California Employment Law Update

Just in Time for Flu Season, California Expands Sick Leave Requirements

Last week, the California Legislature passed Senate Bill 616 (“SB 616”), an amendment to California’s statewide paid sick leave law that significantly increases the amount of leave that employers need to provide and permit employees to carry over from year-to-year.  The bill was sent to Governor Newsom on Wednesday, and he is expected to sign it into law.

Many employers in California’s major population centers already provide well in excess of the three days required under current state law.  Santa Monica and several cities in the San Francisco Bay Area already mandate that employers provide up to 72 hours of paid sick leave, and California’s most populous city—Los Angeles—requires up to 48 hours per year.  However, for employers with workers outside these areas, SB 616 will significantly expand their sick leave obligations.

SB 616 increases the minimum amount of sick leave time eligible employees must accrue each year from 24 hours (three days) to 40 hours (five days).  The bill preserves the existing accrual rate—i.e., one hour accrued for every 30 hours worked—but employers may use a different accrual method as long as eligible employees accrue: (a) no less than 24 hours (or three days) of paid sick leave by the end of their 120th day of employment; and (b) no less than 40 hours (or five days) of paid sick leave by the end of their 200th day of employment.

While the current law permits employers to cap annual sick leave usage to 24 hours or three days per year, SB 616 expands the permissible annual usage cap to 40 hours or five days.  SB 616 also raises the total amount of paid sick leave that employers must allow employees to accrue over time and carry over from one year to the next from 48 hours (or six days) to 80 hours (or 10 days).

Employers who prefer to use an up-front sick leave allocation—a popular method due to its relative administrative ease—will now need to deposit 40 hours (or five days) of sick leave in employees’ leave banks each year.

Although SB 616 continues to include an exception for employers covered by a valid collective bargaining agreement (“CBA”) that provides for paid sick leave, subject to certain conditions, it requires that such employees be permitted to use sick leave for the same reasons as employees who are not subject to a CBA.

Given that the Governor is expected to sign SB 616 into law, California employers should plan to review their sick leave policies and practices before the end of the year.

September 2023 California Employment Law Notes

We invite you to review our newly-posted September 2023 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

View PDF

Industry and Labor Serve Up $20 Minimum Wage Deal For Fast Food Workers

A two-year standoff between the fast food industry and labor unions ended this week as stakeholders announced a deal that will increase the minimum wage to $20 for California workers at fast food chains with more than 60 locations nationwide.

As we previously reported, in September 2022, California passed A.B. 257, which created a 10-member fast-food council with authority to set wage, hour, and working condition standards for fast food workers in California. The law was vehemently opposed by the fast-food industry, who claimed the law would devastate the industry.  Opponents raced to gather enough signatures to qualify for a referendum on the November 2024 ballot to repeal the law, and on January 13, 2023, a Sacramento judge issued a preliminary injunction that prevented the law from taking effect until California voters decided the fate of the referendum.

In response to the referendum, the Legislature introduced a separate bill in February 2023, A.B. 1228, that would make fast food franchisors jointly liable for labor violations committed by their franchisees, potentially upending the franchise model that dominates the industry. A.B. 1228 was passed by the State Assembly in June but has not yet been approved by the Senate.  Over the summer, California lawmakers also attempted to revive the Industrial Welfare Commission (“IWC”), which was defunded almost two decades ago.  A revived IWC would have the authority to pass regulations to protect fast food workers in the event A.B. 257 was repealed.

Last week’s compromise, detailed in changes to A.B. 1228, appears to put an end to this legislative arms race for now.  Pursuant to the deal, the $20 fast food minimum wage will take effect April 2024, and the referendum to repeal A.B. 257 will be withdrawn.  In exchange, the franchisor joint liability provision will be taken out, the IWC will remain unfunded, and certain modifications will be made to the fast-food council created in A.B. 257 to give it less sweeping powers and ensure it has representatives from industry and franchisees.

The bill was approved by the California legislature on Thursday and is expected to be signed into law by Governor Gavin Newsom.  When their wage rate increases to $20 per hour in April 2024, fast food workers will have the highest minimum wage in California.

Ninth Circuit Broadly Construes Exemption to Federal Arbitration Act

The Ninth Circuit recently issued an opinion that signals some movement in the direction away from enforcing employment-related arbitration agreements.

In Miller v., Case No. 2:21-cv-00204-BJR, the Ninth Circuit affirmed the district court’s order denying Amazon’s motion to compel arbitration in a case brought by Amazon Flex delivery drivers who made last-leg deliveries of goods shipped from other states or countries to consumers, as well as tip-eligible deliveries of food, groceries, and packages stored locally.  In the complaint, the plaintiffs alleged that Amazon violated state laws by failing to honor its promise that workers would receive 100% of the tips that customers added for deliveries of local goods.

Amazon argued that the Ninth Circuit’s decision in Rittmann v. was no longer good law in light of the U.S. Supreme Court’s decision in Southwest Airlines Co. v. Saxon.  In Rittmann, the Ninth Circuit held that Amazon Flex delivery drivers—like the plaintiffs in Miller—were exempt from the Federal Arbitration Act (“FAA”) because they were workers engaged in interstate commerce since they delivered goods shipped from other states or countries to their final destination.  Amazon argued Rittmann was no longer good law because in Saxon, the Supreme Court explained that courts must look at the workers’ own activities rather than the activities of the business for which they worked when determining whether an employee belongs to a class of workers engaged in interstate commerce under § 1 of the FAA.  The Court declined to revisit its decision in Rittmann and stated that Rittmann remains binding precedent after Saxon.

Amazon also argued that, even if Rittmann remained good law, the Court should find that the FAA applied to the plaintiffs in Miller because they differed from the plaintiffs in Rittmann since they scheduled tip-eligible local deliveries, which did not involve interstate commerce.  The Court rejected Amazon’s argument holding that plaintiffs were the “exact same class of workers we discussed in Rittmann:  Amazon Flex delivery drivers who ‘are engaged to deliver packages from out of state or out of the country, even if they also deliver food from local restaurants.’”  Accordingly, the plaintiffs were engaged in interstate commerce—even if that engagement also involved intrastate activities.  Relying on Saxon, the Court noted that “the relevant question is what work ‘the members of the class, as a whole, typically carry out,’ which here includes last-mile deliveries.”  Since Amazon Flex delivery drivers have “one contract of employment which governs all of their work, including shifts for last-mile deliveries and shifts for tip-producing deliveries,” the plaintiffs in Miller—like in Rittmann—were exempt under § 1 of the FAA.

Finally, Amazon argued that even if plaintiffs were exempt under the FAA, the arbitration provision should be enforced under state law.  Again, the Court disagreed explaining that no state law applied to plaintiffs’ arbitration provision.  While a subsequent amendment to the arbitration agreement required enforcement of the provision under Delaware state law, the amendment did not apply to the plaintiffs because their agreement stated that any modifications to the arbitration provision would not apply to claims that accrued or to disputes that arose prior to such modification, as was the case here.

Notably, in both Miller and Rittmann, the Ninth Circuit adopted a somewhat broad interpretation of Saxon and shielded employees from forced arbitration.  Given the recent criticism of employment-related arbitration agreements, these cases suggest a continued shift away from enforcing such agreements.  We will continue to closely monitor these developments.

California Expands Prohibition Against Non-Competes

On September 1, 2023, California Governor Gavin Newsom signed Senate Bill 699, which amends California Business & Professions Code Section 16600 to prohibit an employer from entering into or attempting to enforce a non-compete agreement regardless of whether the contract was signed outside of California.  The law goes into effect on January 1, 2024.

Previously, California law banned non-compete agreements, subject to limited exceptions.  Section 16600 of the California Business and Profession Code states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  By adding Section 16600.5 to the Business & Professions Code, SB 699 expands the restrictions on non-compete agreements to contracts entered outside of California.

The legislative findings in the bill detail the public policy interests driving the expansion of Section 16600.  While non-compete clauses in employment contracts are extremely common throughout the United States, research has shown that they “stifle economic development, limit firms’ ability to hire[,] and depress innovation and growth.”  The legislature suggested that California has “benefited significantly[]” from prohibiting non-compete agreements, “fueling competition, entrepreneurship, innovation, job and wage growth, equality, and economic development.”  Since “the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.”  SB 699 preserves California’s competitive business interests by “protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California.”

Under the new law, any contract that is void under Section 16600 is unenforceable “regardless of where and when the contract was signed.”  It prohibits “an employer or former employer from attempting to enforce a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.”  Furthermore, the law provides that an employer who violates the law commits a “civil violation.”  To that end, it authorizes an employee, former employee, or prospective employee to bring a lawsuit to enforce the law by seeking injunctive relief, actual damages, or both, and entitles a prevailing employee to recover reasonable attorneys’ fees and costs.

Notably, SB 699 cements California’s public policy interests against non-compete agreements and expands employees’ enforcement rights for challenging non-compete agreements in California.  The law will likely lead to even more legal battles between California employers and out-of-state employers seeking to prevent former employees from working for California competitors.  It will be interesting to see the effect that SB 699 will have on out-of-state employers that have secured a judgment enforcing a non-compete in another state, such as in Advanced Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697 (2002), in which the California Supreme Court held that comity principles impose limits to the scope of Section 16600 and to the reach of California’s public policy disfavoring non-competes.

In Advanced Bionics, an employee signed an enforceable non-compete in Minnesota with Medtronic and thereafter resigned his employment and went to work for Advanced Bionics, a California competitor to Medtronic.  Simultaneous litigation ensued in both California and Minnesota, but the California Supreme Court declined to apply California law voiding non-competes to the Minnesota agreement, explaining that “exceptional circumstances [did not exist] that outweigh[ed] the threat to judicial restraint and comity principles.”  While it remains to be seen how if at all SB 699 will be harmonized with the comity principles set forth in Advanced Bionics, the new law will make it more likely than ever that out-of-state employers will commence litigation early and often against employees in their home jurisdictions who are moving to California in an effort to enforce the non-compete before a California court can get around to striking down the provision.

We will continue to closely monitor these developments.

California Expands FEHA Liability to Include “Institutional Agents” of Employers

California’s Fair Employment and Housing Act (FEHA) is already one of the most employee-friendly state civil rights laws in the country. Until now, it was not clear whether employees could sue not only their direct employers for discrimination and harassment, but also other independent businesses that work on behalf on their employers.

In Raines v. U.S. Healthworks Medical Group, the California Supreme Court ruled that under FEHA, third-party “business entity agents” are  employers if they have at least five employees and they perform “FEHA-regulated” activities on an employer’s behalf.

The issue originated in the Ninth Circuit, which certified to the California Supreme Court the question of whether FEHA’s definition of “employer” extended to corporate agents of the employer. Raines involves a putative class action in which the named plaintiffs allege that their employment offers were conditioned upon completion of pre-employment medical tests conducted by U.S. Healthworks Medical Group (USHW). The applicants allege that USHW asked intrusive and illegal questions unrelated to their ability to work during these medical screenings, including whether the applicants had cancer, mental illnesses, HIV, or problems with menstrual periods. The applicants asserted FEHA claims against both the companies they applied to that used USHW to conduct the medical screenings and sued USHW itself.

The Court examined FEHA’s definition of “employer,” and concluded that the definition did encompass third-party corporate agents like USHW. The Court referenced similar holdings from federal circuit courts where similarly situated third-parties were found liable under Title VII. California courts often look to Title VII case law to determine how the FEHA should be interpreted. The Court also found that third-party liability aligns with the public policy underlying FEHA. In situations like in Raines, extending liability to the company that administered the intrusive medical test, extends liability to the company most directly responsible for a FEHA violation.

Perhaps of even greater import, Raines has potential implications for the extension of FEHA’s reach beyond third party entities like USHW. For example, artificial intelligence vendors that provide automated employment decision tools to employers to assist with tasks such as recruitment, screening, hiring, and other employment related decisions could potentially fall within FEHA’s definition of employer.

We’ll continue to closely monitor these developments.

Is Arbitration Becoming “Just Somebody That We Used to Know”? — The Beginning of the End of Arbitration

When Congress passed and President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“the Act”) last year, we predicted it was just the beginning of an all-out federal assault on arbitration. We weren’t wrong – so far, there are additional bills pending in Congress to exempt age and race discrimination and harassment claims from arbitration. See H.R.4120 – Protecting Older Americans Act of 2023; S. 1408 – Ending Forced Arbitration of Race Discrimination Act of 2023

In the meantime, however, the plaintiff’s bar has been hard at work arguing that even claims that do not relate directly to any alleged sexual assault or harassment may be so “intertwined” with sexual assault/harassment that all of the employee’s claims are exempt from arbitration and must be tried to a jury.  See, e.g., Turner v. Tesla, Inc., Docket No. 3:23-cv-02451 (N.D. Cal. May 19, 2023).  Indeed, similar arguments already have prevailed in the Southern District of New York over the past six months. See, e.g., Johnson v. Everyrealm et al., 2023 WL 2216173 (S.D.N.Y. Feb. 24, 2023) (finding that when a plaintiff alleges sexual harassment alongside other discrimination claims, the entire case is exempt from arbitration so long as the Act is properly invoked); Delo v. Paul Taylor Dance Found., 2023 WL 4883337 (S.D.N.Y. Aug. 1, 2023) (same); but see Mera v. SA Hospitality Group, 2023 WL 96912 (S.D.N.Y. Jun. 3, 2023) (severing wage and hour claims and compelling arbitration because such claims “d[id] not relate in any way to the sexual harassment dispute”).

In the Turner case, Tesla hired Tyonna Turner in November 2020 as a production associate in its Fremont manufacturing facility. At the time of her hire, Turner executed an arbitration agreement by which she agreed to arbitrate “all disputes, claims or causes of action . . . arising from or relating to [her] employment, or the termination of [her] employment” with the company.

Turner alleged that during her employment with Tesla she was sexually harassed “approximately 100 times” and that the company failed to take remedial action following her March 2021 and January 2022 complaints to supervisors regarding the harassment. Turner specifically alleged that, following the claimed harassment, one of her male co-workers made comments about her weight and clothing, as well as his own masculinity, and requested that Turner “come over to his apartment.” She further alleged that this coworker “follow[ed] her around, stalk[ed] her, [and] stare[d] at her” for several months. Turner asserted that she complained about this harassment in September 2022.

Turner separately alleged that she suffered three workplace injuries for which she faced adverse actions from Tesla. Turner also asserted that Tesla terminated her employment in retaliation for her reporting sexual harassment and her on-the-job injuries. Factually and seemingly legally distinct from her other claims, Turner pleaded that Tesla failed to pay her wages at termination as required by the California Labor Code.

After removing the case to federal court, Tesla moved to compel arbitration and argued that Turner’s arbitrable (non-sexual harassment) claims should be severed from the sexual harassment claims and compelled to arbitration while the balance of her claims should be stayed in the civil action pending resolution of the arbitrable claims. Judge William H. Orrick III denied Tesla’s motion to compel arbitration in its entirety.

The Court first addressed Tesla’s argument that any claims of sexual harassment predating March 3, 2022 (the Act’s effective date) were outside the statute’s non-retroactive coverage. The court found that at least five of Turner’s claims accrued at the time of her termination in September 2022, thus it “would be illogical to bar Turner from discussing any pre-March 3, 2022 conduct in connection with a claim” that was before the court.

Second, the Court refused to sever the non-sexual harassment claims and compel them to arbitration. The Court found that “the core of Turner’s case alleges ‘conduct constituting a sexual harassment dispute,’” and that her other claims relating to her workplace injuries and unpaid/late wage payments were somehow so “intertwined” with her sexual harassment claims as to exempt those claims from arbitration as well.

If the Turner Court’s view becomes the norm, there is a risk that anytime an employee alleges a sexual harassment or sexual assault claim (theoretically the only subject matter that is governed by the Act and, therefore, shielded from arbitration), a court can conclude that some or even all other claims asserted in the lawsuit are in some way “intertwined” with the sexual harassment/assault claims such that no part of the case goes to arbitration and the entire case is submitted to a jury.

If and when that happens, arbitration will, alas, become “just somebody that we used to know.”

Put it in Writing: Los Angeles Imposes New Requirements on Employers of Independent Contractors

As readers may know, the Los Angeles Freelance Worker Protections Ordinance took effect on July 1, 2023.  The new law imposes additional requirements on businesses in the City of Los Angeles who have contracts with freelance workers.  Perhaps most notably, for any contract between a hiring entity and a freelance worker valued at $600 or more, the contract must be in writing and include:

  • the name, mailing address, phone number, and email address of both the hiring entity and the freelance worker;
  • an itemization of all services to be provided by the freelance worker, the value of the services to be provided pursuant to the contract, and the rate and method of compensation; and
  • the date by which the hiring entity must pay the contracted compensation or the manner by which such date will be determined.

The ordinance defines a “freelance worker” as a natural person or an entity hired or engaged as a bona fide independent contractor to perform services for a “hiring entity” in exchange for compensation.  A “hiring entity” is an entity regularly engaged in business or commercial activity, including owning or operating a trade or business, a non-profit business, or an entity that represents itself as engaging in any trade or business.

The ordinance also creates a new gap-filler provision regarding timing of payment and imposes new recordkeeping requirements on hiring entities and freelance workers alike.  If the written contract does not provide a due date, or if there is no written contract, a freelance worker must be fully paid no later than 30 calendar days after services are rendered.  Additionally, freelance workers and hiring entities must each retain written records related to this ordinance for no less than four years, including contracts, payment records, and any other written or electronic records to demonstrate compliance with the ordinance.

Despite the ordinance’s broad reach, some enumerated parties are excluded from coverage.  Notably, the ordinance does not apply to entities that hire app-based transportation and delivery drivers to provide prearranged services.  Additionally, the ordinance excludes any freelance worker that: (1) is already required by law to have a written agreement to provide services in exchange for compensation; (2) is already an employee of the hiring entity; (3) agrees to perform services for the hiring entity at no pay; or (4) has employees other than the one individual natural person who is the sole legal and beneficial owner.

The ordinance prohibits employers from retaliating against any freelance workers for exercising rights under the new law or for opposing any practice banned by the ordinance.  The ordinance also imposes additional damages and remedies, including attorney’s fees and costs.

Employers who hire independent contractors should examine their related policies and practices carefully and consult with counsel.

Organizations May Sue Employers Based On Time Spent Opposing Unfair Competition

Under the unfair competition law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., a plaintiff may bring a cause of action for any “unlawful, unfair or fraudulent business act or practice.” Generally, a UCL claim will be brought as a violation of rules set out in other laws or may be brought for any practice that is “unfair” even if not statutorily prescribed.

As a prerequisite to bringing a UCL claim, a plaintiff must have standing. This inquiry often turns on whether the plaintiff suffered an “injury in fact,” i.e., whether the plaintiff suffered “loss of money or property” as a result of the unfair competition at issue.  In a recent opinion, the California Supreme Court held that an organization may have standing to pursue a UCL claim if the organization diverted its resources to combat the alleged unfair competition.  California Med. Ass’n v. Aetna Health of California Inc., 2023 WL 4553703 (Cal. July 17, 2023).

This expansion of UCL standing could have significant implications for employers—potentially opening up a new group of plaintiffs who may obtain standing to challenge employer practices through their own actions.  For instance, while the Court previously held in Amalgamated Transit that unions were precluded from bringing a UCL claim on the basis of associational standing, a union might be able to obtain standing by diverting their resources to combat allegedly “unfair” employer actions.

Fortunately for employers, the Court limited their opinion in several ways:

  • First, the opinion is limited to organizational standing. The court expressly did not expand associational or individual (including class) standing based on a diversion of resources theory. Amalgamated Transit thus remains good law.  Moreover, the Court acknowledged a line of federal district court cases holding that individuals do not have standing on the basis that they diverted resources to combat unfair competition; nevertheless, the Court declined to weigh in on individual standing.
  • Second, the Court rejected the argument that a diversion of resources that is made during or in preparation for litigation could establish standing. Instead, the defendant’s actions must have threatened the organization’s mission and caused the organization to divert resources to address the threat outside of litigation.
  • Third, the Court also excluded organizations that were created to manufacture standing and organizations whose sole mission is to deter unfair competition. In either of these cases, there is no diversion of resources.

DHS Rule Will Permit Remote I-9 Authorizations on a Permanent Basis

The United States Department of Homeland Security (“DHS”) has issued a final rule that will permit certain employers to remotely verify I-9 employment authorization documents on a permanent basis beginning August 1, 2023.

Historically, employers, or their “authorized representatives,” were required to review I-9 authorization documents in-person with the employee physically present. However, during the COVID-19 pandemic, DHS temporarily permitted employers operating remotely to engage in remote examination of documents, which flexibility is scheduled to end on July 31, 2023.

Under the new rule, to make use of remote authorization (which the rule refers to as the “alternative procedure”), employers must:

  • Be enrolled, and participate in good standing in E-Verify;
  • Use remote authorization for all employees at a site, or for all remote employees (but not for in-person or hybrid employees) so long as the employer does not adopt such a practice for a discriminatory purpose or treat employees differently based on a protected characteristic;
  • Retain copies of all the documents presented by the employee to establish their identity during the alternative procedures; and
  • Complete required E-Verify trainings on fraud awareness and anti-discrimination.

Further, the rule states that within three (3) business days of an employee’s first day of employment, an employer using the alternative procedure must:

  • Examine copies of Form I-9 documents or an acceptable receipt to ensure that the documentation presented reasonably appears to be genuine;
  • Conduct a live video interaction with the individual presenting the document(s) to ensure that the documentation reasonably appears to be genuine and related to the individual. The employee must first transmit a copy of the documents to the employer and then present the same documents during the live video interaction;
  • Indicate on the Form I-9, by completing the corresponding box, that an alternative procedure was used to examine the documentation to complete the form, or for reverification, as applicable;
  • Retain, consistent with applicable regulations, a clear and legible copy of the documentation; and
  • In the event of a Form I-9 audit or investigation by a relevant federal government official, make available the clear and legible copies of the identity and employment authorization documentation presented by the employee for document examination in connection with the employment eligibility verification process.

The new rule will apply on a prospective basis to employees hired after the option takes effect on August 1.  A new edition of Form I-9 also will be made available beginning on August 1 for use beginning on that date.

Employers who used remote document examination procedures under the flexibilities provided due to the COVID-19 pandemic and are now subject to the requirement to conduct in-person physical examinations of such documents by August 30, 2023 may use the alternative procedure to satisfy this re-examination requirement, provided that they:

  • Were enrolled in E-Verify at the time of the remote examination while using COVID flexibilities;
  • Created an E-Verify case for the employee (except for reverification, for which no E-Verify case needs to be opened), and;
  • Performed the remote inspection between March 20, 2020 and July 31, 2023.

Employers making use of this accommodation under the final rule must also add “alternative procedure” with the date of the live video interaction (discussed above) to the employee’s I-9 form. As noted above, the accommodation does not apply to employers who were not enrolled in E-Verify – or did not create an E-Verify case for the employee(s) in question if required – at the time the remote verification was initially conducted.


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