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The California Legislature has passed and sent to Gov. Jerry Brown a $184.5 billion budget for fiscal year 2017-18. Most of the media attention focused on tobacco tax expenditures, efforts to reform the Board of Equalization, and an attempt to revise the election procedures to protect a sitting State Senator who is facing a recall effort.
However, as we cautioned back in February, for good or for bad, "trailer bills" that accompany the main budget bill (and are supposed to help implement the provisions of the budget) are often places where significant policy changes are made. These "trailer bills" are often places where major policy changes are buried—largely with very little public notice or discussion.
This year's budget was no exception. Although these bills have not yet been signed by Brown, it is anticipated that they will receive his signature within the next few days.
These bills make a number of changes relevant to California employers, including the following:
Public Employee Orientation
In anticipation of potential U.S. Supreme Court action on the constitutionality of mandatory union dues for public employees, labor groups in California have been working for several years to enact legislation to mandate union participation in public employee orientation meetings.
Labor's strategy attempts to blunt the impact of any adverse court decision by ensuring that they have an opportunity to educate public employees about unions and convince them to voluntarily join the union.
Last session, the court appeared to be close to deciding that mandatory union "security fees" were unconstitutional in the Friedrichs v, California Teachers Association case, but the untimely passing of Justice Antonin Scalia instead resulted in a 4-4 deadlock.
Organized labor earned a temporary respite, but now that President Donald Trump has appointed Justice Neil Gorsuch to fill the vacancy, it appears likely that the court may soon rule in a fashion adverse to labor. A current case (Janus v. AFSCME) appears to be the likely candidate for a Supreme Court decision on this issue.
Labor's response? Budget trailer bill language (A.B. 119) to do the following:
California Secure Choice Retirement Savings Program
In recent years, California enacted a state-run retirement savings plan (which has not yet been implemented) for private sector employees that featured automatic enrollment for employees.
A significant issue of concern for employers in the negotiation of this program has been to ensure that the program is not subject to the Employee Retirement Income Security Act (ERISA), which would raise potential liabilities for employers.
Last year, the Department of Labor issued regulations that granted California employers a safe harbor by exempting the program from ERISA.
In fact, the legislation enacting the program in California specifically mandated the obtaining of this safe harbor as a prerequisite for implementation of the program.
However, last month Trump signed legislation to rescind the DOL safe harbor, raising significant questions about the applicability of ERISA to the program.
Budget trailer bill language (A.B. 119) attempts to allow the Secure Choice Board to self-certify that the program is not subject to ERISA, structure the program so that it is not subject to ERISA, and eliminate statutory language that mandated the DOL safe harbor.
Program supporters argue that a legal opinion they recently obtained demonstrates that this is a legal course of action to avoid the application of ERISA. However, employers have expressed concerns that the state (by itself) cannot enact legislation that protects employers from federal ERISA preemption, which was why the DOL-issued safe harbor was so crucial.
Even with this budget trailer bill language, there will be much uncertainty for employers going forward (and likely legal challenges to the validity of the program itself).
Labor Commissioner Enforcement Activity
Budget trailer bill language (S.B. 96) proposes to make a number of significant changes to the Labor Commissioner's enforcement of California employment laws.
Thankfully, two of the more onerous provisions for California employers did not make it into the final budget. One proposal would have rescinded various business licenses for employers that had unpaid wage claims. A second proposal would have allowed the Labor Commissioner to pursue injunctive relief (such as a temporary restraining order reinstating an employee to their position) during the pendency of a retaliation claim and investigation. These two proposals are not part of the budget (although a separate policy bill is moving through the process regarding the injunctive relief in retaliation cases).
Remaining provisions of the budget trailer bill do the following:
Public Works Contractor Registration
In 2014, as a mechanism to provide funding for enforcement of the state's prevailing wage laws, the Legislature established a public works contractor registration program.
This program imposed an annual $300 registration fee on contractors and subcontractors wishing to conduct work on public works projects.
However, the revenue generated by this program was less than anticipated—either (1) because policymakers over-estimated the number of contractors that would register under the program, or (2) due to significant noncompliance by contractors who should be registering.
The Brown administration argues that it is the latter, and budget trailer bill language (S.B. 96) sets forth language to dramatically increase penalties for failure to comply with the public works contractor registration requirements.
The trailer bill language does the following:
OSHA Penalty Increases
Budget trailer bill language (S.B. 96) also increases or eliminates caps on several types of Cal/OSHA penalties. According to Brown's office, these increases are meant to conform California state law to recent increases at the federal level for OSHA violations.
In addition to the increases, the trailer bill language indexes the maximum penalty amounts annually for inflation.
Specifically, the trailer bill language:
Benjamin Ebbink is an attorney with Fisher Phillips in Sacramento, Calif. © Fisher Phillips. All rights reserved. Reposted with permission.
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