As we say goodbye to 2015 and ring in 2016, business owners around California are preparing to comply with a bevy of new laws passed by the state legislature. With 877 new laws signed by Governor Brown this year alone – many of which are applicable to businesses – staying on top of the new rules is a daunting task! Add in the various state and federal court rulings, as well as administrative "clarifications" of existing law, and it becomes understandable why many business owners take the ostrich approach, by burying their collective heads in the sand. Unfortunately, ignorance of the law is not a defense, and the penalties for non-compliance can be catastrophic to smaller businesses! This is why our year-end tradition of providing a brief overview of the most important California legal changes has become a favorite of our clients.
Minimum Wage Increases
As most employers know, the statewide minimum wage is set to increase from $9.00 per hour to $10.00, effective January 1, 2016. Complicating matters, though, are the state's largest cities/counties which are also scheduled to increase minimum wages during the 2016 calendar year, on their way to a $15.00 minimum wage by 2020. San Francisco will see its minimum wage increase to $13.00 per hour effective July 1, and Oakland's minimum wage increases to $12.55 per hour on January 1, 2016. Both the City of Santa Clarita and unincorporated business sectors of Los Angeles County are set to increase minimum wage for employers with 25 or more workers to $10.50 per hour on July 1.
While the lowest wage earners will certainly be affected by the minimum wage increase, it is also important to note that these increases have a "trickle up" effect, influencing the minimum salary of even salaried, exempt employees. Most of the statewide "white collar" exemptions set forth in the California Industrial Wage Commission Wage Orders, require an employee to earn no less than double the state minimum wage in order to qualify as exempt (e.g. no obligation for an employer to pay overtime). This would equate to a pay raise of more than $4,000.00 per year in order for exempt employees to maintain their status.
It is important to note that the differing city and county minimum wage rates will not affect the exemption thresholds under California law. With that being said . . .
Proposed Changes to Exempt Status
In March of this year, the United States Department of Labor announced that it would explore revisions to the federalexemption standards, including the "duties test" associated with each exemption category, and the minimum salary associated with each. The proposed rule, would require an exempt employee to earn no less than $970.00 per week (the equivalent of $24.25 per hour), or $50,440.00 on an annualized basis. In other words, if an employer – even an employer here in California – paid less than the federal minimum salary threshold, the employee would not be entitled to an exemption from federal overtime laws. Although the public comment period closed on the proposed new rule, it is unclear when the USDOL plans to make its final determination on whether to implement these new restrictions, or as to when they will become effective. Check back for further updates!
Changes to Mandatory Sick Leave Requirements
As reported in our 2014 update, effective July 1, 2015, California employers were required to provide its employees with paid sick leave. Unfortunately, the original bill (AB 1522) left a number of questions unanswered about how an employer was to implement the new requirements. Despite repeated requests for clarification, it wasn't until the governor signed AB 304 on July 13 – twelve days after employers were required to comply – that clarity was provided on some of the biggest issues. We learned that as long as an employee earns 24 hours of paid sick leave by the 120thcalendar day of employment, the accrual requirement under the code is satisfied. Alternatively, an employer may "frontload" the 24 hours of sick leave as long as an employee is permitted to begin using the accrued time by the 120thday of employment.
The legislature also provided clarification that an employer may limit an employee's use of sick leave on a 12-month "rolling basis" as opposed to setting an arbitrary start date (e.g. January 1, July 1, anniversary date). This ensures that the 24-hour cap on accrual is an annualized earning, and not a calculation that requires constant updating based upon an employee's use.
Finally, clarification was provided on perhaps the biggest question lingering – how does an employer track sick leave for its exempt personnel? The legislature indicated that unlimited sick leave is permitted for employers who do not wish to track the actual time used/accrued by its exempt employees. Each of these clarifications became effective immediately, and should be taken into consideration for any future changes to your employee handbook, policies or procedures.
California's Fair Pay Act
Governor Brown signed SB358 –a clarification of California's existing Fair Pay Act – on October 6, 2015. The legal effect of the bill was to change the standard from "equal pay for equal work" to the more amorphous standard of "equal pay for substantially similar work." The legislature commented that the "equal work" standard was nearly impossible for an employee to prove, given that no two positions or individuals are identical. Most employers are concerned that the new standard is too uncertain, and provides no guidance on what a "substantially similar" position would entail. Also, it is unclear how much "business judgment" based upon work history, experience or qualitative education can be taken into account when determining pay rates.
This will likely be a new frontier for litigation, as employers and clever plaintiffs' attorneys work through what a "substantially similar" standard looks like. In the interim, clear, objective job descriptions will certainly help in taking the uncertainty out of the future. As always, having a qualified employment law attorney on speed dial is always recommended!
As we move into another new year, the adage remains true that an ounce of prevention will be far more valuable than the "pound of cure" that would come into play if your business fails to comply with all of the new laws.
Poole Shaffery has provided articles in this electronic newsletter ("e-newsletter") for general informational purposes only. It is not intended as professional counsel and should not be used as such. You should contact your attorney to obtain advice with respect to any particular issue or problem.