California Employers—What Awaits in 2017?

January 12, 2017

As surely as the Tournament of Roses parade marches down Colorado Boulevard in Pasadena at the start of a new year, California’s Legislature and courts inexorably march employers along an increasingly arduous path toward compliance. Employers turned the calendar to 2017 to find that this year brings more of the same. Here are some of the most significant changes for California employers.

Wage Hour Issues

Breaking News: California Supreme Court Changes Rest Period Requirements

Just before Christmas, the California Supreme Court in Augustus v. ABM Security Services, reinstated an award of nearly $90 million to security guards who were required to carry pagers or radios on their rest breaks. The Court ruled that employers (1) may not require “on-duty” rest periods, and (2) may not require non-exempt employees to remain “on-call” by having to carry pagers or radios during their rest breaks. Such limitations result in the employees “working,” and therefore constitute a deprivation of the rest break. The Court did note that employers for whom this represents an undue hardship may apply to DLSE for an exemption.

The Explosion in Minimum Wage Increases

Statewide Increases

Due to legislation signed in early 2016, California’s minimum wage will increase incrementally to $15 per hour by 2021. The first step took place on January 1, 2017:

    • For employers with 26 or more employees, the state minimum wage increased to $10.50 per hour. Accordingly, the minimum monthly salary for exempt employees (which must be equivalent to at least twice the minimum wage for a full-time employee) will be $3,640 per month ($43,680 per year) for 2017.
    • This increase is delayed by one year for employers of 25 or fewer employees. Accordingly, the minimum monthly salary for these employers remains at $3,466.67 per month ($41,600 per year) for 2017.

Specially-exempt employees will see their minimum salaries increase in 2017: 

    • Computer software employees must receive the hourly equivalent of $42.35 per hour, or $88,231.36 annually.
    • Licensed physicians and surgeons must receive at least the equivalent of $77.15 hourly, or $160,472 annually, to be exempt.

Local Increases

Not to be outdone, many California cities have passed their own minimum wage ordinances. At last count, nearly 30 cities, counties and other municipalities have minimum wage requirements that exceed $10.50. Employers with employees working in these areas must now comply with both state and local ordinances, whichever is more favorable to employees. This is a challenge when employees work in multiple localities. Here are a few of the major cities who have raised or will be raising the minimum wage in 2017:

    • In Los Angeles, the minimum wage will increase to $12 per hour for employers with 26 or more employees and $10.50 per hour for employers with 25 or fewer employee, effective July 1, 2017. The same rules will apply in Santa Monica and Pasadena.
    • San Francisco’s minimum wage will increase to $14 per hour on July 1, 2017.
    • San Diego’s minimum wage will reach $11.50 on January 1, 2017.

Federal Wage Mandates Likely Holding Steady

Employers outside of California are likely breathing a sigh of relief. In 2016, the United States Department of Labor (DOL) issued new rules that would have required employers to pay at least $47,476 (higher than California law) to any employee it claimed was exempt (the executive, administrative and professional overtime exemptions). A federal court in Texas issued a nationwide preliminary injunction blocking the DOL from enforcing the new overtime rule, which was set to take effect on December 1, 2016.

The injunction has been appealed, but the new rules’ prospects are dim in light of a new Administration whose nominee for Secretary of Labor is on record in opposition to them.

California Fair Pay Act Expansion

In 2016, the Fair Pay Act (“FPA”) took effect. Touted as the nation’s toughest gender-equity pay law, the law prohibits employers from paying employees of different sexes different wages for “substantially similar work when viewed as a composite of skill, effort, and responsibility under similar working conditions.” This is broader than “equal work,” and the law  also does not require plaintiffs to use opposite sex members in the same location.

While certain factors can justify pay disparities, employers must make an affirmative showing that these factors account for 100 percent of the disparity.

Just as employers were learning their obligations under FPA, the Legislature amended the new FPA to:

    • Include race and ethnicity as well as gender; and
    • Prohibit the use of prior salary as the sole justification for pay disparity.

Employers still may inquire about prior salary history, but may not rely on it entirely to justify a wage differential between employees of different genders or different ethnicities where they perform substantially similar work.

Paid Sick Leave in Your City?

In 2015, California’s Paid Sick Leave Law—the Healthy Workplace Healthy Family Act—took effect. Since then, numerous California cities have enacted paid sick leave requirements that are more onerous for local employers.

In Los Angeles, employers with 26 or more employees were required to allow employees to accrue paid leave up to 48 hours per year beginning July 1, 2016. This is twice the burden that California imposes. As under the California statute, employers can frontload this time, but Los Angeles does not allow a “use it or lose it” policy for frontloaded time.

Employers also must track where itinerant employees work, because even two hours per week in the City of Los Angeles triggers the accrual obligation. Employers with 25 or fewer employees have until July 1, 2017, before the law takes effect. 

San Francisco, Santa Monica, San Diego, Oakland, and Long Beach are among the California cities that also have paid sick leave ordinances. These vary in terms of amount and method of accrual, whether they can be applied separately from vacation, and whether they are treated as wages.

Appealing Rulings by the Labor Commissioner

Starting in 2017, Section 1197.1 of the Labor Code was amended to require an employer to post a bond in favor of the employee in an amount equal to the unpaid wages assessed under the citation as a condition of appealing a ruling of the Labor Commissioner. 

Other Employment Issues

Employment Contractual Provisions on Forum and Choice of Law

Many California employees are required to sign employment contracts with out-of-state employers that provide that a different state’s laws will apply to any dispute and that disputes must be litigated  in a different state. Under new legislation, employers may not require an employee who primarily works and lives in California to agree to adjudicate employment disputes outside of California or waive the protections of California law, as a condition of employment.  

Domestic Violence, Sexual Assault, and Stalking

Employees who are victimized by domestic violence, sexual assault, or stalking are entitled to take time off work to seek medical attention and obtain related services and are protected from discrimination or retaliation for taking such time. 

Under a new law, employers with 25 or more employees must inform employees of these existing rights, upon hire and upon employee request. By July 1, 2017, the Labor Commissioner will provide a form notice for employers to use to inform their employees of these rights, after which the notice obligation will take effect.

All-Gender Bathrooms

As of March 1, 2017, all single-user toilet facilities in any business establishment, place of accommodation, or government agency must be identified as all-gender toilet facilities. The new law defines a “single-user toilet facility” as one with only one water closet and one urinal and a locking mechanism controlled by the user.


Federal law requires employers as a condition of hiring employees to verify employees’ identity and eligibility to work in the United States.  In 2016, the California Legislature passed a new law that provides an employer may not:

(1) request more or different verification documents than are required under federal law,

(2) refuse to honor documents that facially appear to be genuine,

(3) refuse to honor documents or work authorizations based upon the specific status or term of status that accompanies them, or

(4) reinvestigate or re-verify an incumbent employee’s authorization to work using an unfair immigration-related practice.

The new law allows an applicant or employee who is subject to a violation to file a complaint with the Labor Commissioner, who may impose a penalty of up to $10,000 per violation.

Criminal History

California law prohibits employers from considering certain information for employment purposes, such as information relating to convictions that have been judicially dismissed or ordered sealed, or arrests not leading to conviction. 

New legislation expands the law by prohibiting employers from inquiring into juvenile convictions, or considering certain information that occurred while an applicant was subject to the process and jurisdiction of juvenile court law, when making an employment decision. Some exceptions exist for certain employers and certain felonies and misdemeanors.

Certain cities also are restricting employer inquiries into criminal history. The Los Angeles Fair Chance Initiative for Hiring ordinance (known as “Ban the Box”) limits inquiries by employers with more than 10 employees. Specifically:

    • Employers may not ask about any convictions unless they first make an offer that is expressly conditioned on conducting a background check;
    • Even after a conditional offer, employers may not refuse to hire an applicant based on criminal history without conducting a written assessment that links the specific aspects of the applicant’s criminal history with the risks inherent in the duties of the job; and
    • The employer must provide the applicant with a “Fair Chance Process,” meaning an opportunity to provide information to the employer such evidence of rehabilitation or mitigating factors.

The ordinance also contains notice and posting requirements that obligate employers to state in all solicitations or advertisements seeking applicants that the employer will consider for employment qualified Applicants with Criminal Histories in a manner consistent with the ordinance.

Workers’ Compensation

The Workers Compensation Act is revised to require coverage for most officers, directors, and partners of corporations, limited liability companies, and partnerships under an employer’s workers’ compensation policy. Previously, such individuals could declare that they were not “employees” for purposes of workers’ compensation coverage.

Paid Family Leave Expansion

Not to be confused with mandatory paid sick leave, California established Paid Family Leave (“PFL”) in 2004. Under PFL, employee-side payroll taxes are paid to the State Disability Insurance (“SDI”) program through the Employment Development Department (“EDD”). EDD then provides partial wage replacement benefits to employees who are unable to work because of a reason protected by the California Family Rights Act or Pregnancy Disability Leave Law, such as being a caregiver for a sick child, spouse, parent, or domestic partner, or to bond with a newborn or newly adopted or foster care-placed child, or due to other injuries or health conditions unrelated to work.  

Currently, PFL entitles employees to receive up to six weeks of partial wage replacement during these period. The new legislation increases the wage replacement rate under PFL from 55 percent to (i) 70 percent for those who earn less than one-third of the California average weekly wage, and (ii) 60 percent for those who earn one-third or more of the California average weekly wage. The new law also eliminates the seven-day waiting period for benefits. These changes will take effect January 1, 2018.

At the city level, San Francisco employers with 50 or more employees will be required to provide supplemental compensation to employees when they use PFL for new child bonding (Parental Leave) so that such employees continue to receive 100 percent of their salary. Smaller employers (20 to 49 employees) also will be subject to the San Francisco ordinance, by July 1, 2017, or January 1, 2018.

How About Washington, D.C.?

Under the new Administration, employers are unlikely to be burdened with additional Federal regulations. There may be changes to the Patient Protection and Affordable Care Act (“ACA” or “Obamacare”) which could affect employer obligations. Laws affecting immigration, union organizing and recognition, and standards for determining co-employment and relationships between franchisors and franchisees also may change in 2017.

Employers should continue to observe both state and federal law, and when they differ, adhere to the more employee-protective law. In most situations other than immigration and traditional union-labor relations—which are governed primarily by federal law—that would mean California law. Therefore, employers must continue to watch developments in Sacramento as well as Washington, D.C. to stay informed on ever-increasing obligations.

As always, you can contact Jack Schaedel, Laura Worsinger, Jamie Lopez or your Dykema relationship attorney for any questions about labor and employment law.

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2021 Dykema Gossett PLLC.