California Regulations and Cases to Watch in 2017

By Toni Vranjes Jan 30, 2017

With the dawning of the new year, California employers should be aware of regulations and court cases that could affect their operations.

On the regulatory front, there are rules from the Fair Employment and Housing Council (FEHC) on transgender protections, as well as rules on criminal-history checks.

Meanwhile, employers should be on the lookout for upcoming California Supreme Court cases. These include:

  • Mendoza v. Nordstrom, centering on the "one day's rest in seven" rule.
  • Troester v. Starbucks, relating to off-the-clock work.
  • Dynamex Operations West v. Superior Court, pertaining to independent contractor status.

[Need to learn more about Employment Law & Legislation? Speakers at the 2017 SHRM Annual Conference & Exposition are exploring these topics.]

Transgender Issues

The FEHC has proposed regulations that would increase transgender protections in areas ranging from restroom use to job applications. The regulations would amend the Fair Employment and Housing Act (FEHA).

[SHRM members-only HR Q&A: What is FEHA and what does it cover?]

The proposed rules would expand the definitions of transgender identity and expression. The regulations would include the definition of "transitioning," the process that some transgender people undergo to begin living as the gender with which they identify.

The proposed regulations also would require employers with single-stall restrooms in the workplace to use gender-neutral signs for these facilities. (Effective March 1, a new state law will also require business establishments, places of public accommodation and government agencies to identify single-stall facilities as "all-gender toilet facilities.")

In addition, the proposed regulations would prohibit companies from discriminating against job applicants who decline to designate on a job application whether they are male or female. The rules also would require employers to comply with an employee's request to be identified with a preferred gender, name or pronoun.

If needed, however, employers would be allowed to use the legal name and gender indicated on an employee's government-issued document when it's necessary to meet a legally mandated obligation.

The comment period on the proposed transgender regulations closed on Jan. 27.

Criminal-Background Checks

The FEHC is also finalizing a separate set of regulations that will restrict the use of criminal-history checks in hiring decisions and make it easier for job applicants and employees to bring discrimination claims under FEHA.

[SHRM members-only toolkit: Managing the Hiring Process in California]

The regulations note that a hiring policy that has an adverse impact on an applicant's job opportunities—on the basis of a protected category under the act—is illegal unless the policy is job-related and consistent with business necessity.

Under the rules, though, if an employer shows that its policy "of considering conviction history is job-related and consistent with business necessity, adversely impacted employees or applicants may still prevail under the act if they can demonstrate that there is a less discriminatory policy" that serves the company's goals as effectively as the challenged policy.

The regulations put employers in a bind because they can still be held liable for negligent hiring, said Karina Sterman, an attorney in Greenberg Glusker's Los Angeles office.

The FEHC has finalized the criminal-history regulations, with a likely effective date of July 1, according to Fahizah Alim, spokeswoman for the state Department of Fair Employment and Housing.

One Day's Rest in Seven

In Mendoza v. Nordstrom, two former Nordstrom workers claim that the company failed to provide them with "one day's rest in seven," as required by state law. But the parties disagree about how to calculate when the rest day must be provided.

The case reached the 9th U.S. Circuit Court of Appeals, which asked the California Supreme Court to answer three questions to clarify the law:

  • Under California Labor Code section 551, employees are entitled to one day's rest in seven. Is this day of rest calculated by the workweek or on a rolling basis for any consecutive seven-day period?
  • Under California Labor Code section 556, companies don't have to provide this day of rest "when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof." When does that exemption apply? Is it when an employee works less than six hours in any one day of the week, or when an employee works less than six hours every day of the week?
  • California Labor Code section 552 states that businesses may not "cause" employees to work "more than six days in seven." In such situations, what does "cause" mean? Does it mean "force, coerce, pressure, schedule, encourage, reward, permit or something else?"

The first and third questions are of great concern to employers, according to Sterman.

"Employees want the ability to work an extra day if they want to," she said, commenting on the third question. "And employers want the ability to permit it, without it being held against them as forcing it."

Off-the-Clock Work

In Troester v. Starbucks, the plaintiff alleges that Starbucks failed to pay him for off-the-clock work. This included setting the store alarm, leaving the store and locking the door. The district court said that this off-the-clock work typically totaled less than four minutes.

Based on the "de minimis" doctrine, which refers to trivial matters, the court ruled that this amount of time was insignificant. The court stated that the "plaintiff's claim for unpaid wages fails as a matter of law because any unpaid time was de minimis."

The case was appealed to the 9th Circuit, which asked the California Supreme Court to weigh in.

The de minimis doctrine is often the focus of litigation, but there's no clear definition of the term, said Erika Frank, general counsel and vice president of legal affairs at the California Chamber of Commerce.

"We're looking to the court to provide clarity on how the de minimis doctrine applies to California employers," Frank told SHRM Online.

Independent Contractor Status

Dynamex Operations West v. Superior Court involves two delivery drivers who allege that they were misclassified as independent contractors.

The state Supreme Court will weigh in on the following issue: "In a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, may a class be certified based on the Industrial Welfare Commission definition of employee" as interpreted in Martinez v. Combs, or should the correct standard be "the common law test for distinguishing between employees and independent contractors" discussed in S.G. Borello & Sons v. Department of Industrial Relations?

The Industrial Welfare Commission (IWC) standard is broad, and that worries employers. The U.S. Chamber of Commerce and the California Chamber of Commerce filed a brief asking the California Supreme Court to overturn the lower court's ruling that "improperly applied" the test drawn from IWC wage orders.

Given these differing standards, it's difficult to determine how to properly classify workers, Sterman said.

"It's a huge struggle to figure out how to do it correctly, when you have the IWC taking one position and the California courts taking another position," she observed.

Toni Vranjes is a freelance business writer in San Pedro, Calif.


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