The statutory policy changes enacted in California over the last year were relatively minor in comparison to those of recent years past. For instance, in January of 2001 ABE2222 became effective, and provided that under California law the determination of a person’s ability to participate in major life activities must be made without regard to corrective measures, and that employees were covered if major life activities were "limited" rather than "substantially limited."¹ This year, the Legislature took a more incremental approach, focusing on increasing existing benefits rather than on adopting wholesale policy changes. Accordingly, much of what is important to note about the past year centers on the vetoed bills rather than those enacted; several of the vetoed bills involve major issues and are likely to reappear in the coming year. This Commentary describes the most significant legislation enacted and vetoed in the California Legislature in the labor and employment field this year.

Increase Unemployment Insurance Benefits

SB 40 increases Unemployment Insurance benefits, prevents federal Worker Adjustment Renotification and Training Act payments from affecting eligibility, and changes the base period calculation. It also expands eligibility to workers who are only available part-time, while eliminating the provision stating that an individual is not disqualified from eligibility for unemployment compensation benefits solely on the basis that he or she is a student.

California’s benefits had not been increased since 1992, and California’s current unemployment benefits rank last in the nation. Specifically, this bill increases the maximum weekly benefit from 39% of a claimant’s approximate weekly wages (not to exceed $230), to 45% of a claimant’s approximate weekly wages (not to exceed $330) for claims filed prior to January 1, 2003. For claims filed on or after January 1, 2003, the amount will be increased to 50% of a claimant’s approximate weekly wage (for claims filed before January 1, 2004, the total amount is not to exceed $370; for claims filed before January 1, 2005, the total amount is not to exceed $410; and for claims filed on or after January 1, 2005, the total amount is not to exceed $450). According to the California Chamber of Commerce, this bill will require the state Unemployment Trust Fund to pay out an additional $4.6 billion over the next four years. Unfortunately, the bill contains no attempts to mitigate economic impact.

Expand Employer Liability for Discrimination Based on Lawful Activities Outside of Work

On January 1, 2000, Labor Code Section 96 was amended to add subdivision (k), authorizing the Labor Commissioner to pursue, on behalf of employees, discrimination claims based on conduct occurring in non-working hours away from the employer’s premises. (See Employment Law Commentary, April 2001.) This year, AB 1015 was passed extending the reach of 96(k) to applicants for employment and job training programs. Under the new law, employers are prohibited from refusing to hire an applicant due to nonwork activities such as the circulation of petitions or fundraising for advocacy groups.

Although the bill prohibits discrimination against employees and applicants due to lawful conduct occurring during non-working hours away from the employer’s premises, it does not abrogate employment contracts that protect employers against activities in direct conflict with the essential interest of the employer. State and local law enforcement agencies and certain religious organizations are exempt, and the bill does not affect employment contracts with firefighters that forbid the smoking of tobacco products on or off the job.

Reasonable Accommodation for Lactation

AB 1025 requires reasonable accommodation for employees wanting to express breast milk at work. It provides that employers shall provide a reasonable amount of break time to accommodate an employee’s desire to express breast milk at work. The law provides that this break time will, if possible, run concurrently with any break time already provided to the employee, or in the alternative, shall be unpaid. This bill also requires that an employer must make reasonable efforts to provide employees with the use of a private space in close proximity to the employee’s work area in which to express breast milk, other than a toilet stall. This space may be the same as the employee’s workspace. A violation of this chapter will not be treated as a misdemeanor under the Labor Code, but will instead be subject to a $100 civil penalty.

Limit Ability of Employer to Adopt or Enforce Language Policies

AB 800 codifies existing regulations promulgated by the Department of Fair Employment and Housing that forbid an employer from adopting or enforcing policies that limit or prohibit the use of any language in the workplace. This bill makes it an unlawful employment practice for the employer to adopt an "English-only" policy unless the following two conditions can be met: (1) the policy is justified by business necessity; and (2) employees have been notified of the policy and the potential consequences of violation. The federal Equal Employment Opportunity Commission has adopted similar guidelines meant to aid in the elimination of discrimination based on national origin. However, federal courts, including the Ninth Circuit Court of Appeals, have previously declined to follow these guidelines. In the past twelve years, at least three bills have been introduced addressing this issue, but all previous bills were vetoed by the Governor.

Expand Insurance and Leave Policies to Cover Domestic Partnerships

AB 25 expands the group of individuals who may register as domestic partners and confers new legal rights on all registered domestic partners. This bill is broad in effect (touching upon everything from adoption to inheritance to medical treatment), and also has consequences in the field of labor and employment law. AB 25 provides that an individual may collect unemployment benefits if he or she leaves a job to relocate with a domestic partner, and it allows an employee to use sick leave to care for a domestic partner or a child of the domestic partner. AB 25 also requires group health care service plans and disability insurers to offer to employers coverage for domestic partners of employees in the same manner as other dependents; the bill does not, however, require that employers offer employees domestic partner coverage. The bill also authorizes domestic partners to file a claim for disability benefits on behalf of their partner when the partner is mentally unable to do so, to the same extent as a spouse.

Enact the Displaced Janitor Opportunity Act

SB 20 requires that contractors and subcontractors awarded contracts or subcontracts to provide building maintenance or janitorial services at a particular site retain employees from the previous contractor or subcontractor in these positions for a period of sixty days. This bill also requires that the employees be retained after the sixty-day period so long as their performance has been satisfactory. SB 20 is modeled after local ordinances adopted by San Francisco, Washington, D.C., and Philadelphia. Before enactment, opposition to the bill focused on its effects on the State’s "at will" employment doctrine in that SB 20 would eliminate one side of the "at will" relationship at the expense of the other.

Create Overtime Exemption for Doctors

SB 1208 clarifies existing provisions of AB 60 (which restored daily overtime in January 2000) regarding the collective bargaining exception for certain rules and the requirement for one day’s rest in seven, and creates a new overtime exemption for licensed physicians and surgeons paid on an hourly basis. This bill provides that physician employees paid an hourly wage of $55 or more (to be adjusted annually) are exempt from specified provisions relating to pay for overtime work. This exemption shall not apply to medical interns or individuals in a resident program or those covered by certain valid collective bargaining agreements.

New Employment Requirements and Penalties for Motor Carrier Employers

SB 871 enacts new requirements and new penalties for motor carrier employers who are subject to federal Department of Transportation drug and alcohol testing requirements. The bill states that an applicant for employment as a commercial driver may not be placed on duty by the motor carrier until the employer has complied with federal regulations concerning employment history and controlled substance and alcohol use. This bill permits any person who suffers from an injury that is proximately caused by the driver of a commercial motor vehicle to recover treble damages from the driver’s employer where it is shown that: (1) the driver was under the influence of alcohol or a controlled substance at the time of the injury, and (2) the driver’s employer willfully failed at the time of the injury to comply with specified federal law requirements regarding employment history investigation and drug and alcohol testing. The bill also requires the suspension of the motor carrier permit of a motor carrier of property for failure to comply with the stated regulations on use of alcohol and controlled substances, and for failing to make the records pertaining to alcohol use and testing available for inspection.

Strengthen Penalties for Failed Compliance with Child Support Garnishments

AB 1426 allows court-ordered electronic transfer of child support garnishments from an employer’s bank account and adds new penalties for failure to comply with child support garnishment orders. This bill states that where the obligor’s employer has willfully failed to comply with an order against the obligor’s earnings or has otherwise failed to comply with an order three times in a twelve-month period, the agency can obtain a court order requiring payment through an electronic transfer from the employer’s bank account. In addition, a civil penalty of up to 50% of the support amount that has not been received may be imposed under specified circumstances.

Create More Stringent Requirements for Employment Agencies Providing Temporary Nursing Staff

AB 1643 regulates the temporary placement of licensed nursing staff and certified nurse assistants who render services to residents of long-term care facilities. It requires that prior to placement, an employment agency must conduct a personal interview, verifying the experience, training, and references of the individual, and verifying that the individual is in good standing with the appropriate licensing or certification board. The employment agency must also verify that the individual has successfully secured a criminal record clearance.

Allow for Reopening of Dismissed Employment Claims Under OSHA

An employee may file a complaint against his or her employer if he or she is discharged or discriminated against for seeking compliance with labor laws. If the employee’s complaint of discrimination involves occupational safety and health issues (CalOSHA) and is dismissed by the State Labor Commissioner, the complainant must be told of his or her right to file a claim against the Labor Commissioner with the U.S. Department of Labor. AB1069 reopens claims previously dismissed by the state Labor Commissioner through the filing of a request for a new investigation by the U.S. Department of Labor. The bill specifically provides that the filing of a timely complaint with the United States Department of Labor stays the Labor Commissioner’s dismissal of the division complaint until the United States Secretary of Labor makes a determination regarding the alleged violation. The Labor Commissioner has 15 days from the Department of Labor’s determination to notify the parties of whether the state will reopen the state complaint or affirm its dismissal.

Create a New Right of Action for Joint Labor-Management Committees

SB 588 permits federally recognized joint labor-management committees to file suit against public works contractors and subcontractors for failure to pay the correct prevailing wage rates. It also provides that federally recognized joint labor-management committees may have access to certified payroll records, absent employee names and social security numbers.

Require State Conformity to Federal Program Regarding Federally Recognized Indian Tribes

AB 1537 requires that all federally recognized Indian tribes in California provide unemployment insurance coverage for their employees, and gives the tribes the option of reimbursable financing for the unemployment insurance program. This bill brings California into conformity with a federal law recently enacted as part of the Consolidated Appropriations Act of 2001, and is retroactive in effect to the date of the federal changes (December 21, 2001). Existing state law does not currently require Indian tribes outside those participating in the Tribal-State Gaming Compact of 1999 to participate in the state’s Unemployment Insurance Program as employers.

Reform Farm Labor Contractor Policies

AB 423 imposes enhanced criminal penalties on farm labor contractors for failure to pay wages and requires growers to inspect the licenses of the farm-labor contractors they hire. It also sets up an agency in the state’s labor department to independently verify farm labor contractor licenses. Finally, the bill requires the Director of Industrial Relations to establish a Farm Labor Contractor Enforcement Unit to develop a program to provide technical assistance to the district attorney’s office that create farm labor contractor enforcement units.

Expand Definition of "Public Funds" in the Prevailing Wage Law

SB 975 extends coverage of the prevailing wage law by expanding the definition of "public funds" used in "public projects" and by requiring that public works funded through the use of industrial development bonds ("IDBs") under the California Industrial Development Financing Act must comply with the prevailing wage laws.

Vetoed Bills

Increase Workers’ Compensation Benefits

There was considerable debate surrounding SB 71, as well as a great deal of anticipation that this would be the year that Governor Davis would allow an increase in workers’ compensation benefits to pass. Instead, this was the third year in a row in which Governor Davis vetoed a workers’ compensation benefit increase bill. SB 71 would have increased maximum benefits for workers who are temporarily disabled, and would have raised permanent disability benefits and family benefits for families of individuals killed on the job. Specifically, SB 71 would have made the following changes over a five-year period: (1) increased the maximum temporary disability benefits and permanent disability benefits from $490 a week to $651; (2) raised partial disability benefits from a range of $140 to $230 a week to a range of $230 to $270; and (3) increased the maximum benefits for the family of someone killed on the job from $160,000 to $215,000.

Support for the bill focused on the need for higher benefits to meet the demands of California’s increasingly high cost of living. Opposition focused on the already high cost to employers, and on criticism of the workers’ compensation system as being rife with waste and abuse. Employers such as school districts who have already had increased expenses due to heightened energy costs would have had to cut classroom spending if SB 71 had passed. Governor Davis cited economic concern as his primary reason for vetoing the bill, but emphasized his strong support for increasing the level of compensation benefits offered to injured workers. Davis stated that he believed a comprehensive bill could be crafted for the 2002 legislative session which would better meet four stated goals: (1)Providing a significant benefit increase for injured workers; (2)Promoting early and sustained return to work within the person’s medical and work restrictions; (3)Implementing effective medical cost containment measures while ensuring the quality of care provided; and (4)Targeting benefit dollars to achieve the best outcomes for injured workers.

Establish Outpatient Surgery Fee Schedule

AB 1176 would have given the Administrative Director of the Division of Workers’ Compensation the sole authority to develop an outpatient surgery facility fee schedule for services not performed under contract. It also would have given authorization to an employer and a represented employee to settle the employee’s right to prospective vocational rehabilitation services with a one-time payment under specified conditions. AB 1176 was a companion bill to SB 71 and was not to become operative unless SB 71 was also enacted and became operative. Governor Davis vetoed AB 1176 and SB 71 with identical messages.

Prohibit Surveillance of Electronic Mail and Monitoring of Employees’ Computer Records

SB 147 would have prohibited employers from monitoring employee e-mail or other computer files without first advising the employee of the employer’s workplace privacy and monitoring policy and obtaining verification of the advisement. A violation of the bill would be a misdemeanor, thus making it a crime for an employer to inspect, review, or retain e-mail or computer files in a manner that does not comply with the policies disclosed to the employee. This type of electronic monitoring is currently regulated by the Federal Electronic Communication Privacy Act, the Federal Omnibus Crime Control and Safe Streets Act of 1968, and the California Constitution, which provides every person with an express right of privacy. This is the third year in a row that Governor Davis has vetoed similar legislation on employee computer privacy, basing his decision on its needless imposition of undue regulatory burdens and potential legal exposure to businesses.

Prevent the Enforcement of Absence Control Policies for Certain Uses of Sick Leave

SB 1197 would have prohibited the enforcement of absence control policies against employees in their use of sick leave to care for ill family members. Existing law already prohibits an employer from retaliating against an employee who uses sick leave for this purpose. Opposition focused on the fact that this bill would have eliminated much of an employer’s ability to manage its voluntary sick leave program in a fair and efficient manner.

Permit Workplace Harassment Investigations by Human Resource Professionals

SB 208 would have exempted, under specified conditions, individuals holding certificates or degrees in human resource management from the Private Investigator Act. In effect, SB 208 would have allowed the hiring of human resource professionals as independent contractors to conduct workplace harassment investigations. The bill was written in response to a recent administrative interpretation of existing law by the Department of Consumer Affairs which concluded that a human resource professional who is an independent contractor cannot be retained to conduct a workplace harassment investigation unless he/she has a Private Investigators’ license. The proponents of the bill argued that independent contractors have conducted such investigations for years. Governor Davis vetoed the bill, stating that virtually all outside investigations are performed by licensed personnel and that this exemption would remove these individuals from state oversight and protection against consumer harm.

Establish New Employee Right to Copy Documents in Personnel Records

Existing law provides employees with the right to inspect personnel records relating to their performance or to any grievance concerning them. AB1635 would have created new employee rights to copy theses documents from their personnel files. The bill was vetoed because it offered no protection to other individuals who may be identified in the personnel records and because of the need to ensure the confidentiality of a company’s legitimate proprietary information.

Establish De Facto Employer of Temporary, Leased, and Contract Workers

AB 1679 would have deemed licensed contractors to be the de facto employers of individuals furnished by temporary employment agencies, employment referral services, labor contractors, or similar entities, for specified purposes relating to compensation, working hours, wages, working conditions, public works, workers’ compensation, insurance, and employment safety. Currently, the agency providing the temporary worker is considered the employer of record. Governor Davis vetoed the bill, stating that although he is sympathetic to reports that some temporary employers are not fully meeting their obligations, there is no other area of the law in which we relieve the temporary employer or any employer of its responsibility to its employees.

Create a State Labor Agency

SB 25 would have created a California Labor and Civil Rights Agency modeled after the U.S. Department of Labor, consisting of the Department of Industrial Relations, the Department of Fair Employment and Housing, the Employment Development Department, the Agricultural Labor Relations Board, the Public Employment Relations Board, and the Fair Employment and Housing Commission. Governor Davis vetoed the bill, asserting that although he felt that the Department of Industrial Relations and the Employment Development Department could provide better service by being combined within a single entity, more review was necessary to determine if any other components of the state should be reorganized in this fashion. Copies of these bills may be obtained from any of the lawyers listed in the side bar and/or from the editor.

California Employers Lose Two: Walia v. Aetna and Department of Health Services v. Superior Court

Non-Compete Agreements Violate California Public Policy: A Broad Interpretation of Section 16600

A California Court of Appeal adopted a broad interpretation of Business and Professions Code Section 16600 when it recently affirmed a lower court decision holding that post-termination covenants not to compete violate the public policy of California. In February 2000, our Employment Law Commentary discussed Walia v. Aetna, Inc., a then recent San Francisco Superior Court case. This November, a Court of Appeal upheld the trial court’s decision in Walia, finding that Aetna’s non-compete agreement violated Business and Professions Code Section 16600 and that Walia’s termination for refusing to sign the agreement violated public policy as a matter of law. See Walia v. Aetna, Inc., 2001 Cal. App. LEXIS 2197 (Nov.21, 2001).

In 1997 Aetna informed Anita Walia, along with 300 other employees in California, that she would be required to sign a non-compete agreement or lose her job if she did not do so. Approximately two months after Walia informed her supervisors that the agreement was not enforceable and that she was not comfortable signing it, she was terminated. The noncompete agreement at issue in this case prevented employees from working for any other health care company in the State of California for a period of six months following their resignation or termination.

The Court of Appeal affirmed the trial court’s decision that the non-compete agreement violated Section 16600 as a matter of law because it was not a narrowly tailored restriction on competition and the covenant not to compete was not necessary to protect Aetna’s trade secrets. The court also upheld the ruling that Walia’s termination violated public policy in that her termination was due to her refusal to sign an agreement condemned under Section 16600. This decision, while consistent with prior California state court decisions, is arguably inconsistent with several recent Ninth Circuit decisions which adopted a looser interpretation of Business and Professions Code Section 16600.

Elimination of Employer Defense to Harassment Claims Under California Law

In Department of Health Services v. Superior Court of Sacramento County (McGinnis), 01 C.D.O.S. 9999 (Nov. 29, 2001), the court held that a federal affirmative defense to claims of harassment under Title VII of the 1964 Civil Rights Act is not applicable to claims brought under FEHA. In Department of Health Services, a California Court of Appeal held that employers are strictly liable for the harassing conduct of supervisors that creates a hostile environment even when the employer did not know, and did not have reason to know, of the conduct.

This case is contrary to previous Ninth Circuit decisions which applied the federal defense established in the landmark cases of Burlington Industries, Inc. v. Ellerth, 524U.S. 742, 118 S. Ct. 2257 (1998), and Faragher v. City of Boca Raton, 524 U.S. 775, 118 S. Ct. 2275 (1998), to claims brought under California law (FEHA). The Burlington/Faragher defense currently applies to federal claims of harassment by a supervisor if there has been no tangible employment action, and the employer can show: (1)it exercised reasonable care to prevent and correct the harassment; and (2) the employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or otherwise failed to avoid harm.

In support of its decision in Department of Health Services, the court discussed the public policy of ensuring that an employer provide adequate training and monitoring of its supervisors. Under California law, it now seems that the only way to avoid liability is to prevent supervisor harassment before it begins.

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1 For more information on AB 2222, see Employment Law Commentary, May 2001; and Employment Law Commentary, August 2001.