2015 Legislative Developments: Wage and Hour Laws

The California Legislature has enacted a number of new laws that will impact employers and employees in 2016. In eight installments, Kronick will provide you with helpful summaries by category. The first installment covers Wage and Hour Laws.

I. Wage & Hour Laws

A. SB 358 (Jackson): California Fair Pay Act With the adoption of the California Fair Pay Act, the California Legislature enacted one of the toughest gender-based equal pay laws in the country. The Fair Pay Act is based on a number of legislative findings.

1. Legislative Findings

a. California’s current gender pay gap results in women being paid 84 cents to every dollar earned by men. This gender pay gap increases dramatically for women of color.

b. This gender pay gap results in a higher statewide poverty rate for women vs. men.

c. California’s current equal pay law, Labor Code section 1197.5, is “rarely utilized because the current statutory language makes it difficult to establish a successful claim.”

d. “Pay secrecy also contributes to the gender wage gap, because women cannot challenge wage discrimination that they do not know exists.” Based on these legislative findings, the Legislature amended the provisions of Labor Code section 1197.5 as follows:

2. New Equal Pay Standards

a. Employers are prohibited from paying employees wage rates less than those paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. This prohibition is no longer limited to a comparison of employees working in the same establishment.

b. Employers may justify pay differentials based on a seniority system, merit system, a system that measures earnings by quantity or quality of production, or on any bona fide factors other than sex, such as education, training, or experience.

c. An employer may rely on a bona fide factor such as education, training, or experience only if it can show that the factor relied on is not based on or derived from a sex-based differential in compensation, is job-related, and is consistent with business necessity. “Business necessity” is defined as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” Furthermore, this factor does not apply if the employee can show that an alternative business practice exists that would serve the same business purpose without producing a wage differential.

d. Regardless of the factor(s) on which an employer relies to defend a gender wage differential, it must show the factor(s) relied upon was applied reasonably and accounts for the entire wage differential.

3. Liability and Statute of Limitations

a. Violation of the California Fair Pay Act can result in liability to the affected employee in the amount of wages not paid due to violation of the equal pay requirements, with interest thereon, and an equal amount as liquidated damages.

b. The new law is enforced by the Division of Labor Standards of Employment. An affected employee may also bring a civil action within two years of a violation. If the violation is willful, the employee can bring a suit within three years of the violation. In addition to the recovery of damages, a successful employee also is entitled to reasonable costs and attorney’s fees.

4. Recordkeeping Requirements Employers are required to maintain records of wages and wage rates, job classifications, and other terms and conditions of employment for all persons employed. The retention period for these records has been increased from two to three years.

5. Anti-Retaliation Employers are prohibited from taking any adverse action against an employee who files a complaint with DLSE or brings his/her own action to enforce the provisions of the statute. The statute of limitation on a retaliation claim brought under this statute is one year from the retaliatory action.

B. SB 327 (Hernández): Meal Period Waiver Provision for Healthcare Workers

In Gerard v. Orange Coast Memorial Medical Center (2015) 234 Cal.App.4th 285, California’s Fourth District Court of Appeal invalidated a portion of Industrial Wage Commission Order No. 5, the wage order applicable to employees working in hospitals, assisted living facilities, and similar health care establishments, which permitted those employees to waive their second meal period in writing if they worked shifts of more than 12 hours in a workday. The appellate court found the provision in the wage order permitting healthcare workers to waive a second meal period during shifts of more than 12 hours conflicted with the language of Labor Code section 512, which prohibited such a waiver. On this basis, the court found the wage order invalid. This legislation amends Labor Code section 512 to provide that the provisions of the wage orders permitting a waiver of a second meal period for healthcare workers working a shift in excess of 12 hours are valid, thereby invalidating the ruling in Gerard. The Legislature declared the revisions to section 512 to be declarative of existing law, meaning those revisions have retroactive effect. The legislation also was adopted as an urgency measure, which means it took effect immediately upon being chaptered into law.

C. AB 970 (Nazarian): Enforcement of Employee Claims by Labor Commissioner

This bill amends the provisions of Labor Code sections 558, 1197, 1197.1, and 2802. It permits the Labor Commissioner, upon request from a local agency, to investigate and enforce violation of local laws regarding overtime and minimum wages. It further authorizes the Labor Commissioner to investigate and enforce the statutory provisions requiring an employer to indemnify an employee for all expenses or losses incurred as a direct consequence of an employee’s discharge of his or her duties.

D. SB 588 (De León): Labor Commissioner’s Enforcement of Judgments for Non-payment of Wages

This bill adds new sections (commencing with section 690.030) to the Civil Code, amends Labor Code section 98 and adds new sections 96.8, 238, 238.1 through 238.5, and 558.1 to the Labor Code. It grants to the Labor Commissioner sweeping new authority to enforce judgments against employers for non-payment of wages. Some of the more significant provisions include the following:

1. The Labor Commissioner is now authorized to act as a levying officer and to issue a notice of levy for the seizure of assets of an employer against whom a judgment has been obtained for non-payment of wages. Any person who receives a levy must surrender the credits, money, or property to the Labor Commissioner, or pay the Labor Commissioner the amount owed, within 10 days of service.

2. If a judgment for non-payment of wages is obtained against an employer, and that employer allows that judgment to go unsatisfied for 30 days from the date the right to appeal expires, the employer will not be permitted to continue to conduct business in the state unless the employer obtains a surety bond in the amount specified in the statute.

3. If an employer continues to conduct business without obtaining a surety bond, the Labor Commissioner is authorized to issue a stop notice.

4. The Labor Commissioner is authorized to create liens on an employer’s real property when a judgment for non-payment of wages is unpaid.

5. Employers providing long-term care services who allow a judgment for non-payment of wages to remain unsatisfied may have their license revoked.

E. AB 1513 (Williams) Employees Paid On a Piece-rate Basis

This bill adds section 226.2 to the Labor Code. The new code section requires that employees who are paid on a piece rate basis be compensated for rest and recovery periods and other non-productive time separate from any piece-rate compensation. In addition to other statutory requirements regarding information to be included on a pay stub, the pay stub of an employee paid on a piece-rate basis must set forth the total hours of compensable rest, recovery, and other nonproductive periods and the gross wages paid for those periods. The term “other non-productive time” is defined as time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity compensated on a piece-rate basis. The compensation paid to employees who are compensated on a piece-rate basis for rest, recovery, or other non-productive periods must be either an average hourly rate determined by dividing the total compensation for the workweek exclusive of those periods and any premium pay by the total number of hours worked, or the minimum wage, whichever is greater. Employers who pay the minimum wage for rest, recovery, and other non-productive period when they should have been paying a higher amount have until April 30, 2016 to reprogram their payroll system but must pay affected employees the additional amount owed plus interest by no later than April 30, 2016.