SF Apartment : March 2016
New Laws at Work
by Margaret J. Grover
The employment-related legislation that was passed by the California Legislature in 2015 and became effective January 1, 2016 establishes new and more difficult burdens for employers regarding the Fair Pay Act, compensation to piece rate workers, and use of the E-Verify system in determining U.S. work eligibility. However, employers now can find modest relief via a new amendment granting the right to cure wage statement defects. Below are detailed discussions of these primary areas that employers should keep in mind.
Right to Cure Wage Statement Defects
The Private Attorneys General Act (PAGA) has caused fear for employers since it was first enacted in 2004. Before PAGA, the California Labor and Workforce Development Agency (LDWA) had the ability to recover certain penalties associated with specific violations of the California Labor Code. Typically, these penalties were for records-keeping violations. PAGA allows the plaintiff in a wage action to recover these penalties and share the proceeds with the State. Because the plaintiff is acting on behalf of the LDWA, he or she can seek penalties on behalf of all employees affected by the alleged violations. The plaintiff need not establish that she or he is an adequate class representative, that the claims are appropriate for class resolution, or any of the other important protections provided by the class certification process.
In the past several years, PAGA claims have multiplied. Courts have allowed plaintiffs to pursue PAGA claims for hyper-technical statutory violations. Plaintiffs obtain relief for all employees and former employees, even when the court has determined that the underlying wage claims are not appropriate for class treatment.
This year, the legislature put modest limits on the runaway litigation. Before pursuing a PAGA claim, the plaintiff must give the employer and the LDWA notice of the alleged violation. Amendments to PAGA that became effective on October 2, 2015 give employers a limited ability to avoid litigation by curing alleged violations after receiving the notice. Employers may correct only two types of alleged violations: (1) that the wage statements did not include the inclusive dates of the pay period(s); or (2) that the name and address of the legal entity that serves as the employer was not provided. To avoid liability under PAGA, the employer must abate the defects and must provide a fully compliant itemized wage statement to each aggrieved employee for each pay period within the three-year period immediately prior to the notice. These steps must be taken within 33 days of the notice. Employers may take advantage of this safe harbor only once in each twelve-month period.
Any employer who receives a letter claiming violations of any provision of the California Labor Code should immediately seek out competent employment counsel to determine whether any or all of the alleged violations can be corrected to avoid or diminish liability for penalties.
The Fair Pay Act
Both California and federal law have long included provisions designed to assure gender equity in wages and other compensation. However, in 2014, a California woman who worked full time earned an average of 84 cents per every dollar a man earned. The wage gap extended across almost all occupations and was worse for women of color. Latina women in California earned only 44 cents per every dollar earned by a white male.
The Fair Pay Act has historically recognized that there may be legitimate reasons other than gender for pay differentials. An employer could pay different rates based upon one or more specified factors, including seniority, merit, quantity or quality of production, education or experience.
The amendments to the Fair Pay Act create a much higher burden for any employer who has pay differentials. To demonstrate that a pay differential is based on lawful factors, the employer must demonstrate that each factor relied upon in fixing the wages is applied reasonably. In addition, the employer has the burden of proving that the factors relied upon account for the entire wage differential. One likely effect of these changes will be that employers adopt fixed grids for wages, thus reducing flexibility. Employers who do not do so should articulate the reason for any wage differential, including the payment of bonuses and other forms of compensation.
Employees who are not provided equal pay are entitled to recover lost wages and interest, plus an equal amount as liquidated damages. The Fair Pay Act will now prohibit an employer from discharging, discriminating against or retaliating against any employee who makes a claim for equal pay or who supports such a claim. There are broad remedies to protect such employees, including reinstatement, payment of lost wages and benefits, and payment of interest and attorney’s fees.
Changes to Piece Rate Compensation
In the last several years, employers using piece rate compensation have been targets of class actions and the appellate courts have imposed liability. For example, truck drivers who were paid per load claimed that the time spent waiting for the truck to be loaded as well as their rest breaks were not compensated, because the piece rate covered only the work performed. They asserted that the waiting time and rest periods were under the employers’ control and, as a result, they should have received at least minimum wages for that time. The appellate courts agreed.
The legislature agreed with these decisions but extended them, requiring the employer to pay for rest periods or other noncompensable time at the higher of the following: (1) minimum wage or (2) the employee’s average hourly rate, which is determined by dividing the total compensation for the workweek (exclusive of compensation for rest and recovery periods and any premium compensation for overtime) by the total hours worked during the workweek (exclusive of rest and recovery periods).
The legislature also created new obligations for wage statements in order for the employer to demonstrate that all compensable time has been paid for. For employees compensated on a piece rate basis, wage statements have historically been required to state both the applicable piece rate and the number of piece rate units earned. As of January 1, 2016, wage statements must now also separately state the total hours of compensable rest and recovery periods, the rate of compensation and the gross wages paid for those times during the pay period as well as the total hours of other non-productive time as specified, the rate of compensation for such, and the gross wages paid for that time during the pay period.
While this bill may appear to have limited impact, affecting primarily those industries that rely heavily on piece rate compensation (such as agriculture, construction and transportation), commissioned employees are now making similar arguments regarding lack of compensation for rest periods and other non-productive time. Employers who have any employees on a production-based form of compensation are advised to track non-productive hours and compensate employees for that time.
There is a limited safe harbor for employees who take corrective action before the end of 2016. If you have any employees who were compensated on a piece rate basis at any time after January 1, 2012, talk with an employment attorney to learn about the safe harbor provisions and how you can use them to protect your company.
New Restrictions for E-Verify System
California employers will be subject to high penalties for improper use of the federal E-Verify system. E-Verify is a database jointly maintained by the United States Department of Homeland Security and the Social Security Administration. E-Verify is a tool that allows employers to determine whether the employees they hire are authorized to work in the United States.
Since 2012, California law has prohibited all jurisdictions within the state from requiring private employers to use E-Verify (in most instances). However, employers were free to use E-Verify on a voluntary basis or as required by federal contracts.
As of January 1, 2016, the voluntary use of E-Verify is no more. Employers may no longer use the E-Verify system to check the employment authorization status of an existing employee or an applicant who has not received an offer of employment—unless the use of E-Verify is required by federal law, authorized by a federal agency memorandum of understanding, or is a condition of receiving federal funds.
When an authorized employer using the E-Verify system receives a notice of nonconfirmation, or a tentative nonconfirmation notice, the employer must provide a copy of the notice to the affected employee.
Employers who use the E-Verify system without proper authorization or who fail to provide the required notice are subject to a civil penalty of $10,000 for each violation.
As always, it is important to stay abreast of updates to employment law. If your company is affected by any of the changes described above, consulting with an employment attorney is recommended.
Maggie Grover has been practicing employment law for nearly 30 years. She enjoys helping employers understand the complexities of California employment law—and stay out of trouble. Grover is a partner in the Oakland law firm of Wendel, Rosen, Black & Dean, LLP. You can reach her at 510-834-6600 or firstname.lastname@example.org.