As in the past two years, new California employment legislation in 2006 was sparse.  However, the limited legislation that was passed will have a significant effect on California businesses for years to come.  Whether it was election-year politics or a sound defeat in last year’s Special Election, Governor Schwarzenegger’s pro-business stance evaporated with the passing of AB 1835, which increased California’s minimum wage. 

California lawmakers passed a total of 1,172 bills during this session, a significantly higher number of bills than last year.  The increased number of bills passed suggests the legislature’s recognition that Governor Schwarzenegger is willing to cooperate in a bipartisan manner to move California forward.  Consistent with this theme, the Governor’s veto ratio continued to decrease, as he vetoed just 22.3% of bills in 2006, compared to 24.0% in 2005 and 25.0% in 2004.

This legislative update will address the most significant employment legislation signed and vetoed this year.  Additionally, this update will discuss the proposed regulations to 2005’s AB 1825, which requires California employers with 50 or more employees to provide all supervisors with harassment training every two years.

Bills Passed

Minimum Wage Increase (AB 1835)
A year after vetoing a similar bill, on September 12, Governor Schwarzenegger signed into law AB 1835, which increased the minimum wage for all California employers from $6.75 per hour to $7.50 per hour effective January 1, 2007, and $8.00 per hour effective January 1, 2008.  By 2008, AB 1835 will make California the state with the highest minimum wage.  However, in a compromise struck by the Governor, AB 1835 was amended to remove the annual indexing provisions.  Two other bills were introduced this year to increase the minimum wage.  SB 1167 (Maldonado), which also called for an increase in the minimum wage, yet without an annual increase tied to the Consumer Price Index, failed in the Senate Labor and Industrial Relations Committee.  SB 1162 (Cedillo), which as initially drafted called for an increase in the minimum wage with annual indexing, was later amended and vetoed by the Governor.

The Practical Effects of AB 1835 on Business Owners.  This law directly raises the wages paid to 1.4 million California workers that earn minimum wage.  In addition, it raises the minimum salary requirement for the executive, administrative, and professional exemptions to $2,600.00 per month ($31,200 per year) effective January 1, 2007, and to $2,773.33 per month ($33,280 per year) effective January 1, 2008.  California employers need to post the new minimum wage at their place of business by January 1, 2007. 

No Increase in the Federal Minimum Wage Law.  Democrats failed again this year to increase the federal minimum wage, which has held steady at $5.15 per hour over the past decade.  Senator Edward Kennedy’s (D-Mass.) proposal to increase the federal minimum wage by $2.10 fell just eight votes shy in June 2006.  Thus, this is likely to continue to be a hotly contested issue in the new year.

Harassment Training (AB 2095)
Existing law requires California employers to provide all supervisory employees with at least two hours of interactive training and education regarding harassment every two years.  This bill narrows the scope of supervisors that must receive the harassment training by clarifying that only supervisors physically located in California need to be trained.

Child Support (AB 2440)
This bill improves child support collections and helps curtail the underground economy by making liable any person or business entity that knowingly assists a child support obligor in evading his or her responsibility for three times the value of the assistance provided, up to the total amount of the child support debt.  The term “knowingly assists” is defined to include: (1) with actual knowledge of the child support obligation, helping to hide or transfer assets, as specified; (2) if the individual or entity knew or should have known of the child support obligation, hiring the child support obligor as an employee or independent contractor and failing to timely report the hire to the California New Employee Registry maintained by the Employment Development Department (“EDD”); or (3) if the individual or entity knew or should have known of the child support obligation, when engaged in a trade or business, paying wages to the obligor that are not reported to EDD, such as payment in cash, or via barter or trade. 

Arbitration (AB 1553)
This bill provides that, if an arbitration agreement requires an arbitration of a controversy to be demanded or initiated within a limited period of time, the commencement of a civil action within that period of time will toll the applicable time limitations contained in the arbitration agreement with respect to that controversy from the date the civil action is commenced until 30 days after a final determination by the court that the controversy must be arbitrated, or 30 days after the final termination of the civil action, whichever date occurs first.

Unemployment Compensation in Motion Picture Industry (SB 1428)
There was conflict with respect to existing law on the treatment of certain employees in the motion picture industry.  Specifically, California law requires that the determination of the employer-employee relationship be made pursuant to common-law principles.  However, California law also provides that when a leasing or temporary service agency contracts to provide a worker to perform services for a client, the leasing or temporary service agency is generally the employer of the worker for unemployment compensation purposes.  This bill codifies, for purposes of the motion picture industry, that the entity that has control of the payment of wages (the leasing or temporary service agency) to a worker is the employer of the worker for unemployment compensation purposes, even though the leasing or temporary service agency does not exercise “control” over the employee under common-law principles.  The effect of this bill is to trump common-law principles with respect to the identity of the employer in the motion picture industry. 

Wage Payment After Discharge/Layoff in Entertainment Industry
(SB 1719)
This bill permits specified employees working in the entertainment industry and their employers to enter into a collective bargaining agreement to establish a time limit for payment of wages after an employee is discharged or laid off.

Prohibition of Use of Wireless Telephones While Operating Vehicle (SB 1613)
This bill prohibits, beginning July 1, 2008, a driver from using a wireless phone while operating a vehicle, unless the phone is specifically designed and configured to allow hands-free operation and is used in that manner, and prohibits the use of a wireless phone while driving a school bus or transit vehicle.  The bill makes it an infraction with fines of $20 for a first offense and $50 for each subsequent offense.  However, a point is not assessed on the person’s driving record for a violation of this law.  How this law will affect employees who drive as part of their job duties has not yet been determined.

Spouse/Domestic Partner Benefits (AB 17)
This bill was passed in 2004 and will take effect on January 1, 2007.  It requires employers with state contracts valued at $100,000 or more to provide the same benefits to spouses and domestic partners of employees.

Bills Vetoed

Unemployment Compensation Benefits for Locked-Out Workers (AB 1884)
California law denies unemployment compensation benefits to an individual who is unemployed because of a trade dispute with the individual’s employer, and provides that the unemployed individual is not eligible to receive those benefits for the period during which the trade dispute is still in active progress, if the individual’s unemployment is due to that dispute.  This bill would have allowed an otherwise eligible locked-out worker to receive unemployment compensation benefits, even if the worker is locked out as a result of a trade dispute with the worker’s employer.  This bill would have increased the cost of doing business in California by forcing California employers to subsidize a strike against their own company by providing unemployment insurance benefits to workers unemployed due to the strike.

Lock-Out Penalties (AB 2209)
This bill would have required an employer to pay a penalty if the employer was found by the California Unemployment Insurance Appeals Board, or any other court with competent jurisdiction, to have engaged in any fraud, misrepresentation, or misconduct arising out of the employer’s actions during a lockout.

This bill defined a “lockout” to mean either:

(1) A period of time during which an employer prohibits an employee from performing his or her work as a result of a trade dispute with the employer regarding the employee’s wages, hours, or other terms or conditions of employment; or

(2) A period of time during which an employee remains unemployed because the employer does not permit the employee to return
to work.

The Governor vetoed this bill because the bill did not define “fraud,” “misrepresentation,” or “misconduct” and lent itself to abuse, and because employees have many other remedies against employers that engage in fraud or misconduct during a labor dispute.

Transportation Industry Meal Period Rules (AB 2593)
This bill would have permitted parties in the transportation industry to establish, by a collective bargaining agreement, specified requirements concerning meal periods.  The Governor vetoed this bill because California has confusing meal period laws and regulations, which have resulted in costly litigation against employers and even termination of employees that do not comply with the law’s burdensome requirements.  Additionally, the Governor noted in vetoing this bill that it could inadvertently impact pending litigation as well as potential rulemaking.

Workers’ Compensation (SB 815)
Existing California law establishes a workers’ compensation system, administered by the Administrative Director of the Division of Workers’ Compensation, to compensate an employee for injuries sustained in the course of his or her employment.  The law requires the payment of disability benefits to eligible individuals for injuries sustained in the course of employment that cause permanent disability, and specifies that the amount of those payments be computed in accordance with a prescribed formula.  This bill would have arbitrarily doubled the permanent disability payments over three years without sound data on which to base the increase.

Government Agency (SB 1489)
This bill would have allowed unlimited “fishing expeditions” by the Attorney General under numerous statutes, including the Unruh Civil Rights Act and environmental laws, by permitting judges to make defendant companies pay all the investigation and lawsuit costs, including attorneys’ fees, if the Attorney General “prevails.”  The term “prevails” was defined to include settlements, changes in operation by a defendant, or even a minuscule monetary award.  This bill would have increased the cost of doing business in California by forcing California businesses to fund litigation on both sides of the aisle.

Limited Appeal from Labor Commissioner Decision (AB 879)
AB 879 would have restricted an employer’s right to appeal the Labor Commissioner’s decisions de novo, when the employer fails to file an answer to the administrative complaint and fails to attend the administrative hearing.  In such instances, the bill would have allowed the superior court to review the administrative decision only for an abuse of discretion.  Opponents argued that the bill would have taken away the rights of an employer to seek relief in a court from an adverse decision by the Labor Commissioner.

Health Benefits (SB 1414)
This bill would have required employers with 10,000 or more employees to spend between six percent and eight percent of their total wages on employee health insurance costs, or pay a specified amount to the Department of Industrial Relations for deposit into the California Fair Share Health Care Fund.  In his veto message, the Governor stated that SB 1414 did nothing to address the health care problems faced by California.  Moreover, SB 1414 would do little more than lead to expensive legal challenges, similar to those in Maryland, which had a law similar to SB 1414 recently struck down by the courts as preempted by federal law.

Damages for Gender Pay Discrimination (AB 2555)
This bill would have required an employer of 50 or more employees to provide each employee with a written statement setting forth the employee’s job title, wage rate, and an explanation as to how the employee’s wages are calculated.  Furthermore, this bill would have increased the damages for which an employer would have been liable to include a civil penalty of twice the balance of the wages due to the aggrieved employee, or four times the balance of wages due if the employer’s violation was willful.  This is similar to legislation that the Governor vetoed in 2004 and 2005.  The Governor’s veto message made it clear that “the provisions of this bill will do little more than increase frivolous litigation, a result that benefits no employer or worker, regardless of gender.”

Employment Discrimination for Victims of Violence (SB 1745)
This bill would have made it against the public policy of the state for any employer of one or more employees to harass any individual, or for any employer of five or more employees to harass, refuse to hire or employ, discharge, or otherwise discriminate against any individual in compensation, or in other terms, conditions, or privileges of employment, because the individual is a victim of domestic violence, sexual assault, or stalking.  The Governor vetoed this bill because it would have created conditions that could only be resolved through the courts at great expense to employers and employees alike.

Personal Attendant Overtime (AB 2536)
This bill would have required overtime pay for personal attendants who are nannies.  The existing overtime exemption was intended to keep these jobs above ground and to allow those in need of such services to find assistance at a price they can afford.  Removing this exemption would dramatically increase the costs of these attendants and potentially drive employment underground.

AB 1825 – Proposed Harassment Training Regulations
AB 1825 requires California employers with 50 or more employees to provide all supervisors with harassment training every two years.  The Fair Employment Housing Commission has put forth several proposed regulations throughout the year, and it looks like a final vote will occur on November 14, 2006.  The following is a link to the proposed regulations as of November 8, 2006: 

http://www.lawroom.com/download/AB1825modifiedregs100206.doc. 

The following are the most significant aspects of the regulations proposed to date.

Training Year. The “training year” tracking method permits an employer to designate a training year in which it trains its supervisors, and thereafter it must retrain its supervisors by the end of the next training year occurring two years after the prior training year.  Under this method, an employer who has trained its supervisors by December 31, 2005, must again train its supervisors by December 31, 2007.  This method of tracking should make it much easier for employers to comply with the requirements of AB 1825 because it provides a larger window in which the training can be provided. 

Content of Training. The proposed regulations also describe the required content of AB 1825 training as follows: (1) the definition of “unlawful harassment” under the Fair Employment and Housing Act (“FEHA”) and under Title VII (employers also may include in their training definitions of other types of prohibited harassment); (2) FEHA and Title VII statutory provisions and case law regarding the prohibition against, and the prevention of, unlawful harassment; (3) the types of conduct that constitute unlawful harassment; (4) the remedies and resources available to employees who are the victims of harassment (for example, to whom they should report any alleged harassment); (5) strategies to prevent unlawful harassment in the workplace; (6) “practical examples, including but not limited to role plays, case studies, group discussions, and examples with which the employees will be able to identify” and which they can apply to their work setting; (7) the confidentiality of the complaint process; (8) how effectively to investigate a harassment complaint; (9) what to do if the supervisor is personally accused of harassment; and (10) the contents of the employer’s anti-harassment policy and how to utilize it if a harassment complaint is filed.

Length of Training. The two hours of required training must consist of either two hours of classroom or webinar training “or the amount of time that the same content may be covered in an e-learning program for an average learner.”  With regard to breaking the training down into separate segments, the regulations provide that “for classroom training and webinars, the minimum duration of a training segment shall be no less than half an hour.  For e-training, the minimum training segment shall be fifteen minutes.”

Definitions of “Employer” and “Employee.” The proposed definition of “employer” provides that the 50-employee threshold for coverage includes employees not located in California.  However, as noted above, based on AB 2095 only supervisors physically located in California are required to be provided with the training.