California Employment Law Update

New Restriction on Background Checks in California

The California Court of Appeal has ruled that date of birth and/or a driver’s license number cannot be used to identify individuals in an electronic search of the criminal index of court records.  All of Us or None v. Hamrick.  This ruling complicates and further restricts how and even whether (from a practical standpoint) employers can conduct lawful background checks on job applicants and employees.

By ordering the Riverside Superior Court to remove birthdates and driver’s license numbers as data that can be used to identify individuals with a criminal record, the ability of employers (and others) to conduct criminal background checks will be further impeded if not made impossible.  With the use of only a first and last name to conduct the search, the search results of a particular applicant or employee may show the criminal history of perhaps dozens of other people with the same or a similar name.

The focal point of this case is California Rule of Court 2.507(c), which governs electronic access to court calendars, indexes and registers of actions:  In addition to driver’s license number and date of birth, Rule 2.507(c) requires the following data to be excluded from court calendars, indexes and registers of actions: (1) social security number; (2) financial information; (3) arrest warrant information; (4) search warrant information; (5) victim information; (6) witness information; (7) ethnicity; (8) age; (9) gender; and (10) government-issued identification card numbers.

Here, the question was whether members of the public using the Riverside Superior Court’s public website should be permitted to search the court’s electronic index by inputting an individual’s name as well as his/her date of birth and/or driver’s license number.  The Riverside Superior Court contended that it did not violate the rules because it did not disclose this information publicly, but rather allowed individuals who already possessed such information to use it as a data point to filter their search.

However, the Court of Appeal was not persuaded by the search versus disclosure distinction urged by the lower court.  Finding the Riverside Superior Court to be in violation of Rule 2.507(c), the Court concluded:  “In authorizing such searches, defendants may reasonably be said to have failed to ‘exclude’ … date of birth and driver’s license number in the Riverside Superior Court’s index as is required [by the Rule], even assuming that defendants are not disclosing this information.”

As a reminder and as covered previously here, California law already prohibits an employer with five or more employees from inquiring into or considering the conviction history of an applicant until after the applicant has received a conditional offer of employment.  The Fair Chance Act (Assembly Bill No. 1008), effective January 1, 2018, also prohibits such employers from considering, distributing, or disseminating information related to specified prior arrests, diversions, and convictions that have been sealed, dismissed, expunged, or statutorily eradicated when conducting a conviction history background check.

After making a conditional offer of employment, employers may conduct a criminal history check, but the law requires an individualized assessment—the nature and gravity of the criminal history, the time that has passed since the conviction, and the nature of the job held or sought.  If the employer decides the applicant’s criminal history is a basis upon which to rescind the offer of employment, the employer must notify the applicant in writing of the disqualifying conviction(s), provide a copy of the conviction history report, and give the applicant at least five business days to respond before the employer may make a final decision.

California employers should review their background check policies and consult with counsel to ensure they scrupulously comply with the individualized assessment and notice requirements of the law.

July 2021 California Employment Law Notes

We invite you to review our newly-posted July 2021 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

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California Supreme Court Holds That Meal And Rest Break Premiums Must Include All Forms Of Remuneration (Not Just Base Hourly Rate)

On July 15, 2021, the California Supreme Court issued its decision in Ferra v. Loews Hollywood Hotel, LLC, in which it held that meal and rest break premiums required under California Labor Code section 226.7 (“Section 226.7”) must be paid at non-exempt employees’ regular rate of pay—not merely their base hourly rate.  The decision, which applies retroactively, requires that employers promptly adjust their pay practices.

Background

Like the federal Fair Labor Standards Act (“FLSA”), Labor Code section 510 (“Section 510”) requires that employers pay non-exempt employees overtime at their “regular rate[s] of pay.”  Under a different section of the Labor Code and the Industrial Welfare Commission’s (“IWC”) Wage Orders, employers also must provide non-exempt employees with unpaid meal and paid rest breaks at set intervals, depending on how many hours the employees work.  Under Section 226.7, if an employer fails to provide an employee with a compliant meal or rest break, the employer must “pay the employee one additional hour of pay at the employee’s regular rate of compensation.”  Cal. Lab. Code § 226.7(c) (emphasis added).

Since the language in Section 226.7 is different from that in Section 510 (“regular rate of compensation” versus “regular rate of pay”), employers had long understood that the meal and rest break premiums were to be paid at non-exempt employees’ base hourly rates (i.e., the premiums did not have to include other forms of compensation above and beyond the base hourly rate).  That is, until Ferra.

Ferra

Ferra was a wage and hour class action brought by a former hotel bartender, Jessica Ferra (“Ferra”), against Loews Hollywood Hotel, LLC (“Loews”).  In addition to her hourly rate, Loews had paid Ferra certain nondiscretionary bonuses.  In her lawsuit, Ferra claimed that Loews violated California law by failing to include nondiscretionary bonuses when calculating meal and rest break premiums.

Both the trial court and the Court of Appeal held in favor of Loews, deciding that the “regular rate of pay,” as used in Section 510, was not synonymous with “regular rate of compensation,” as used in Section 226.7.  The California Supreme Court saw things differently, however.

In an opinion authored by Associate Justice Goodwin Liu, the Court held that “regular rate of compensation,” as used in Section 226.7, means the same thing as an employee’s “regular rate of pay” for purposes of overtime.  Recognizing that the Labor Code provided no definition of “regular rate of compensation” under Section 226.7, the Court began by examining the legislative history of both Section 510 and Section 226.7.  As to the former, the Court noted that both California’s Division of Labor Standards Enforcement (“DLSE”) and courts had long understood Section 510’s definition of “regular rate” to have the same meaning as the phrase does under the FLSA, under which nondiscretionary amounts (and most other types of compensation) must be included in the overtime calculation.

As to Section 226.7’s history, Loews had argued that because “regular rate of pay” was an “established term of art” by the time Section 226.7 was enacted, the fact that the Legislature used a different phrase in Section 226.7 meant that it did not intend “regular rate of pay” and “regular rate of compensation” to have the same meaning.  However, the majority rejected that argument, deciding that the modifiers “of pay” and “of compensation” were irrelevant.  In support of its interpretation, the Court noted that “the Legislature used the terms ‘pay’ and ‘compensation’ interchangeably in the very text of [S]ections 226.7(c) and 510(a).”  The Court also pointed out that the terms had been used interchangeably by a number of federal appellate courts – including the U.S. Supreme Court – in interpreting the FLSA.

Finally, and most troublingly, the Court rejected Loews’ argument that its opinion should apply only prospectively.  Therefore, the Ferra decision applies retroactively.

Practical Implications

Ferra will have significant consequences for any employer with non-exempt employees in California.  Although Ferra only concerned nondiscretionary bonuses, its holding almost certainly applies more broadly to other types of remuneration that must be included in an employee’s regular rate for purposes of overtime (e.g., commissions).  Employers immediately must ensure that they pay meal and rest break premiums based on employees’ regular rates of pay under Section 510—not merely their base hourly rates.  Further, employers with questions about how to address Ferra’s retroactive application should consult legal counsel as soon as possible.

President Biden Signs Executive Order Targeting Noncompetition Agreements

On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy (the “Order”), which, among other things, “encourage[s]” the “Chair of the [Federal Trade Commission (the “FTC”)] . . . to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority . . . to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”  To be clear, the Order does not impact the current state of the law or enforceability of noncompetition agreements in any context, including those between an employer and its employees, partners, or in the context of the sale of a business.  Rather, it “encourage[s]” the FTC to “consider” using its authority to “curtail the unfair use of non-compete clauses.”  While there was much fanfare that the Order could amount to a ban on noncompetition agreements, the text of the Order and President Biden’s remarks make it clear that is simply not the case.

According to White House Press Secretary Jen Psaki, “roughly half of private sector businesses require at least some employees to enter non-compete agreements, affecting over 30 million people.”  Prior to publication of the Order, Ms. Psaki noted that it seeks to address noncompetition agreements that “affec[t] construction workers, hotel workers, many blue-collar jobs, [and] not just high-level executives.”  This is consistent with President Biden’s comments upon executing the Order that it is not just highly paid workers or scientists who know an employer’s “secret formula” who are subjected to noncompetition agreements, but rather ordinary, low wage workers, such as those working in the fast-food industry, who should have protection from such agreements.

Read the full post on Proskauer’s Law and the Workplace blog.

Tax Hikes Proposed to Bail Out California Unemployment Fund

Just as California’s employers and small businesses begin to recover financially from the COVID-19 pandemic, the state legislature is about to spring another tax increase on them. This time the money is needed to bail out the severely underfunded unemployment insurance (UI) fund (a program recently featured in the news for paying as much as $2 billion in fraudulent unemployment claims, which included sending checks to death row prisoners).

This comes as no surprise to many observers as the UI fund barely met its obligations in prior years. And as claims surged over the past year, California borrowed $21 billion from the federal government—nearly double the debt incurred by the UI fund during the Great Recession. Now, absent legislative action, employers will be on the hook for these loans through higher payroll taxes of $21 per employee per year starting in 2022. The tax will increase yearly by that same amount to a maximum of $420 per employee per year.

Remarkably, despite the UI debt, California has a $38 billion general fund surplus and $26 billion more is on the way from the federal government. But as tax hikes grow increasingly popular in Sacramento, legislators seem unlikely to offer relief by redirecting any of these funds toward the UI fund. In fact, even Governor Newsom’s proposal of providing $1.1 billion to the UI fund appears to have been eliminated in the latest round of budget negotiations.

This decision ignores a fact that employers and small businesses know well: every dollar paid to the government is a dollar less they can use towards hiring new employees or giving raises to their employees who endured this crisis with them. Yet, California employers are accustomed to the legislature ignoring the consequences of being one of the highest tax states in the nation.

Board of Directors Quota Law May Be Unconstitutional

Meland v. Weber, ___ F.3d ___, 2021 WL 2521615 (9th Cir. 2021)

In 2018, the California Legislature enacted Senate Bill 826, which requires all corporations headquartered in California to have a minimum number of females on their boards of directors; corporations that fail to comply with SB 826 are subject to monetary penalties.  One shareholder of OSI Systems, Inc., Creighton Meland, brought an action challenging the constitutionality of SB 826 on the ground that it requires shareholders to discriminate on the basis of sex when exercising their voting rights in violation of the Fourteenth Amendment.  The district court granted a motion to dismiss Meland’s complaint for lack of Article III standing, reasoning that Meland had not suffered an injury in fact.  In this opinion, the Ninth Circuit reversed the district court, holding that to the extent Meland’s allegations that SB 826 “requires or encourages” him to discriminate on the basis of sex, he has suffered a concrete personal injury sufficient to confer Article III standing.  The Court further held that Meland’s “injury is ongoing and neither speculative or hypothetical, and the district court can grant meaningful relief.”

California Safety Board Narrows Emergency Temporary Standards (Effective Immediately)

As we previously reported (here), Cal/OSHA’s Occupational Safety and Health Standards Board (“OSHSB”) held a series of special meetings to revise its controversial Emergency Temporary Standards (“ETS”) related to the ongoing COVID-19 pandemic.  And, on June 17, 2021, OSHSB approved updated ETS language that more closely aligns California’s workplace safety requirements with recommendations from the CDC and California Department of Public Health.

Most significantly, the revised ETS permit fully vaccinated employees to unmask indoors. Unvaccinated employees still must mask-up while indoors (except in limited circumstances), but neither vaccinated nor unvaccinated employees are required to wear face coverings when outside, except during an outbreak.  The revised ETS also dropped previous social distancing requirements for all employees, except in limited circumstances (e.g., where unvaccinated employees are eating and drinking) and remove restrictions on sharing personal items and equipment.  Furthermore, fully vaccinated employees, and others who had COVID-19 in the past 90 days, will no longer be required to quarantine after coming into contact with someone with COVID-19, so long as they are asymptomatic.

According to OSHSB’s FAQs, employers must document employees’ vaccination status in one of three ways: (1) by obtaining a copy of employees’ proof of vaccination; (2) creating a record of employees who presented proof of vaccination; or (3) creating a record of employee self-attestations as to vaccination status (i.e., the “honor system”).

Although generally more reasonable, the new ETS still impose some rather unusual and burdensome obligations on employers, including a requirement that employers procure and offer respirator masks (e.g., N-95s) to unvaccinated employees.  The new ETS also require employers to make testing available to symptomatic unvaccinated employees, at no cost to the employees.  Further, the updated ETS preserve the requirement that employers develop written COVID-19 Prevention Programs.

Per an Executive Order signed by Gov. Newsom on June 17, 2021, the new ETS take effect immediately.  Therefore, employers should move quickly to implement the new requirements.

California Revokes Controversial Masking Rules

As we previously reported (here), on June 3, 2021, California’s Occupational Safety and Health Standards Board (“OSHSB”) approved some controversial revisions to its Emergency Temporary Standards (“ETS”) related to COVID-19.  Among other highly-contested provisions, the updated ETS would have required even fully-vaccinated individuals to don masks indoors unless everyone in a room was fully-vaccinated.  However, before the much-maligned revised ETS could take effect, the OSHSB did an immediate about-face.

On June 9, 2021, the OSHSB convened a special meeting to consider how the new ETS aligned with guidance from the Centers for Disease Control and Prevention and the California Department of Public Health.  At the meeting, which lasted several hours, dozens of representatives from the business community and public at large assailed the updated ETS for being out-of-touch with federal and state public health guidance.  Ultimately, the OSHSB was persuaded and voted unanimously to withdraw the revised ETS before they even went into effect.

Instead, the OSHSB will consider further revisions to the ETS, which some members of the OSHSB have indicated will more closely align with new guidelines from the California Department of Public Health (effective June 15th), which no longer require fully-vaccinated individuals to wear masks in most settings.

The OSHSB could take up this issue again as early as its next meeting, on June 17, 2021.  Stay tuned for more updates.

California Workers Can’t Ditch Masks Just Yet

In a closely-watched vote, yesterday (June 3, 2021), California’s Occupational Safety & Health Standards Board  approved controversial amendments to the Emergency Temporary Standards (“ETS”) related to COVID-19.  If approved by the Office of Administrative Law within the 10 day review period, the new ETS (available here) will require (among many other things) most California workers (whether or not they are vaccinated) to continue to wear face masks “when indoors, when outdoors and less than six feet away from another person, and where required by orders from the … [California Department of Public Health] or local health department[s].”  Employees will not be required to wear a mask when they are alone in a room or while eating and drinking, if socially distanced and outside or inside with maximized outside air-supply.  Fully-vaccinated employees without COVID-19 symptoms will be able to forgo masks when they are outdoors or when everyone in a room is fully-vaccinated and nobody has any COVID-19 symptoms.  Likewise, masks will not be required where employees must undertake “[s]pecific tasks which cannot feasibly be performed with a face covering,” although this exception is “limited to the time period in which such tasks are actually being performed.”

A subcommittee has been established to consider additional revisions to the new ETS language in the coming weeks.  However, as of June 3rd, less than ½ of the total California population is “fully-vaccinated.”  Therefore, for the time being, this means that even if California’s Department of Public Health revises its face masking requirements to more closely-align with those promulgated by the CDC in May, many California employees still will need to wear masks at work—at least when they are in the company of other employees.

The updated ETS language faced spirited opposition from employers.  In addition to the masking requirements, the California Chamber of Commerce identified a number of other seriously problematic provisions, including language requiring employers to stockpile and provide N-95 masks to unvaccinated employees by July 31, 2021.

We’ll bring you more information when we know it.

Alleged Employer Violation of a Local Ordinance Cannot Support a Wrongful Discharge Claim

The California Court of Appeal has determined that a wrongful discharge claim cannot be based upon an alleged violation of a municipal ordinance.  Bruni v. The Edward Thomas Hospitality Corporation.

The California Supreme Court has previously ruled that wrongful termination claims must be based upon a violation of a “fundamental public policy.”  In the years since that decision, plaintiffs’ lawyers have asserted a wide variety of wrongful discharge, constructive discharge, and failure to hire claims based on a broad array of federal, state and local statutes, constitutional provisions, regulations and ordinances.  However, it had been an open question as to whether such a claim could be based upon the employer’s alleged violation of a local ordinance as distinguished from a state statute.  Bruni resolved that question in favor of the employer.

In Bruni, a restaurant server sued his former employer (a hotel), alleging: (1) violation of a Santa Monica municipal recall ordinance; and (2) a derivative wrongful failure to rehire claim based on an alleged public policy expressed in the local ordinance.  The Court of Appeal affirmed the trial court’s order sustaining the hotel’s demurrer (motion to dismiss) on both causes of action.  As to the server’s claim under the local ordinance, the Court held that the employee’s earlier period of employment that ended with his voluntary resignation did not count toward the six-month minimum period of employment required to state a viable cause of action under the Santa Monica ordinance.

More significantly, the Court affirmed the trial court’s dismissal of the server’s wrongful failure to rehire claim because “a municipal ordinance cannot serve as the predicate for a [wrongful termination] tort claim.”  The Court held that these claims “must be predicated on a fundamental public policy that is expressed in a constitutional or statutory provision … as opposed to a public policy that finds expression in a municipal ordinance.”

While Bruni concerned a local recall ordinance enacted in response to the economic downturn following 9/11, its potential impact is far broader.  Specifically, in the wake of the COVID-19 pandemic, local jurisdictions up and down the state have enacted dozens – if not hundreds – of new ordinances.  Bruni puts the kibosh on a potential new wave of frivolous wrongful discharge suits based on these local legislative enactments.

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