California Governor Signs Flurry of Significant Employment Legislation

By Anet Drapalski, Benjamin Ebbink, James Fessenden, Usama Kahf, James McDonald Jr., Haylee Saathoff and Tyler Woods © Fisher Phillips October 16, 2019
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California Governor Signs Flurry of Significant Employment Legislation

​First-year Gov. Gavin Newsom signed some significant pieces of legislation in recent days that will impact employers across California—ranging from a ban on mandatory arbitration agreements to a complete rewrite to the rules for the use of independent contractors to a general prohibition on "no-rehire" clauses in settlement agreements. 

Here are the top employment bills signed into law and links to much deeper dives into these specific measures. California employers will want to read each of these articles closely. Unless otherwise noted, each of the measures discussed below will go into effect on Jan. 1, 2020.

Mandatory Arbitration Agreements

Despite his predecessor vetoing two similar proposals, late last week Newsom signed a bill into law that will prohibit employers from entering into mandatory arbitration agreements for nearly all types of employment law claims in California. AB 51 could have significant impacts on California employers across all industries—if it ever goes into effect. There are significant questions around whether the new statute is invalid. We could see it scaled back or completely tossed out before ever being enforced based on an argument that it is pre-empted by federal law. Legal challenges are inevitable and will likely require years of litigation before a final resolution.

Despite inevitable legal challenges, California employers will need to make a choice before Jan. 1: play it safe and strike all mandatory arbitration agreements or keep the status quo until the inevitable litigation plays out. There are pros and cons to both paths, so employers should work with employment counsel to figure out which is right for them.

Arbitration Fees

Speaking of arbitration, Newsom signed another significant measure into law that raises the stakes for California employers in handling arbitration claims. Under SB 707, a drafting party that fails to pay arbitration fees and costs in employment or consumer disputes is subject to some fairly significant ramifications. 

Specifically, the new law provides that any drafting party that fails to pay the fees necessary to commence or continue arbitration within 30 days after such fees are due is held to have materially breached the agreement and is in default. Potential negative consequences for an employer include not being able to compel the claim to arbitration and being forced to defend the case in court instead, as well potential monetary and evidentiary sanctions. 

Independent-Contractor Rules

With his signature on AB 5 on Sept. 18, Newsom has completed the year-long overhaul of the state's independent-contractor test. What was once governed by a balancing test that provided breathing room for businesses to deploy contractors with relative ease has now been transformed into a bright-line standard that will challenge businesses across the state when it comes to compliance. Companies will soon face an increased risk of misclassification claims from workers unless they take immediate steps to get in line with the new law.

In 2018, the California Supreme Court adopted the rigid ABC test in Dynamex Operations West, Inc. v. Superior Court. But with AB 5, the California Legislature took things one giant step further. The newly enacted legislation will solidify the ABC test for virtually all employment purposes, expand its reach (by making it potentially applicable in business-to-business relationships) and simultaneously grant exemptions to a limited number of industries. This has been the No. 1 employment issue for California employers since early 2018, as it could be a game-changer for their business.

'No-Rehire' Provisions in Settlement Agreements

With his signature on Oct. 12, Newsom put an end to "no-rehire" provisions in employment settlement agreements, a common feature in many such agreements that employers have typically used as a matter of course.

It is very common for employers to settle threatened claims or lawsuits with an agreement that includes a no-rehire provision. These provisions typically prohibit the employee from ever again applying for a job with the company anywhere in the country. If they do, the employer can reject the application and the employee can't protest that decision. Some agreements go so far as to say that the employer can fire them scot-free if the worker is accidentally hired by any division of the company or a subsidiary.

However, under AB 749, these provisions will soon be no more.

As of Jan. 1, 2020, settlement agreements can no longer contain any provision that prohibits, prevents or otherwise restricts an employee from obtaining future employment with that employer. The same is true for the any parent companies, subsidiaries, divisions, affiliates or contractors. Any such provision that remains in a settlement agreement created on or after that date will be void. 

Timeframe to File Workplace Bias Claims

A big focus of the #MeToo movement over the last several years has been on efforts to increase the statute of limitations for bringing sexual-harassment claims. Newsom recently signed a measure into law that will extend the deadline for filing an employment-related administrative complaint with the Department of Fair Employment and Housing (DFEH) by two years.

Under existing law, individual employees have one year to file an administrative charge with DFEH (which is an administrative precursor to filing a civil lawsuit in court). AB 9 will extend that administrative filing period to three years beginning on Jan. 1, 2020. However, while the proposal was couched as a bill aimed at sexual harassment, it actually extends the statute of limitations for all employment claims under the Fair Employment and Housing Act (FEHA), not just sexual harassment claims. 

Lactation Accommodation Requirements

Following San Francisco's lead, California will soon significantly expand the lactation accommodation obligations of most employersSB 142, which was signed into effect on Oct. 10, includes a detailed list of lactation-room requirements, increased liability for failing to provide reasonable break time for employees to express breast milk, and added a requirement for employers to adopt and distribute a mandatory employer lactation policy. 

Privacy Law Amendments

Newsom also just signed into law several amendments to the California Consumer Privacy Act (CCPA), two of which will have a direct impact on employers doing business in the state. The new amendments, signed into law on Oct. 11 and taking effect on Jan. 1, 2020, require covered businesses meeting a certain revenue threshold or other criteria to implement policies and procedures that provide consumers—which includes employees—certain privacy rights not previously available under existing law.

The first relevant amendment, AB 25, postpones by one year, until Jan. 1, 2021, all of the CCPA's requirements pertaining to employee data except for two:

  • Reasonable security measures to safeguard the data.
  • Disclosure of the categories of personal information collected about employees and job applicants and the business purposes for which the information is used.

The second relevant amendment, AB 1355, excludes from coverage of the CCPA, until Jan. 1, 2021, specified business-to-business communications or transactions.

Even though enforcement by the California attorney general does not begin until July 1, 2020, the CCPA compliance deadline is just a few months away. Therefore, employers doing business in California should immediately consider whether the CCPA applies to them and if it does, determine what steps they should take to be ready. 

Discrimination Based on Hairstyles

Earlier this year, Newsom signed legislation to provide that prohibited employment discrimination based on race under the FEHA also includes discrimination based on hair texture and protective hair styles. SB 188 specifically amends the definition of "race" under FEHA to include "traits historically associated with race, such as hair texture and protective hairstyles," including "braids, locks and twists." Employers will need to review their workplace grooming standards in order to ensure compliance with the law.

Anti-Harassment Training

At the height of the #MeToo movement, California lawmakers enacted a requirement that all employers with five or more employees would need to provide sexual harassment prevention training to all employees by Jan. 1, 2020. However, in response to outcry from the business community, Newsom signed into effect a law extending the deadline for employers to provide the newly required sexual-harassment-prevention training to Jan. 1, 2021.

At the prompting of the business community, the state legislature introduced and passed SB 778 to make some needed clarifications to the new sexual-harassment-prevention training law. Primarily, SB 778 delays the changes made by SB 1343—one of the many #MeToo laws passed in the 2018 legislative session—so employers will have an additional year to get up to speed with and comply with the training requirements. 

Changing Landscape

This year may turn out to be one for the record books when it comes to significant employment legislation in California. And that's saying a lot, because California is no stranger when it comes to pushing the envelope with employment laws. But with such monumental shifts in California public policy this year, the laws enacted in 2019 may very well top them all.

Newsom has already proven himself to be far more progressive than his predecessor Gov. Jerry Brown, as Newsom signed several significant bills into law that had been previously vetoed by Brown—several of which had been vetoed multiple times. This changing landscape may very well be the "new normal" for California employers in the Newsom era.

Anet Drapalski is an attorney with Fisher Phillips in Los Angeles. Benjamin Ebbink is an attorney with Fisher Phillips in Sacramento. James Fessenden and Haylee Saathoff are attorneys with Fisher Phillips in San Diego. Usama Kahf, James McDonald Jr. and Tyler Woods are attorneys with Fisher Phillips in Irvine. © 2019 Fisher Phillips. All rights reserved. Reposted with permission. 

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