Circuit
Executive Order Mandates Sick Leave For Workers Of Federal Contractors And Subcontractors
Caution—Reimbursement Of Employee Individual Health Premiums May Expose Employer To Substantial Fines
Reminder: New York City Ban-The-Box Law Effective October 27, 2015
Reminder: Advance Notice Required Before Mandating Use of Accrued Vacation/PTO During Holiday Shutdown
Reminder: EEO-1 Reports Due On October 30 (Deadline Extended)


California Legislature Acts to Outlaw Pre-Employment Mandatory Agreements to Arbitrate Labor Code Claims

In late August, the California Senate and Assembly passed AB 465, which, if signed by Governor Jerry Brown, will make pre-employment mandatory agreements to arbitrate Labor Code violations against California public policy starting January 1, 2016. AB 465 would create a new statute that prohibits employers from requiring a candidate to “waive any legal right, penalty, remedy, forum, or procedure for a violation of [the Labor Code], as a condition of employment, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Labor Commissioner… or any court or other governmental entity.” The section explicitly covers “an agreement to accept private arbitration.” The bill makes it unlawful to threaten, or retaliate or discriminate against, a person who refuses such a waiver. An employee may recover reasonable attorney’s fees incurred in enforcing rights under the new statute.

Even if the bill becomes law, certain forms of pre-employment arbitration agreements would remain enforceable, even if they cover Labor Code violations. For instance, those agreements that are knowing and truly voluntary—i.e., not made as a condition of employment—would be valid, but the employer would have the burden of proving these facts if challenged. Further, the new statute would not apply to persons registered with a self-regulatory organization under the Securities Exchange Act of 1934 or employees represented by counsel in negotiating the agreement.

AB 465 is principally backed by organized labor, with the California Labor Federation, AFL-CIO sponsoring the bill. A lobbyist for the federation cited an uptick in the instances of low-wage workers being unable to recover unpaid wages before the California Labor Commissioner due to an arbitration agreement they did not understand or know they signed. The bill is opposed by many groups, including the Civil Justice Association of California and the California Chamber of Commerce. The chamber has identified AB 465 as one of the 2015 Job Killers, citing the increased burden on the judicial system and noting likely preemption by the Federal Arbitration Act.

If AB 465 becomes law, the long-term legal impact is unclear. Not only will it prohibit pre-employment, mandatory agreements to arbitrate Labor Code violations, but it may also reach class action waivers, which the California Supreme Court recently upheld in the employment context (see July 2014 FEB). The substantive reach of the prohibition is also unclear, expressly covering a “legal right, penalty, forum, or procedure” for a Labor Code violation, but remaining silent on other employment-related statutes such as the Fair Employment and Housing Act (codified in the Government Code). Moreover, the statute will almost certainly be challenged under the Federal Arbitration Act, which reflects a liberal policy favoring arbitration enforceability and pre-empts state rules that disfavor arbitration. The ambiguity in breadth and pre-emption uncertainty leave employers in an unenviable position if the bill becomes law.

AB 465 (and the other employment-related bills described below) remain on Governor Brown’s desk for consideration, and we will continue to monitor and report on developments.


Other Employment-Related Bills Awaiting Action by California Governor

In addition to AB 465, California employers should watch for Governor Jerry Brown’s actions as to the following employment-related bills:

SB 358: The California Fair Pay Act is directed at closing the pay differential between male and female employees, and is reported to be the toughest equal pay law in the country. For further information, please see our August 2015 FEB.

SB 406: This bill would expand the purposes for which family care leave may be taken under the California Family Rights Act (“CFRA”). First, it would broaden the group of people for whom an employee may take family care leave to include the following relatives with a serious health condition: parent-in-law, grandparent, grandchild, sibling, domestic partner, child of a domestic partner, and adult child regardless of dependent status. Second, it would eliminate an employer’s right to limit the amount of CFRA child bonding leave to a combined total of twelve weeks where both parents work for the same employer, such that parents in this context could collectively take up to twenty-four weeks of protected leave.

AB 1017: The bill would create a new Labor Code statute prohibiting employers from seeking salary history information about an employment applicant. As originally drafted, the bill would have also prohibited employers from releasing salary information of current and former employers, but a late amendment deleted the restriction.

AB 1506: The bill would amend the California Private Attorney Generals Act (“PAGA”) statutes to allow employers a limited window to cure certain wage statement deficiencies before a PAGA action may be pursued. Specifically, it allows employers thirty-three days to cure a violation pertaining to the inclusive dates for the pay period and the name and address of the employer. Such a cure must result in fully-compliant statements for the entire statutory, three-year period, and may be used only once in a one-year period.

SB 579: This bill would expand the purposes for which employees may use certain legally-mandated time off. First, under the Family-School Partnership Act, employers with at least twenty-five employees must allow employees to take up to forty hours of unpaid time off annually (up to eight hours per month) to participate in school and childcare activities. Under the bill, employees could use the job-protected time (a) to find, enroll or reenroll their children in school or licensed daycare and (b) for a childcare provider or school emergency, including where the facility requests the child be picked up or policy prevents the child’s attendance, behavioral or discipline problems, unplanned closure or unexpected unavailability, or a natural disaster. The protections would be extended to stepparents, foster parents or an employee who stands in loco parentis to a child. Second, the bill would also more closely align California’s “kin care” law, under which employees may use one-half of their accrued sick leave to care for defined family members, to mirror the defined family members and purposes of the recent Paid Sick Leave law (see June 2015 FEB).

News Bites


DOL Unpaid “Trainee” Test Rejected By Another Federal Circuit

In Schumann v. Collier Anesthesia, P.A., the Eleventh Circuit Court of Appeals (covering Florida, among other states), declined to following the federal Department of Labor’s six-factor test for assessing whether a trainee or intern is an “employee” entitled to minimum wage and overtime under federal law. The court observed the test was too rigid and outdated, and failed to take into account the modern economy or the circumstances of the particular relationship. Instead, the court adopted the “primary beneficiary” test articulated in Glatt v. Fox Searchlight Pictures, which promoted consideration of the full circumstances of the work, identifying a non-exhaustive list of potentially relevant considerations (see July 2015 FEB). The Eleventh Circuit remanded the matter for consideration by the district court.

This is now the second circuit to adopt the “primary beneficiary” approach. However, it is important to remember that some states (including California) enforce more employee-friendly tests and it remains to be seen how this new approach may compare to analysis in those states. Thus, employers should continue to assess legal risk very carefully when considering an unpaid internship.


Executive Order Mandates Sick Leave For Workers Of Federal Contractors And Subcontractors

On September 7, 2015, President Obama issued an executive order requiring federal contractors and subcontractors to provide workers with up to seven days of paid sick leave. Workers accrue a minimum of one hour of leave for every thirty hours worked, with a minimum accrual cap of fifty-six hours. The sick leave may be used for a variety of care-related purposes, including diagnosis, care and preventative self-care; caring for certain relatives; and absences resulting from domestic violence, sexual assault or stalking. Of course, contractors and subcontractors may offer more generous benefits. The Executive Order is immediately effective, regulations are due by September 30, 2016, and the order will cover contracts beginning January 1, 2017.


Caution—Reimbursement Of Employee Individual Health Premiums May Expose Employer To Substantial Fines

Many employers—particularly smaller employers who do not offer a company-sponsored group health plan or those with employees who opt to secure coverage separately—consider reimbursing employees for all or part of the premiums of such coverage.  While perhaps generous in intent, reimbursing an employee’s individual health coverage policy premiums may expose employers to substantial fines, whether the employee obtained coverage under an Affordable Care Act Exchange or a policy of individual coverage obtained through an insurer.  Such reimbursement arrangements are considered to be “employer payment plans” that constitute a group health plan coverage under the Affordable Care Act—which do not meet the requirements of the Act.  Formerly, certain small employers were temporarily permitted to reimburse such employees for individual policy premiums, but, per new guidance issued earlier this year, that window closed in July 2015.  Now employers who reimburse employees for the cost of individual health care coverage are subject to substantial fines.  However, employers are allowed to pay employees additional compensation, so long as the additional payment is not conditioned on the purchase of individual coverage.


Reminder: New York City Ban-The-Box Law Effective October 27, 2015

Starting October 27, 2015, employers with four or more employees are largely prohibited from seeking arrest and criminal conviction history when recruiting employment candidates in New York City and face tighter restrictions and obligations when using such information in the hiring process. For further information about the restrictions, see our June 2015 FEB and the Fair Chance Act.


Reminder: Advance Notice Required Before Mandating Use of Accrued Vacation/PTO During Holiday Shutdown

Many businesses elect to shut down all or a majority of operations during the year-end holidays. According to the California Division of Labor Standards Enforcement, if an employer plans to mandate employee use of accrued vacation or paid time off (“PTO”) during such shutdowns, the employer must provide no less than one full fiscal quarter or ninety days’ notice of the employer-mandated usage of vacation or PTO. If such notice is not provided, employers may permit, but cannot require, employees to draw down accrued vacation or PTO.


Reminder: EEO-1 Reports Due On October 30 (Deadline Extended)

Those employers who are subject to federal EEO-1 reporting requirements—i.e., employers with one hundred or more employees and federal contractors with fifty or more employees—must file their EEO-1 reports by the October 30, 2015 extended deadline. The Equal Employment Opportunity Commission has updated the survey and online platform for submitting the reports. Among other things, companies may obtain and reset their passwords online, and company locations with the same address and industry code (or NAICS) must consolidate those locations into one record. For additional information and instructions on filing, please see http://www.eeoc.gov/employers/eeo1survey/.

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