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California Employers: Brace for Legislative Changes in New Year

By Michele Haydel Gehrke and Brian K. Morris

The California legislature has given employers a slew of reasons to be nervous in recent years. From mandatory paid sick leave to the Fair Pay Act, the waters remain treacherous for California employers. The following summarizes the notable legal changes for 2017 employers should prepare for in the New Year.

1. Wage and Hour

Increased Minimum Wage: Effective January 1, 2017, the California minimum wage will increase to $10.50 per hour for employers with more than 25 employees. Employers with 25 or fewer employees are not subject to the increase until 2018. The statute provides for annual increases until the minimum wage reaches $15.00 per hour for large employers in 2022 and for small employers in 2023.

Increases in the minimum wage will also increase the minimum salary requirements for exempt employees, because exempt employees in California must generally earn a minimum salary of at least twice the state minimum wage for full-time work. Thus, employers should review and, if necessary, adjust the salaries of their exempt employees to avoid losing their exempt status.

Notably, a number of localities, including Berkeley, San Jose, and Los Angeles will also increase the required minimum wage in 2017. Employers must consider the increasing number of local minimum wage ordinances when reviewing their wage and hour practices .

Overtime for Private School Faculty: Presently, the faculty at private elementary or secondary academic institutions are generally exempt from overtime if, among other things, they earn a monthly salary of at least twice the state minimum wage for full-time employment. AB 2230 provides that effective July 1, 2017, the salary requirement for the overtime exemption will be tied to the salary paid to public school employees in the district or county in which the private school is located. Note that AB 2230 does not apply to tutors, teaching assistants, instructional aides, student teachers, day care providers, vocational instructors, or similar employees.

Posting Requirements for Salons: AB 2437 requires that any entity regulated by the Board of Barbering and Cosmetology post a notice in English, Spanish, Vietnamese, and Korean regarding misclassification, minimum wage and overtime, tips, and other wage and hour issues. The Board is required to ensure compliance with the posting requirements when it conducts facility inspections.

AB 2437 further directs the Labor Commissioner to create a model notice on or before June 1, 2017. The posting requirement is effective July 1, 2017.

Other Legal Changes: The legislature made other changes to existing law regarding wages, including:

  • Effective January 1, 2017, AB 2535 clarifies that itemized wage statements issued to employees exempt from minimum wage and overtime need not indicate the number of hours worked.
  • Effective July 1, 2018, SB 3 expands the Healthy Workplaces, Healthy Families Act of 2014 to provide paid sick leave to providers of in-home support services.

2. New Requirements Regarding Fair Pay

In 2015, California passed landmark legislation intended to address sex-based pay disparities. See Lab. Code § 1197.5. Critically, the law made it more difficult for employers to legally justify sex-based pay differences. SB 1063, which is effective on January 1, 2017, expands the new Fair Pay Act’s standards to race and ethnicity-based pay disparities as well. 

3. Employment Agreements and Forum Selection

SB 1241 imposes significant limits on forum selection and choice of law provisions in employment agreements. Effective January 1, 2017, employers cannot require, as a condition of employment, that employees agree to:

  • Adjudicate a claim arising in California outside of the state;
  • Forfeit any substantive protection of California law with respect to a controversy arising in California.

These limits do not apply if the employee is represented by legal counsel when negotiating the disputed contract. SB 1241 permits a court to award attorneys’ fees to an employee enforcing his or her rights under the new law.

4. Notice, Record-Keeping, and Background Checks

The legislature created numerous new record-keeping and notice requirements in 2016, including:

  • AB 1978 imposes new training and record-keeping requirements on employers in the janitorial industry related to wages and sexual harassment.
  • California law requires employers to notify employees that they may be eligible for the Federal Earned Income Tax Credit. AB 1847 requires employers to also provide employees with a specified notice regarding potential eligibility for the California Earned Income Tax Credit.
  • AB 2337 requires employers with 25 or more employees to provide a notice of rights regarding leave for victims of domestic violence, sexual assault, or stalking and related protections against retaliation. The new law directs the Labor Commissioner to prepare a notice satisfying the requirements of AB 2337 on or before July 1, 2017. The employer is not obligated to provide notice until the Labor Commissioner posts the required form.

Finally, the legislature imposed a new limitation on employer background checks. AB 1843 prohibits employers from asking an applicant to disclose “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” Employers further may not utilize such an adjudication as a factor in determining a condition of employment. The law provides a limited exception to this rule for certain health care facilities.

In conclusion, compliance-minded employers should consult with experienced employment counsel to ensure they are ready for the New Year. Contact Michele, Brian, or the Polsinelli Labor and Employment practice for advice on complying with new laws in 2017.