New Compliance Requirements for 2017

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New Compliance Requirements for 2017

Minimum Wage Changes: With the passing of Senate Bill 3 last year, Governor Brown approved an incremental increase to the State minimum wage to $15.00 per hour by 2022. Effective January 1, 2017, California employers with 26 or more employees will be required to pay employees a minimum wage of $10.50 per hour. Smaller businesses, with fewer than 26 employees, are not subject to this increase until 2018. Other localities with increases to their minimum wage ordinances effective January 1, 2017 include:

San Jose: $10.50 per hour
Santa Clara: $11.10 per hour
San Francisco: $13.00 per hour
Sunnyvale: $13.00 per hour
Mountain View: $13.00 per hour
Cupertino: $12.00 per hour
Palo Alto: $12.00 per hour
Los Altos: $12.00 per hour
Oakland: $12.86 per hour
San Mateo: $12.00 per hour
San Diego: $11.50 per hour

Exempt Employee Classification Changes: The California Department of Industrial Relations released rate increases for the computer software employee exemption and the licensed physician or surgeon exemption. Employees who are classified under the computer software employee exemption will now need to be paid $42.35 per hour or $7352.62 per month. Those employees classified under the licensed physician or surgeon exemption will need to be paid a minimum hourly rate of $77.15. Employees classified under the administrative, executive, and professional exemptions will need to receive a salary of $3,640.00 per month to meet the new salary threshold caused by the increase to the State minimum wage.

Wage Discrimination: Assembly Bill 1676, approved by Governor Brown on September 30, 2016, prohibits an employer from using an employee’s previous salary alone to justify a disparity in their compensation.

Applicant’s Juvenile Criminal History: Under this new California law, employers in the State are prohibited from asking about or taking into consideration a job applicant’s juvenile convictions. Employers should review their application process to ensure that applicants are not asked to disclose any arrest or adjudication that occurred in the juvenile court system.

Choice of Law and Forum Provisions: California employers will no longer be able to require in-state employees to submit to out-of-state adjudication as part of its employment agreement. Employers who utilize arbitration agreements with their in-state employees should review these agreements for any provision that selects a state other than California as either the choice of law or venue, and should make appropriate changes prior to January 1.

State-Sponsored Retirement Plan for Private-Sector Workers: Signed by the Governor in 2016, this new State law creates a California-sponsored retirement plan for private-sector workers who are not offered a retirement plan by their employer. Though implementation will begin in 2017, employer action will likely not be required until future years, which may consist of enrolling employees in the State-sponsored plan and facilitating pay withholdings.

San Francisco Paid Parental Leave Ordinance: Covered employers with 50 or more employees will be required to provide supplemental compensation of 45% of an employee’s normal gross weekly wages to employees who are receiving wage replacement through California’s Paid Family Leave program for the purpose of bonding with a new child. This requirement is scheduled to be phased in for smaller employers on July 1, 2017, and January 1, 2018.

On the Federal Radar: Patient Protection and Affordable Care Act: As a result of the 2016 federal election, the future of the Patient Protection and Affordable Care Act (ACA) is largely unknown. While at least some revision to the ACA is expected, Applicable Large Employers should continue to meet their obligations under the law in 2017, including ACA reporting and offering affordable, minimum value coverage to full-time employees (and their dependents).

Overtime Rule: Intended to take effect on December 1, 2016, the U.S. Department of Labor’s final overtime rule hit a roadblock in November when a U.S. District Judge issued an injunction to delay the rule from taking effect. Until a full hearing is heard, the Overtime Rule will be suspended. Employers should remain alert in 2017 for the next developments with this law.

The New Fiduciary Rule: Beginning April 2017, the U.S. Department of Labor’s new fiduciary rule will go into effect. This new rule expands the definition of an investment advice fiduciary and impacts the compliance obligations of employers who sponsor a 401(k) plan. Employers should review the new rule and make any changes to their 401(k) plan in advance of April.

White Collar Worker Exemption

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The U.S. Department of Labor (DOL) today released the long-anticipated final rule updating the “white collar worker exemption” under the Fair Labor Standards Act (FLSA). The DOL began working on updated regulations in 2015, which will expand the availability of overtime pay to some previously considered exempt white collar workers. The final rule takes effect on December 1, 2016, so employers must begin to prepare now.

Key Provisions
The final rule updates the salary and compensation levels needed for executive, administrative, and professional workers – white collar workers – to be exempt from overtime compensation. Under the current federal rule, those earning more than $23,660 per year are not eligible for overtime pay. The new rule doubles this minimum salary threshold to $47,476 per year, or $913 per week. This figure is based on the 40th percentile of full-time salaried workers in the South, which is the lowest-income region, and will automatically update every three years to reflect wage growth. Also updated is the annual compensation threshold for highly compensated employees, which increases from $100,000 to $134,004.
Importantly, the final rule also amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments – including commissions – to satisfy up to 10% of the new standard salary level.
Noticeably absent from the final rule is a bright-line duties test for employers to use in determining which workers are eligible for overtime pay. The DOL previously proposed a stricter duties test, including a requirement that a worker spend at least 50% of his or her time performing exempt job duties in order to be exempt from overtime pay. Commenters were overwhelmingly opposed to this proposal, to which the DOL responded by keeping the duties test unchanged.

Next Steps
While the DOL suggests that this final rule brings greater clarity for employers and expanded protection for employees, the changes that will take effect on December 1 will have a significant impact on employers across all industries. Employers should act now by reviewing employee classifications and identifying which employees will no longer be considered exempt under this new rule.
California employers need to remain extra alert, as the new federal rule is not consistent with State Law. California’s annual threshold requirement is set lower at $41,600, which means that California employers will need to follow federal salary standards. However, because California maintains a duties test, employers will also need to continue to apply the State rule that workers spend at least 51% of their time engaged in exempt job duties in order to remain ineligible from overtime pay.

Associational Disability Discrimination

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The California State Court of Appeal reversed an employer’s motion for summary judgment, and is allowing a case for disability discrimination to proceed against an employer based on the employee’s need to accommodate his son’s daily dialysis (and not for the employee’s own illness).  The employee sued after being terminated for refusing to work a shift that did not permit him to be home in time for his son’s dialysis.
[Castro-Ramirez v. Dependable Highway Express]

San Francisco Becomes First City to Mandate Paid Parental Leave

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On Tuesday, April 5, 2016, San Francisco became the first city in the United States to pass legislation that will provide fully paid parental leave to new parents. The city’s Board of Supervisors unanimously passed the measure, and with the Mayor’s anticipated formal approval, it will go into effect on January 1, 2017.

California currently offers paid parental leave through its public disability insurance, which pays 55% of a worker’s pay for up to six weeks. Under San Francisco’s new law, employers will be required to supplement the remaining 45% of a worker’s pay during those six weeks of leave.

The Law’s Application

The new law will apply to San Francisco employers with 20 or more employees, but its application will be phased in over a period of one year. Employers with 50 or more employees must comply beginning January 1, 2017; employers with 35-49 employees must comply as of July 1, 2017; and employers with 20-34 employees will need to comply starting January 1, 2018.

To be eligible for paid parental leave upon the birth or adoption of a child, an employee must work at least 8 hours per week and conduct at least 40% of his or her work within the city of San Francisco. Leave will be provided to both mothers and fathers, same-sex and opposite-sex couples.

Employer Action
For employers who offer a more generous paid parental leave benefit, San Francisco’s law will not apply. However, for those who do not currently offer a parental leave benefit, or whose benefit is not as generous as that provided under the new law, the January 2017 – January 2018 deadlines will quickly approach. These employers should begin to consider the new law’s requirements and, pending further details on the law’s operation, prepare to have a strategy in place within the next two years.

Photography, Audio & Recording in the Workplace

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NLRB says Whole Foods Market violated federal law when it prohibited employees from recording conversations, phone calls, images, or company meetings with a camera or recording device without prior approval.

Whole Foods claimed that its prohibitions against recording in the workplace were meant to encourage open communication and to eliminate a chilling effect on the expression of views that may exist when one person is concerned that his or her conversation with another is being secretly recorded.

The National Labor Relations Board (NLRB) concluded that the rules could reasonably be construed by employees to prohibit activity protected under the National Labor Relations Act. “Photography and audio or video recording in the workplace, as well as the posting of photographs and recordings on social media, are protected,” the NLRB observed, “if employees are acting in concert for their mutual aid and protection and no overriding employer interest is present.”

The NLRB noted that protected conduct may include recording images of protected picketing, documenting unsafe workplace equipment or hazardous working conditions, or recording evidence for later use in employment-related actions.

The NLRB required Whole Foods to post remedial notices at all locations. [Whole Foods Market, Inc. and United Food and Commercial Workers, Local 919 and Workers Organizing Committee of Chicago (NLRB 2015) nos. 01–CA–096965, 13–CA–103533, and 13–CA–103615]

New IRS Standard Mileage Rate

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Effective January 1, 2016, the IRS standard mileage rate for operating a car for business travel has been changed to 54 cents per mile. Many employers use the IRS mileage rate to calculate reimbursements for employee business expenses, so employers may have to adjust their reimbursement calculations accordingly.

Employer Settlement Payroll Taxes

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California appellate court adopts federal rule that employers are required to withhold payroll taxes from an award of back or front pay for lost wages in a judgment or settlement with former or current employee.

[Cifuentes v. Costco Wholesale 238 Cal.App.4th 65 (2015)]

Unlawful Background Screening

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The U.S. Equal Employment Opportunity Commission (EEOC) recently obtained a settlement of over 1 million from an international car company for unlawful background screening. This is one of the first ‘race discrimination’ cases of this kind by the EEOC since it updated its guidance on the use of arrest and conviction records in 2012.

The car company’s criminal background screening policy disqualified from hire anyone with a criminal conviction for specified crime categories, including misdemeanors, no matter when the conviction occurred. According to the EEOC, 80% of these disqualified workers were African-American.

Employers need to ensure background screening policies are job-related and necessary for the company. Under federal law, a company may choose to use criminal history as a screening device in employment but Title VII requires that when a criminal background screen results in the disproportionate exclusion of a certain race of individuals from job opportunities, the employer must evaluate whether the policy is job related and consistent with a business necessity. The company had to pay a seven-figure settlement, change its criminal background screening guidelines, and offer job opportunities to the affected workers.

Disability Accommodation After Termination Ruling

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Sixth Circuit Court of Appeals recently held that asking for a disability accommodation after an employee was terminated for misconduct did not require an employer to reinstate the employee or consider the accommodation request.

Employee worked in retail appliance store and had conflict with co-workers. After store had closed, employee returned and surveillance cameras showed employee running and wandering around the store, and using store computers. He later left and locked up without setting the alarm. Employer terminated the employee for failing to follow safety procedures.

After the termination decision was made, but before the employer could reach and inform the employee, the employee had emailed the employer stating he was in a psychiatric hospital and asked to keep his job. Employee was diagnosed with Bipolar I Disorder and requested reinstatment and a leave of absence for treatment, which the employer denied.

Federal Court of Appeals held the employer had legitimate non-discriminatory business reasons for the termination, and the request for accommodation came too late. Since the employee had already committed the misconduct that was cited as the reason for his termination, the employer was not obligated to rescind the termination or engage in any further discussion with the employee about his requests for accommodation.

[Yarberry v. Gregg Appliances, Inc. (6th Cir. 2015) no. 14-3960

California Supreme Court Guidance on Meal & Rest Breaks

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Brinker Decision Provides Guidance on Meal and Rest Breaks

The California Supreme Court has finally issued its long awaited ruling in Brinker Restaurant Corp. v. Superior Court, finding that employers must provide but need not ensure that employees take meal periods.

It has been three and a half years since the California Supreme Court granted review of the Court of Appeal’s decision in Brinker, and it was well worth the wait for California employers. In its new ruling, the Supreme Court provides significant clarification regarding employee rights to meal periods and rest breaks in California, including the following:

Employers Must Provide But Not Ensure That Employees Take Meal Breaks:

Employers have an obligation to provide meal periods to employees working five or more hours, absent a written on-duty meal period agreement if circumstances permits, or absent consent to a mutually agreed upon waiver if the shift will end in less than six hours. During such meal periods, the employer must relinquish control over the employee and relieve the employee of all duties. However, the employer is “not obligated to police meal periods and ensure no work” is performed.

Meal Breaks Must Be Commenced by the End of the Fifth Hour of Work:

The Brinker Court addressed for the first time the timing of meal periods, ruling that the first meal period in a shift must start after no more than five hours. Employees that work more than ten hours must receive a second meal period that begins by the end of the tenth hour. The Court rejected the “rolling five” argument that the second meal period must occur within five hours of the first meal period.

Scheduling of Rest Breaks:

The Supreme Court further clarified the scheduling of rest breaks as follows: “Employees are entitled to 10 minutes rest for shifts from 3½ to 6 hours in length, 20 minutes for shifts of more than 6 hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.” Employers must make a good faith effort to permit rest breaks to occur in the middle of each work period. However, the Supreme Court confirmed that employers have some flexibility where practical considerations may cause such rest breaks to deviate. The Supreme Court also confirmed that there is no requirement that employees receive a rest period before any meal period occurs.

Effect on Premium Pay:

Employers need not ensure that employees take a meal period, and thus employers will not owe premium pay (an extra one hour’s wage) merely because the employer had knowledge that the employee chose to work during the meal period. If an employer relinquishes control and relieves the employee of duty during a meal period, no premium pay is owed. Premium pay for meal periods will only be due if the employer fails to relinquish control, fails to relieve the employee of duty, or pressures employees to perform their duties in ways that omit breaks.

Effect on Class Actions:

The Brinker Court issued clarification regarding the standards for determining whether claims involving meal and/or rest breaks should proceed as class actions. As a result of the Supreme Court ruling, it will be much more difficult for employees to certify a class action with respect to meal period claims, because individual questions of fact are more likely to predominate under