A More In-depth Review – AB 168, AB 1008, AB 1701, SB 63
We are providing you a more in-depth analysis of some of the new employment laws that went into effect January 1, 2018. Not only do we believe these laws are pertinent; they also attracted the most interest and concern from our clients. Below you will find more details on the new laws, including practical considerations and suggestions. The laws discussed below are AB 168 (Salary History Inquiries), AB 1008 (Criminal History Information), AB 1701 (Contractor Liability for Sub-Contractor Employees), and SB 63 (Parental Leave Expansion).
Salary History Inquiries – (AB 168)
Employers in California are no strangers to rules and regulations limiting their ability to ask certain information of applicants and potential employees during the recruitment process. On January 1, 2018, a prohibition against employers seeking out salary history from prospective employees will be added to that list. California Labor Code section 1197.5 already prohibits employers from solely basing compensation-related decisions on an applicant’s salary history. AB 168 takes this a step further by restricting an employer’s ability to seek out this information entirely. Some may wonder why the legislature is concerned with such a minor, yet specific, piece of an employer’s recruitment process. The bill’s sponsors believe that basing employment offers and compensation packages off of what an employee had been making with previous employers, may, albeit inadvertently, perpetuate wage disparities based upon sex, gender, race and/or ethnicity. Although both Labor Code section 1197.5 and the Equal Pay Act of 1963 prohibit discrimination in wages on the basis of sex, gender, race and ethnicity, currently nothing has prohibited an employer from explicitly inquiring into an applicant’s salary history. This law attempts to curb any disparate impact which may be a result of such an inquiry during the interview process.
AB 168 will add section 432.3 to the Labor Code and establish specific restrictions and requirements relating to salary inquiries. Employers will be prohibited from seeking out, or relying on, salary history information (including benefits and all forms of compensation) as a factor when determining whether or not to hire a particular candidate and at what compensation level. The bill further clarifies that efforts on the part of the employer to obtain such salary history information is prohibited in any form including written, oral, through personal means, or through an “agent.” While not specifically stated in the bill, it should be assumed that an “agent” will include third-party recruiters, head hunters and others involved in the recruiting and interview process. While employers are restricted from seeking salary history information, nothing prohibits an employer from considering or relying on voluntarily disclosed information offered by a prospective employee, as long as it is offered without prompting. Employers should still take care in these instances to not rely solely on this information when determining the compensation for a new employee in order to remain in compliance with Labor Code section 1197.5, which stipulates that reliance on salary by itself when setting and determining wages is prohibited. Voluntarily disclosed information is also risky in that the candidate could always later claim that the disclosure was requested or pressured by the employer, even when it was not.
Additionally, employers will now be required to furnish a pay scale for each position upon reasonable request by an applicant. The bill does not define what would be considered “reasonable” vs “unreasonable,” which may cause some uneasiness for employers as they navigate this new provision. Until the standard is clarified, it is best for employers to use their best judgement and seek legal or professional support when and if they determine that denial of such a request is warranted.
This law will apply to all employers, both public and private; however, it does carve out an exception for salary history information that is disclosable to the public pursuant to federal or state law.
When considering these requirements and the potential impact to an organization’s internal recruitment processes, employers should take special care to remove any language in employment applications which prompts or specifically requests salary, benefits and compensation history information. It will be important to train hiring managers and those involved in the recruitment/interview process to steer clear of these types of inquiries as well as educate them on the potential pitfalls of voluntarily disclosed information. Employers may, however, inquire as to an applicant’s desired wage for a position, as long as they are deliberate in the phrasing of this question and ensure that nothing being requested could be perceived as an inquiry or prompt to obtain specific salary history information. In addition to updating employment applications and interview question guidelines, employers should prepare or update job descriptions and determine the salary range for each in preparation for any applicant requests during the interview process.
Being proactive will be key in complying with this new law, and it is always recommended that employers take the time to audit pay practices and ensure that wages are based upon bona fide business factors, including seniority, merit, skill or a system that measures earnings through quantity or quality of production.
Criminal History Information – (AB 1008)
Historically, California employers have had a long-arm reach to inquire into the criminal backgrounds of job applicants. That reach has been significantly shortened for private employers with the passage of AB 1008. Understanding the new limitations that became effective on January 1, 2018 and making adjustments to the recruiting and interview process will be the key to avoiding claims and liability.
Prior to AB 1008, private employers were mostly free to ask about an applicant’s criminal records and those situations still pending resolution in the criminal system. They were, however, prohibited from seeking information regarding any applicant concerning: any arrest or detention which did not result in conviction; any conviction for which the record had been judicially ordered sealed, expunged, or statutorily eradicated (e.g., juvenile offense records sealed pursuant to Welfare and Institutions Code Section 389 and Penal Code Sections 851.7 or 1203.45); any misdemeanor conviction for which probation had been successfully completed or otherwise discharged and the case had been judicially dismissed pursuant to Penal Code Section 1203.4; or any arrest for which a pretrial diversion program had been successfully completed pursuant to Penal Code Sections 1000.5 and 1001.5. On top of these enumerated limitations, the Department of Fair Employment and Housing also required employers who received knowledge of a criminal record to evaluate the position applied for against any criminal conviction before contending that the applicant was disqualified merely for a prior conviction.
In contrast to private employers, government agencies were prohibited under Labor Code section 432.9 from asking applicants about conviction history without first qualifying the applicant for the job. Only after qualification could the prior conviction history become relevant. Several local ordinances have similar restrictions. These have become known as “ban the box” laws. AB 1008 essentially expands the “ban the box” rules to private employers in California.
The new law creates a state-wide restriction on an employer’s ability to make hiring decisions based on an individual’s criminal history. Essentially, AB 1008 extends the prohibition outlined in Labor Code 432.9 to all employers in California with five or more employees. The bill makes it unlawful for these employers to include on any application for employment any questions that seek the disclosure of an applicant’s conviction history before the applicant receives a conditional offer of employment. In addition, the employer cannot consider, distribute, or disseminate information about any of the following while conducting a criminal history background check in connection with any application for employment: a) an arrest that did not result in a conviction, subject to the exceptions in Labor Code § 432.7(a)(1) and (f); b) referral to or participation in a pretrial or post-trial diversion program; and c) convictions that have been sealed, dismissed, expunged or statutorily eradicated pursuant to law.
As has become common with new employment laws, the bill also contains a general anti-discrimination/retaliation provision which makes it unlawful for an employer to interfere with, restrain, or deny the exercise of any right provided under the new law.
Employers may consider an applicant’s criminal history only after the employer has made a conditional offer of employment to the potential employee. An employer cannot deny an applicant a position solely or in part because of a conviction without performing an individualized assessment. If completed properly, this individualized assessment requires an employer to justify the denial of a position to an applicant. To meet this requirement, the assessment must be able to link relevant conviction history with specific job duties of the position sought by balancing the nature and gravity of the offense and conduct, with the time that has passed since the offense or conduct, and completion of the sentence. The employer may, but is not required to, commit the results of this individualized assessment to writing.
If an employer makes a preliminary decision that the applicant’s conviction history is disqualifying, the employer must notify the applicant of this preliminary decision in writing. Please note, the employer is not required to justify or explain to the applicant its reasoning for making the preliminary decision. However, the employer must ensure the writing provides notice of the disqualifying conviction or convictions that are the basis for the preliminary decision to rescind the offer and, if applicable, include a copy of the conviction history report. This must be a preliminary decision because the applicant must be given an opportunity to respond. As a result, the employer’s writing must also explain to the disqualified applicant that the applicant has the right to respond to the notice within at least five (5) business days, and that the response may include submission of evidence challenging the accuracy of the conviction record, or evidence of rehabilitation or mitigating circumstances or both.
During the five-business day period, the employer cannot make any final determination to disqualify the applicant. If the applicant does not dispute the decision, the decision becomes final after the 5th day of the notice. If the applicant disputes and wants to take steps to obtain evidence to support, the employer must provide five (5) additional business days to respond to the notice, and the employer must also consider any additional evidence or documents the applicant provides in response to the notice before making a final decision.
If, after the notice and applicable response period, the employer still ultimately makes a final decision to deny an applicant a position based on the conviction history, the employer must notify the applicant in writing. The notification must contain any existing procedure the employee has to challenge the decision, and his or her right to file a complaint with the Department of Fair Employment and Housing.
Please note, there are certain situations1 that are not subject to the new law and where pre-offer background checking is permissible.
1Where the position applied for is defined in Section 13101 of the Penal Code or Section 1685 of the Labor Code, or where an employer or agent of the employer is required by any state, federal or local law to conduct criminal background check for employment purposes or to restrict employment based on criminal history.
Contractor Liability for Sub-Contractor Employees – (AB 1701)
Under current law, employees can bring claims and lawsuits against their employer for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. On contracts entered into after January 1, 2018, employees in the construction industry will not be limited to bringing claims and lawsuits against their employers. They will also be able to recover against the general contractor on a project. This change has major implications for contractors in the construction industry.
AB 1701 creates Labor Code Section 218.7 which provides that a “direct contractor” who makes or takes a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, shall assume and is liable for any unpaid wages and fringe benefits of the employees of any tier subcontractor performing work on the contract. The liability is limited to unpaid wages, fringe or other benefit payments or contributions, and interest. It does not extend to penalties or liquidated damages. In certain instances, the direct contractor may also be liable for the employee’s attorney’s fees and costs. An administrative or civil action against a direct contractor may be brought by: (1) the Labor Commissioner; (2) a third party owed fringe or other benefit payments or contributions on a wage claimant’s behalf; or (3) a joint labor-management cooperation committee, provided the committee provides the direct contractor and subcontractor that employed the wage claimant with at least 30 days’ notice by first-class mail of the general nature of the claim. It is good news for general contractors that the law does not authorize actions by plaintiffs’ employment attorneys.
A “direct contractor” is defined as the contractor that has a direct contractual relationship with the owner of the project. It is also the equivalent of a “prime contractor.” For purposes of the new law, a “subcontractor” means any contractor on the project other than the direct contractor.
Given the direct contractor’s new liability under the law, direct contractors are permitted to obtain from subcontractors, including any lower tier subcontractors, payroll records of the subcontractor’s employees who are working on the project. Payroll records must contain, at a minimum, information required to be on pay stubs and records showing the hours worked daily by and the wages paid to, and the number of piece-rate units earned by and any applicable piece rate paid to, employees employed by the subcontractor. The records also must contain information sufficient to apprise the direct contractor of the subcontractor’s payment status in making fringe or other benefit payments or contributions to a third party on the employees’ behalf. However, the records should be carefully redacted to show only the last four digits of the employees’ social security numbers. The direct contractor is also entitled to receive from any tier subcontractor specific details about the subcontractor’s anticipated work, including the start date, the estimated duration, estimated number of journeyman and apprentice hours, and the contact information of the subcontractor’s lower tier subcontractors. The direct contractor is authorized to withhold payments to a subcontractor where the subcontractor fails to provide the requested information but does not relieve a direct contractor from any of the obligations or liabilities under the new law.
The new law specifically excludes work performed by an employee of the state, a special district, a city, a county, a city and county, or any political subdivision of the state. It also requires an action to be brought within one year of the earliest: (1) recordation of the notice of completion of the direct contract; (2) recordation of a notice of cessation of the work covered by the direct contract; or (3) actual completion of the work covered by the direct contract.
Direct contractors and higher tier contractors should be diligent and make even more conscious decisions about hiring subcontractors. The subcontractor’s history of wage and compliance should be examined. Moreover, contracts should be reviewed and updated to ensure the necessary provisions and clauses are included. For example, direct contractors should have specially-designed indemnification language in contracts and consider other forms of security. Additionally, direct contractors should develop an organized process for obtaining subcontractor payroll and benefit records, and details of the subcontractors’ anticipated work. The information obtained should be used to regularly audit the subcontractors’ wage and hour compliance so that a subcontractors’ failures do not become the direct contractor’s liability.
Parental Leave Expansion – (SB 63)
By Lisa Dennis, SPHR and Steve Holden, Esq.
The California Family Rights Act (CFRA) has been in place for some time and requires employers with 50 or more employees to offer up to 12 weeks of job-protected, unpaid leave to eligible employees. CRFA leave is available for: 1) bonding or caring for a newborn child, or the placement of a child with an employee in connection with the adoption or foster care of the child; 2) caring for an employee’s child, parent or spouse, or registered domestic partner who has a serious health condition; and 3) an employee’s own serious medical condition that prevents the employee from performing his or her job duties.
SB 63 is known as the New Parental Leave Act, and effectively expands the CFRA requirement to provide the “baby bonding” time to employers with 20 to 49 employees. This new law takes effect January 1, 2018.
The new law provides job-protected time off for employees who have more than 12 months of service, who have at least 1,250 hours of service with the employer during the previous 12-month period, and who work at a worksite with at least 20 employees within 75 miles. Just as with CFRA, the employee may take up to 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption, or foster care placement. If, on, or before the commencement of the parental leave, the employer does not provide a guarantee of employment in the same or a comparable position at the end of the leave, the employer shall be deemed to have refused to allow the leave. The amount of leave provided under the new law is in addition to any protected time off the employee may be entitled to under California’s pregnancy disability law.
When both parents entitled to leave are employed by the same employer, the employer is not required to grant leave that would allow the parents leave totaling more than 12 weeks. In other words, the parents have to decide how to split the available 12 weeks. The employer may, but is not required to, grant simultaneous leave to both parents.
The employee shall be entitled to utilize accrued vacation pay, paid sick time, other accrued paid time off, or other paid or unpaid time off negotiated with the employer, during the period of parental leave. Moreover, the employer must continue to provide and pay for health insurance benefits as though the employee were continuing to work. However, the employer retains the right to recover the employer’s portion of the premium paid if the employee does not return from the leave and the reason for not returning is something other than the continuation, recurrence, or onset of a serious health condition or other circumstances beyond the control of the employee.
As is common with new employment requirements in California, the law includes anti-discrimination and anti-retaliation provisions which make it unlawful take adverse action against an individual who exercises any right to parental leave under the law or to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided to the employee. It is expected that existing regulations under CFRA applying to baby bonding will apply to the New Parental Leave Act.
Employers with 20 to 49 employees will need to determine if new law will have application based on the eligibility criteria. To the extent it does, employers should 1) become familiar with the CFRA regulations; 2) include an appropriate policy in their employee handbook; 3) develop the required documentation for managing leaves; and 4) train managers and supervisors on the basics of the new law.
We understand that the application of new regulations or employment laws into your organization can be complex and frustrating. In light of this, we not only work to provide the definitions of new laws, but also to be sure and offer support in how to apply them effectively to your organization. If you have questions or concerns, please do not hesitate to reach out to us as a resource and partner in navigating through the changes.