Changes to California’s Wage and Hour Practices Effective January 1, 2016

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The California Legislature passed, and Governor Jerry Brown signed, numerous labor and employment bills into law in 2015. This article highlights some of the key changes to California’s Wage and Hour practices, including:

Each new law discussed is effective January 1, 2016 unless expressly stated otherwise.

Senate Bill (SB) 588 – California Labor Commissioner – Judgment Enforcement

SB 588 seeks to reduce millions of dollars of wage theft violations occurring each year, and holds individuals responsible and accountable for wage theft.    It gives the Labor Commissioner new tools to collect from employers.  Specifically, the Labor Commissioner now has the right to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment.  If an employee brings a successful Wage and Hour claim against an employer, the Labor Commissioner can place a lien on the employer’s real and personal property or levy on the business’s bank accounts and accounts receivable. If the aggrieved employee incurred attorneys’ fees, then the Labor Commissioner can include those attorneys’ fees in the lien or levy.  For more, see e.g., Labor Code Sections 238.2, 238.3.

Furthermore, the employer cannot close down its business and re-opening under a new name in an effort to avoid debts to workers.  Any new business that is “similar in operation and ownership” to the guilty employer is also liable for the wages owed.  The new business is considered the “same employer” for purposes of liability if (1) “the employees of the successor employer are engaged in substantially the same work in substantially the same working conditions under substantially the same supervisions,” or (2) “if the new entity has substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of consumers.”  For more, see Labor Code Section 238(e).

Importantly, until the passage of SB 588, there was no individual liability for state Wage and Hour violations in California.  In this regard, by limiting the definition of “employer,” California state law offered greater protections to individuals than the protections offered under federal law.  Specifically, under the Fair Labor Standards Act of 1938 (FLSA), the definition of “employer” includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  Courts have interpreted this definition broadly, allowing employees to bring federal wage and hour claims against individual defendants.  That was not the case in California, where the definition of “employer” was more narrowly construed and did not include individual corporate agents acting within the scope of their agency.

As of January 1, 2016, however, courts will now also allow California state wage and hour claims against individual defendants.  California has expanded the definition of “employer” to include any “person acting on behalf of an employer.”  Any such person can now be held liable for Wage and Hour violations, including violations of Sections 203, 226, 226.7, 1193.6, 1194, and 2802 of the Labor Code.  Persons acting on behalf of an employer include natural persons who are owners, directors, officers, or managing agents of the employer.  The Labor Commissioner can seize the personal property and bank accounts of individual owners and others who violate California’s Wage and Hour laws.  High level employees must therefore be mindful of both federal and California wage and hour laws because they can be held personally accountable for violations of both.  For more, see Labor Code Section 558.1.

Once an employer is found to have violated California’s Wage and Hour laws, and the employer’s nonpayment of wages stays unsatisfied after any appeal rights have expired, that employer may not continue to conduct business in California unless the employer obtains a bond and files a copy of the bond with the Labor Commissioner.  Labor Code Section 238.  The bond amount can range from $50,000, if the unsatisfied portion of the judgment is no more than $5,000, up to $150,000, if the unsatisfied portion of the judgment is more than $10,000.  The Labor Commissioner can create a lien on the employer’s real or personal property in California, if the employer continues conducting business without satisfying the bond requirement for the full amount of any wages, interest and penalties claimed to be owed to an employee.  The employer may be subject to a stop order disallowing use of labor until compliance is obtained. Failure to comply with such stop order is deemed a misdemeanor.  For more, see Labor Code Section 238.1.

SB 588 also authorizes civil penalties for wage and hour violations.  These are owed in addition to any wages and attorneys’ fees owed to employees.  The penalty is $2,500 for the first offense and $100 for each calendar day the employer continues to do business in violation of the law, up to $100,000.00.  For more, see Labor Code Section 238(f).

Finally, employers in the long-term care industry, such as skilled nursing facilities, intermediate care facilities, congregate living health facilities, hospice facilities, adult residential facilities, residential care facilities for persons with chronic life-threatening illnesses, residential care facilities for the elderly, continuing care retirement community, home health agency, or home care organizations, need to be particularly mindful of new changes to the Wage and Hour laws.  If such long-term care facilities are found to be in violation of the newly created Labor Code Section 238, they may be denied a new license, or the renewal of an existing license.  Specifically, if a final judgment against an employer arising from the employer’s nonpayment of wages remains unsatisfied after the time to appeal expires, an employer in the long-term care industry may be denied a new or renewed operating license if the employer fails to obtain a necessary bond.  For more, see Labor Code Section 238.4.

Senate Bill (SB) 327 – Employees in Health Care Industry; Waiver of Meal Periods

The law was enacted to address the uncertainty created by an appellate court decision in Gerard v. Orange Coast Memorial Medical Center, 234 Cal. App. 4th 285 (2015).  SB 327 simply affirms that employers in the health care industry can continue to allow employees to voluntarily waive one of their two meal periods, even if the employee’s shift exceeds 12 hours.  This was an urgency statute which became effective immediately on October 5, 2015, and which amends Labor Code Section 516.

Assembly Bill (AB) 970 – California Labor Commissioner; Enforcement of Employee Claims

Much like SB 588, Assembly Bill 970 expands the Labor Commissioner’s enforcement powers.  In AB 970, the California legislature authorizes the Labor Commissioner to issue citations to enforce local minimum wage and overtime laws.  Various Labor Code Sections were amended accordingly, including Labor Code Sections 558, 1197, 1197.1, and 2802.

Senate Bill (SB) 358 –Addresses Gender Pay Inequality

SB 358, the California Fair Pay Act, is the  “strongest equal pay law in the nation” according to Governor Brown.  Full time working women in California lose more than $33 billion each year due to the wage gap.  The Fair Pay Act is expected to eliminate loopholes that prevent effective enforcement and empowers employees to discuss their pay without fear of retaliation.  Previously, employees claiming gender-discriminatory pay practices had to prove that they were getting paid less for “equal” work.   The new law lowers that burden of proof by prohibiting employers from paying lower wages for “substantially similar” work.   On the other hand, the law increases the burden of proof for employers defending against such claims – the new law requires employers to demonstrate that a wage differential is based on a bona fide factor other than the employee’s gender.  The new law also discourages secrecy by explicitly prohibiting retaliation or discrimination against employees who disclose, discuss, or inquire about their own or co-workers’ wages.

Assembly Bill (AB) 1513 –   Modifies Workers’ Compensation and Piece Rate Compensation Rules

AB 1513 added a new section 226.2 to the Labor Code concerning piece-rate compensation.  The new law became effective January 1, 2016.  It is designed to resolve controversies over how to compensate piece-rate workers for rest and recovery periods and other “nonproductive” work time that does not generate piece-rate earnings.

The new law requires that the itemized wage statement provided to employees compensated on a piece-rate basis must also separately state:

  • the total hours of compensable rest and recovery periods available under the law, the rate of compensation, and the gross wages paid for those periods during the pay period, as well as
  • the total hours of “other nonproductive time,” the rate of compensation and the gross wages paid for such time during the pay period.

The new law defines “other nonproductive time” to mean time under the employers’ control exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.  The new law requires employees to be compensated for rest and recovery periods and other nonproductive time at or above specified minimum hourly rates, separately from any piece-rate compensation.  In other words, employers who pay on a piece-rate basis will only be able to satisfy the new law if they pay minimum wage for all hours worked, in addition to any piece rate.

The new law does, however, provided a limited safe harbor for employers that have not been sued regarding these issues prior to April 2014; who come into compliance with all of the obligations described in Labor Code Section 226.2 before the end of 2015, and who pay actual or liquidated damages by the end of 2016.

Employers may assert an affirmative defense to all liability for failure to compensate for rest and recovery periods and other non-productive time if they satisfy all of the following requirements by December 15, 2016:

(1) if the employer pays to its current and former employees all compensation now required for periods January 1, 2012 – December 31, 2015;

(2) if the employer makes a good faith effort to locate and provide these payments to each of its former employees; and

(3) if the employer provides written notice to the Department of Industrial Relations by July 1, 2016 that it intends to make these payments.

Employers who have paid, or continue to pay, on a piece rate basis must be mindful of the limited timeframe for coming into compliance with the new requirements regarding piece rate compensation.  Those who have paid on a piece-rate basis should consult counsel to make sure they comply with the new requirements by the end of 2016, or risk exposure to significant liability in current and/or future litigation.

Senate Bill (SB) 501 – Wage Garnishment Restrictions

The existing Wage Garnishment Law prescribes the procedure for withholding an employee’s earnings for purposes of paying a debt.  Prior to January 1, 2016, the law prohibited the amount of an individual judgment debtor’s weekly disposable earnings subject to levy under an earnings withholding order from exceeding the lesser of 25% of the individual’s weekly disposable earnings or the amount by which the individual’s disposable earnings for the week exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable.

The new law, effective as of January 1, 2016, reduces the prohibited amount of an individual judgment debtor’s weekly disposable earnings subject to levy from exceeding the lesser of the following:

  • 25 % of the individual’s weekly disposable earnings or
  • 50 % of the amount by which the individual’s disposable earnings for the week exceeds 40 times the (i) state minimum hourly wage or (ii) applicable local minimum wage, if higher, in effect at the time the earnings are payable.

IWC Minimum Wage Order, MW-2014:

Effective January 1, 2016, California’s minimum wage has increased to $10.00 per hour.   Thus, as of January 1, 2016, the minimum annual salary for exempt employees is $41,600.

Assembly Bill (AB) 1506:  PAGA Amendments   

Amendments to the Private Attorney General Act of 2004 (PAGA) provide some relief to the employers relating to claims under Labor Code section 2699.    The new law allows employers a limited right to cure wage statement violations, which involve failure to provide itemized wage statements containing (1) pay period dates and (2) the name and address of the legal entity, before individuals can bring civil suits for such alleged violations. Under the new law, the employer can cure the violation only if the employer provides a fully compliant, itemized wage statement to each aggrieved employee.  The employer cannot take advantage of the new law’s notice and cure provisions more than one time in a 12-month period for the same violation or violations set forth in the Labor & Workforce Development Agency (LWDA) notice, despite the location of the worksite.  This law was enacted as an urgency statute and is effective October 2, 2015.  Sections 2699, 2699.3 and 2699.5 of the Labor Code were amended accordingly.