Significant New California Employment Laws for 2004

By Stuart W. Miller
[Dec. 2003]

Prior to his recent replacement by Governor Schwarzenegger, former Governor Gray Davis signed numerous bills which will impact California employers. Key bills are as follows:

Mandatory Health Care Coverage for Employees (SB 2)

The Health Insurance Act of 2003 requires that employers provide health insurance to employees or make contributions to a state entity that will obtain insurance. Eligible employees must work at least 100 hours per month and have worked for the employer for at least three months.

Employers with 200 or more California employees must pay at least 80 percent of the health insurance premiums for those workers and their dependents by Jan. 1, 2006 or contribute amounts yet to be determined to the State Health Purchasing Program. Employers with 20 to 199 employees working in the state must provide such insurance benefits or make payments to the Program, for employees but not their dependents, by January 1, 2007. However, employers with between 20 and 49 employees in the state need not comply unless the Legislature authorizes a tax credit equal to 20 percent of the employer's net cost of the fee. Employees with fewer than 20 employees in California are exempt.

The employee contribution may not exceed 5 percent if his or her wages are less than 200 percent of federal poverty guidelines. An employer with 50 to 199 California employees may require an employee to contribute more than 20 percent of the cost of coverage if (a) the employer’s insurance program includes coverage for dependents, and (b) the employer’s contribution exceeds 80 percent of the cost of coverage for an individual employee.

The California Chamber of Commerce, which vigorously opposed SB 2, is seeking a statewide voter referendum on the new law and also intends to legally challenge SB 2 as preempted by ERISA.

For additional information about SB 2, see "The Health Insurance Act of 2003:
California's "Pay or Play" Universal Health Coverage."

Employer Liability for Sexual Harassment by Non-Employees (AB 76); New Employer Defense under FEHA to Sexual Harassment by Supervisors

Employers are now liable for sexual harassment of their employees or contractors providing services in the workplace, committed by non-employees including customers and suppliers, if the employer, or its agents or supervisors, knows or should have known of the harassment and fails to take immediate and appropriate corrective action. In evaluating such claims, the court must consider the extent to which the employer has control over, and any legal responsibility for, the conduct of the non-employee harasser.

On a related matter, the California Supreme Court recently held in State Department of Health Services v. Superior Court that although an employer is strictly liable under the state Fair Employment and Housing Act (FEHA) for hostile environment sexual harassment by a supervisor, the employer may avoid or reduce a damage award based on the doctrine of avoidable consequences.

This requires the employer to prove each of the following: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered.

This new decision and AB 76 reconfirm the importance of taking, as required by FEHA, “all reasonable steps to prevent harassment from occurring,” including periodically training all supervisors and other employees about the employer’s anti-harassment policy, and taking prompt, appropriate corrective action to address actual or suspected acts of harassment.

Family Temporary Disability Insurance; New Withholding Rate Takes Effect January 1, 2004

Enacted in 2002, this law provides up to six weeks of wage replacement benefits in a 12 month period to workers who take time off to care for a seriously ill child, spouse, parent or domestic partner, or to bond with a new child. The statute is described in our Employment Law Advisory, “New California Employment Laws for 2003.”

This benefit is available for leaves taken on or after July 1, 2004. However, the benefit is funded through an increase in the amount contributed by employees (not by employers) to the State Disability Insurance (SDI) Fund starting Jan. 1, 2004. That increase is 0.08 percent for 2004 and 2005. The State Employment Development Department (EDD) has announced an SDI withholding rate for 2004 of 1.18 percent, which includes 0.08 percent for Family Temporary Disability Insurance. The EDD’s website (www.edd.ca.gov) currently states that the EDD will combine the Unemployment Insurance (UI), Employment Training Tax (ETT) and SDI rates in a single Notice of Contribution Rates and Statement of Unemployment Insurance Reserve Account, to be mailed to employers in December 2003.

Protection for Whistleblowers (SB 777)

SB 777 is modeled on the federal Sarbanes-Oxley Act. It prohibits employers from retaliating against an employee for disclosing information to a governmental or law enforcement agency, if the employee has reasonable cause to believe that the information discloses a violation of a state or federal statute or regulation. SB 777 also prohibits an employer from retaliating against an employee for refusing to participate in an activity that would result in such a violation.

The statute imposes penalties of up to $10,000 per violation. It requires the State Attorney General to establish a whistleblower hotline to receive calls from persons who have information about possible violations of state or federal statutes or regulations, or violations of fiduciary responsibility by a corporation to its shareholders, investors or employees. The Attorney General must refer calls to the appropriate governmental authority for review and possible investigation.

SB 777 requires employers to prominently display, in lettering larger than size 14 pica type, a list of employee rights and responsibilities under the statute, including the telephone number of the whistleblower hotline, (800) 952-5225. The California Chamber of Commerce’s new multi-part “California 2004” poster for employers includes a section describing those rights and responsibilities and stating the hotline number.

Labor Code Private Attorneys General Act of 2004 (SB 796)

This new law should more accurately be entitled the “Plaintiffs’ Employment Attorneys’ Full Employment Act of 2004.” It authorizes aggrieved employees to file lawsuits, on their own behalf and on behalf of coworkers, against employers who violate any provision of the voluminous California Labor Code, excluding matters governed by the workers’ compensation system, and to recover attorneys’ fees and a portion of the civil penalties. If the Labor Code provision at issue does not set forth a civil penalty (as is frequently the case), the statute imposes a penalty of $100 for each aggrieved employee per pay period for an initial violation, and $200 for each subsequent violation. The statute is more fully addressed in a recent DWT Employment Law Advisory.

Penalties Doubled for Failing to Pay Wages Due or for Unlawfully Withholding Wages (AB 276)

AB 276 doubles the penalty, from $50 to $100 for a first violation, and from $100 to $200 for a subsequent or intentional violation, if an employer fails to pay or unlawfully withholds wages due. There are other more substantial penalties under the Labor Code for wage and hour violations, including those in the Labor Code Private Attorneys General Act of 2004 (discussed above) and “waiting time penalties” equal to 30 working days’ wages (typically six weeks’ wages) for failing to pay all wages due immediately upon termination of employment.

Recovery of Attorneys’ Fees and Costs on Appeal of Labor Commissioner Awards (AB 223)

The California Labor Code provides that either party may appeal to Superior Court from a decision by the Labor Commissioner concerning a claim for wages. The appeal is a “de novo” appeal, which means that the parties get a fresh start with the court, and the findings and record before the Labor Commissioner must be disregarded on appeal. However, the Labor Code states that if the appealing party is unsuccessful on appeal, it must pay the other party’s costs and reasonable attorneys’ fees incurred in the appeal.

In 2002, the California Supreme Court construed that provision to mean that an employer is “successful” on appeal if the court’s award to the employee is any amount less than the Labor Commissioner’s award. However, AB 223 reverses that decision by changing the statute to provide that “[a]n employee is successful if the court awards an amount greater than zero.” In other words, if the Labor Commissioner awards the employee $50,000 and the court, after an appeal by the employer, awards only $10, the employee is nevertheless deemed to be “successful” and is entitled to recover all of the employee’s reasonable attorney’s fees and costs incurred in connection with the appeal.

Time Off for Victims of Crime or Family Members (SB 478)

This statute requires an employer to allow an employee who is the victim of certain crimes, or the immediate family member of the victim, or a registered domestic partner of the victim, to be absent from work in order to attend judicial proceedings related to that crime. The statute places no cap on the duration of the absence, and applies to violent felonies, felony theft and embezzlement and other serious felonies. An employer may not discriminate against an employee who is absent from work for this reason. The employee may elect to use vacation, PTO or sick leave that is otherwise available, or unpaid leave time.

For further information about this new legislation or other California employment law matters, please contact:

Stuart W. Miller, San Francisco, (415) 276-6584, stuartmiller@dwt.com
Emilio G. Gonzalez, Los Angeles, (213) 633-6829, emiliogonzalez@dwt.com

This Employment Law Advisory is a publication of the Employment Law Department of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of recent developments in employment law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2003, Davis Wright Tremaine LLP.

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