Client Alert

A New Day in the California Legislature for Labor Legislation: A Governor Who Will Sign the Bills

During the eight years of the Wilson Administration, over 250 pieces of labor legislation passed by the Democratically controlled state Legislature were vetoed by Republican Governor Pete Wilson. During the prior eight years, Governor Deukmejian also vetoed many bills that were proposed by labor and other employee-oriented organizations and passed by the Democratic Legislature. In the aftermath of the 1998 elections, there is something of a frenzy of labor legislation in Sacramento as the Legislature continues to be controlled by the Democrats and now, for the first time in 16 years, a Democratic governor (Gray Davis) is in office who will sign labor-backed legislation. Not only can 16 years of vetoes be reversed, but 16 years of administrative policies and enforcement procedures implemented by the two Republican administrations can be modified.

Over the last few months, a number of labor-backed bills which are opposed by most of the employer associations that lobby in Sacramento have advanced in the Legislature. Following is a brief description of the most important bills and their current status. Most, if not all, of these bills are likely to pass in some form and will be signed by Governor Davis.

Restore Daily Overtime

Until January 1, 1998, California law required employers to pay overtime after 8 hours in a day and/or 40 hours in a week, unlike almost every other state in the Union and the federal government, which require overtime only after 40 hours in a week. Effective January 1, 1998, the Industrial Welfare Commission (IWC) modified California's overtime rule to conform to federal law, thereby eliminating the daily overtime requirement. AB 60 (Knox, D-Los Angeles) restores daily overtime, as well as double-time after 12 hours in a day. The bill also creates new substantive rules and procedures for employees to vote on alternative workweek schedules. Unlike the IWC's pre-1998 alternative workweek schedules which permitted daily schedules up to 12 hours with no overtime, AB 60 only permits schedules up to 10 hours with no overtime. The bill sets up administrative procedures for asking the Labor Commissioner to determine the appropriate unit for an alternative workweek election and to actually run the election. AB 60 also precludes any reduction in salary based on a vote to adopt, repeal or nullify an alternative workweek arrangement.

A number of non-overtime provisions are also included in AB 60. The bill allows four hours of compensatory time off for employees to attend to personal obligations. AB 60 also raises the remuneration test for the executive, administrative and professional exemptions to almost $36,000 per year and specifically precludes use of the fluctuating workweek, which is currently authorized under federal law.

AB 60 passed both the Labor and Employment Committee and the Appropriations Committee on party line votes. It is now on the Assembly floor awaiting a full vote of the Assembly, which is expected sometime in May.

Outlaw Predispute Mandatory Arbitration

AB 858 (Kuehl, D-Santa Monica) outlaws predispute mandatory arbitration provisions in both consumer and employment agreements. The bill provides that no employer is permitted to require employees to waive constitutional, statutory or common-law rights in favor of an arbitral forum in a predispute agreement (e.g., an employment agreement or company handbook). These rights are specifically defined as the right to a jury trial and a judicial forum and as the right to legal protections against discrimination under Title VII and the Fair Employment and Housing Act. The bill also specifies that any waiver is void as per se unconscionable and is an unfair business practice under section 17200 of the Business and Professions Code. There is a serious question whether the bill, as drafted, is preempted by the Federal Arbitration Act; a recent California Court of Appeals decision suggests that it is. (Erickson v. Aetna Health Plans of California, 1999 CDOS 2923.) On the other hand, it is also true that this bill or some form of it is likely to pass, setting up a direct court challenge. The court decisions currently upholding mandatory arbitration are based on the public policy favoring arbitration. This bill specifies that the policy of the state is against predispute mandatory arbitration in consumer and employment agreements, arguably undercutting the policy rationale underlying many of the court decisions favoring arbitration.

This bill is set for hearing on May 11 in the Judiciary Committee.

Strengthen Cal/OSHA And The Ergonomics Regulation

AB 1127 (Steinberg, D-Sacramento) makes wholesale changes to the Cal/OSHA Act increasing penalties, granting more authority to the Division of Occupational Safety and Health and strengthening the ergonomics regulation. The bill extends from 30 days to one year the time within which a person may file a complaint of discrimination, including safety discrimination, with the Labor Commissioner. It provides that OSHA standards and orders may be admitted into evidence in personal injury, wrongful death and criminal actions. The bill eliminates the automatic abatement of required remedial efforts when a Cal/OSHA citation is appealed. Accordingly, even if an employer appeals a Cal/OSHA citation, it is required to make the mandated changes or go to court and request a stay from a judge. The bill changes the definition of "employer" on multi-employer work sites to include employees of independent contractors--an employer can be cited based on the conduct of another employer's employees. The bill increases the maximum misdemeanor sentence for knowingly or negligently violating safety standards from six months to one year in jail and the maximum fine from $5,000 to $200,000. If the defendant is a corporation or limited liability company, the fine in such cases would be not less than $100,000 nor more than $1 million. A number of other penalty increases are sprinkled throughout the bill in both the criminal and the civil sections.

AB 1127 also revises the current ergonomic standard which contains a small business exemption as well as a two-injury threshold before the requirements of the ergonomics standard apply. In the new standard, an employer is required to establish and implement an ergonomics program if a repetitive motion injury has occurred to at least one employee in a particular job, or if a pattern of symptoms has occurred in one or more employees engaged in a job, or if one or more employees are exposed to hazards causing or contributing to, or likely to cause or contribute to, a repetitive motion injury. It is hard to imagine an employer who would not be required to implement a plan based on these "thresholds." The bill also requires that engineering controls, including work station redesign, be implemented before administrative controls such as job rotation or work breaks.

The bill passed the Labor and Employment Committee and is set for hearing on May 11 in the Public Safety Committee.

Reverse Pro-Employer Age Discrimination Decision

SB 26 (Escutia, D-Montebello) reverses the decision in Marks v. Loral Corporation, 57 Cal. App. 4th 30 (1997). In that decision, the court rejected use of the disparate impact theory of discrimination in age discrimination cases which allows a court to find discrimination based on a facially benign policy that has a disproportionate effect on a protected group (the other theory of discrimination is disparate treatment). Under the decision, it is permissible for an employer to choose employees with lower salaries for retention during a layoff even though this may result in choosing younger employees. SB 26 declares that it is the intent of the Legislature that use of salary as the basis for differentiating between employees when terminating their employment may be found to constitute age discrimination if use of this criterion disproportionately affects older workers as a group.

The bill passed the Judiciary Committee and is awaiting action by the full Senate.

Strengthen The California Fair Employment And Housing Act

AB 1670 (Kuehl, D-Los Angeles) makes numerous changes to California's Fair Employment and Housing Act (FEHA). The bill extends FEHA protections to include not only persons discriminated against because they are in a protected class but also persons discriminated against because they are perceived to be in that class. The bill extends its harassment provisions to protect people who are working or providing services on a contract basis. The bill outlaws genetic testing of employees and makes it an unlawful employment practice to refuse to provide reasonable accommodation to a pregnant female employee during her pregnancy. Under the bill, new remedial provisions can be imposed by a court: employers can be mandated to conduct prescribed training concerning the protections of the Act. Finally, the cap on damages per employee is raised from $50,000 to $150,000.

The bill is set for hearing in the Judiciary Committee on May 11.

Mandate Ability To Use Sick Leave For The Illness of A Child, Parent or Spouse

AB 109 (Knox, D-Los Angeles) requires employers to allow not less than one-half of the employee's sick leave entitlement for use to attend to the illness of a child, parent or spouse of the employee. The bill also prohibits an employer from discriminating against an employee for using or attempting to use this right.

The bill passed the Labor and Employment Committee and the Appropriations Committee and is awaiting action by the full Assembly.

Reinstitute The "Peculiar Risk" Doctrine

Existing law provides that workers' compensation is the exclusive remedy for a worker injured on the job. AB 934 (Steinberg, D-Sacramento) modifies the exclusive remedy doctrine for independent contractors. If such independent contractors perform work on a work site and suffer injury or death based on another employer's or owner's negligent failure to exercise control with reasonable care, these employers and owners are subject to suit outside of the workers' compensation system, including awards of emotional distress and punitive damages. The bill is intended to reverse a 1993 decision, Privette v. Superior Court, 5 Cal. 4th 689, which had eliminated the "peculiar risk" doctrine.

The bill passed the Judiciary Committee and is awaiting action by the full Assembly.

Prohibit Use Of State Funds For Discouraging Unionization

AB 442 (Cedillo, D-Los Angeles) prohibits recipients of state funds from using those funds to discourage unionization. More significantly, if a recipient of state funds uses any other, non-state funds to discourage unionization, it is required to keep prescribed records, to make specified quarterly reports to the Labor Commissioner and to certify under penalty of perjury compliance with the bill's limitations on use of state funds. The Labor Commissioner is authorized to audit the records of anyone subject to the bill's requirements to ensure compliance. The bill makes any person ineligible to receive state funds (debarred as a state contractor) if the person has been certified by the Labor Commissioner to be in violation of the bill's recordkeeping or reporting requirements, or has failed or refused to provide records for an audit. Any person may enforce this provision, and the damages are split 50/50 with the state.

This bill passed the Labor and Employment Committee and is scheduled for hearing in the Appropriations Committee on May 12.

Attack The Underground Economy

AB 633 (Steinberg, D-Sacramento) is billed as an attack on the underground economy. However, many of its provisions apply to industries which have not historically been considered part of the underground economy. Its provisions would dramatically affect how wage claim issues are handled and the penalties that are available. AB 633 requires an employer seeking de novo court review of a Labor Commissioner's decision to post a bond in the amount of the order, decision or award. It applies 30 days' waiting time penalties to any check for the payment of wages which has "bounced." AB 633 allows an employee to sue for civil penalties which historically have been available only to the state. Any penalties recovered by an employee are divided 30% to the employee, 40% to the Labor Commission and 30% to the general fund. The bill also provides for penalties for any employee who works during a meal or rest period. The penalty is $50 per employee, and the employee receives double-time for the time worked during the rest period or meal period. The bill also requires employers who have been found in violation of an IWC Order to post a notice for 60 days at the place of employment.

The bill passed the Labor and Employment Committee and is scheduled for hearing in the Appropriations Committee on May 12.

Increase The Minimum Wage

To date, no bill is being seriously considered to increase the minimum wage. The Industrial Welfare Commission has not been funded, so no minimum wage review has begun which would lead to an administrative increase in the minimum wage. However, the California Federation of Labor, AFL-CIO, which was behind the initiative campaign which led to the last increases in the minimum wage, supports IWC action to increase the minimum wage to $6.80 and then to index it for inflation.

Increase Workers' Compensation Benefits

SB 320 (Solis, D-El Monte) eliminates the caps which currently exist for vocational rehabilitation benefits. These caps were imposed in 1993 because vocational rehabilitation benefits were one of the main cost drivers increasing workers' compensation costs. The bill also includes benefit increases for temporary disability, permanent total disability and permanent partial disability, though the actual increases are not specified. The bill's intent is declared to be a meaningful increase in workers' compensation benefits for all injured workers and their dependents. While the increases are not specified, various press releases and other materials indicate that the proponents of this bill are seeking a $1.7 billion-per-year increase in benefits or a 20% increase in overall workers' compensation costs. It is also possible that the final version will include indexing of the benefits as exists in other states. There are no offsetting, cost-saving reforms in SB 320.

The bill is set for hearing in the Industrial Relations Committee on May 12.

Increase Unemployment Insurance Benefits

SB 546 (Solis, D-El Monte) makes a number of changes to the unemployment insurance system, and most significantly includes an increase in weekly unemployment insurance benefits. The bill also increases and indexes the taxable wage base, provides an alternate base of earnings upon which benefits can be calculated, increases the wage replacement formula and interest on delayed benefits, and provides that penalties obtained by employees under the federal plant closure law are not considered wages for benefit determination. The bill increases the maximum weekly benefit from $230 to $300 and increases the wage replacement formula from 39% to 50%, again with a cap of $300. The cost of the benefit increases has been estimated at just under $300 million annually.

The bill passed the Industrial Relations Committee and is set for hearing in the Appropriations Committee on May 10.

Conform Independent Contractor Determinations To Federal Law

On the other hand, AB 70 (Cunneen, R-Los Altos) creates conforming "safe haven" provisions for the determination of independent contractors similar to existing ones in federal law. This allows employers certainty, based on very strict standards, that their independent contractor designations will not be overturned by a government agency, and that government agency determinations will be consistent.

In early April, this bill was defeated on a party line vote with business supporting the bill and labor opposing it. Recently, the parties agreed to work on changes that will potentially lead to passage next year.

All of these bills (except the last one) are expected to pass in some form and be signed by Governor Davis. The final provisions of these bills will determine whether labor is satisfied that the significant support it provided the Governor in the 1998 campaign was justified, or whether the business community is satisfied that the Governor actually is the cautious moderate he has portrayed himself to be. It is hard to see how he can satisfy both.




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