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New 2012 Employment Laws

2012 Employment Law Update For California Businesses

We want to give you a brief update on new laws impacting California employers. Governor Brown recently signed several new laws that can significantly alter how our clients and colleagues hire and retain employees. The bottom line is this information will help you avoid getting sued.

Increased Penalties for Willfully Misclassifying Employees as Independent Contractors (SB 459)

New Labor Code §226.8 imposes a fine of between $5,000 and $25,000, for “willfully” misclassifying someone as an independent contractor. It is also a crime for a non-attorney consultant to advise an employer to misclassify an employee. The consultant is jointly liable with the employer for all penalties and unpaid wages. Individuals can file a complaint with the Labor Commissioner to determine their employee status. The Labor Commissioner, the Employment Development Department and even the Internal Revenue Service are all cracking down on misclassification issues. If you employ independent contractors have the classification reviewed by an attorney familiar with the various tests employed by the different agencies.

No More Credit Checks on Employees or Applicants (AB 22)

New Labor Code §1024.5 prohibits most employers from obtaining credit information about non-managerial applicants or employees except in limited circumstances. There is a specific exemption for financial institutions, businesses required by law to perform credit checks, or if the applicant/employee will have regular access to specified information. The law does not prevent an employer from conducting other types of background checks, such as criminal history, references, etc. If you use credit information in your hiring decisions, review Labor Code §1024.5 to be sure one of the exceptions applies.

Employers Must Continue Health Insurance Benefits During Pregnancy Disability Leave (SB 299)

Most employers are not currently required to provide health insurance benefits.
Employers that do are now required to continue the group health coverage to employees taking Pregnancy Disability Leave (PDL).. Employers subject to the Family Medical Leave Act (e.g., companies with 50 or more employees within a 75-mile radius) were, and still are, required to maintain health insurance benefits for employees taking FMLA. Since the 12-week FMLA leave runs concurrently with PDL leave, employers subject to FMLA were always required to maintain health benefits at least during the first 12-weeks of the PDL. Now all employers subject to the PDL are required to maintain health insurance benefits during the PDL at the same levels as if the employee were still employed. If your employee handbook discusses health insurance, you will likely need to update your handbook. Make sure your benefits administrator is familiar with the new law and how it applies to you.

Wage Theft Prevention Act Requires Written Offer Letters and Provides for Increased Penalties (AB 469)

Some employers provide written offer letters. Now, all employers must provide new hires with the following information:

  • The employee’s rate or rates of pay;
  • Any applicable overtime rates;
  • Meal, lodging or other lawful allowances to be used against minimum wage;
  • The regular paydays;
  • The employer’s name and/or DBA’s used by the employer;
  • The employer’s main office or principal place of business address, and a mailing address, if different;
  • The employer’s telephone number;
  • The name, address and telephone number of the employer’s workers’ compensation insurance carrier;
  • Any other information the labor commissioner deems material and necessary.

Employers could be required to provide the same notice to existing employees if there is a change to any of the required policies. With the exception of the workers’ compensation insurance carrier, most of this information is typically included in a standard offer letter (something that we think is always a good idea). The difference is that now all employers must provide the information in writing before the work is commenced. The Labor Commissioner is devising a template employers can use, but we don’t know when the Labor Commissioner will make the template available or if the particular template will be required. In the meantime, your attorney or HR counselor can help you draft an appropriate notice.

The Wage Theft Prevention Act of 2011:

  • Permits the Labor Commissioner to recover “liquidated damages” for the failure to pay minimum wage (previously, employees could pursue liquidated damages in court, but they were not available through a Labor Commissioner proceeding)
  • Extends the statute of limitations for the DLSE to seek penalties under the Labor Code from one year to three years.
  • Requires employers to retain pay stub and other payroll records for three years.
  • Requires farm labor contractors to list the name and address of the legal entity that secured the services of the employer on every pay stub.
  • Extends the Labor Commissioner’s power to require specific employers to post a bond from six months to two years if they are guilty of prior offenses.
  • Allows a court grant an order prohibiting the employer from conducting business if the employer has been twice convicted of wage violations or failed to satisfy a judgment for the nonpayment of wages within a 10-year period.
  • Allows for additional fines between $1,000.00 and $20,000.00 plus possible imprisonment if an employer willfully refuses to pay a final court judgment or order for wages due within 90 days of its becoming final.

Make sure your current practices comply with the law. If an attorney has not reviewed your payroll practices , we encourage you to contact our office or your HR consultant as soon as practical.

Commission Agreements Must Be in Writing (AB 1396)

By January 1, 2013, whenever an employer contemplates paying part of the wages through a commission, the employer must have a written contract setting forth “the method by which the commissions shall be computed and paid.”

Commission wages are compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof. Under the modified statute “Commissions” does not include short-term productivity bonuses such as are paid to retail clerks; and it does not include bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

Commission plans can be simple or complicated, but many employers forget to include provisions in the commission agreement regarding when the commission is earned (versus when it is paid out), what conditions have to be met to earn the commission, and what happens to unpaid and/or unearned commissions when the employment is terminated. Employers also neglect to consider the effect of a commission on overtime wages (inside salespeople are entitled to overtime under most wage orders). Failure to consider and include such provisions can lead to costly litigation.

If you pay your employees a commission, you must have the commission plan reduced to writing by January 1, 2013. The contract must state the method of calculating the commission and how it is paid. Employees must also receive a copy of the executed commission agreement.

Expanded Anti-Discrimination Laws Prohibit Discrimination Based on “Gender Expression” and “Genetic Information” (AB 887 & SB 559)

Anti-discrimination laws prohibit discrimination based on specifically delineated protected characteristics. Beginning January 1, 2012, “Gender Expression” and “Genetic Information” are two additional protected characteristics.

Gender expression is a person’s gender-related appearance and behavior whether or not expressing the person’s sex at birth. The intent is to protect individuals that do not act in a stereotypical gender-related manner. For example: a male carrying himself in a
stereotypically female manner, or vice versa. The definition includes whether or not a person’s appearance and behavior fits within unstated stereotypes. It’s not clear how this new law will be interpreted. If your employees have not received sexual harassment prevention training recently, we recommend any future training include a discussion about “gender expression.”

Genetic information includes information about a person’s genetic tests, the genetic tests of a person’s family members, the manifestations of a disease in a person’s family, or the receipt of genetic services by a person or family member.

Be sure to add “gender expression” and “genetic information” to the list of prohibited discrimination in your employee handbook.

Feel free to distribute copies of this letter to friends and colleagues that might be interested in these new developments. If you have any questions regarding theses changes, or any other matter related to employment or business law in California, please give us a call. Thank you for taking the time to prepare yourself.

Phillip J. Griego

Robert E. Nuddleman

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