Pay Notices Required to Be Provided New Employees

Existing law requires an employer to post specified wage and hour information in a location where it can be viewed by employees. Effective January 1, 2012, a new law (which will be formalized as Labor Code Section 2810.5 and known as the "Wage Theft Prevention Act of 2011") will further require employers to provide all newly hired, non-exempt employees with a written notice of certain wage information at the time of hire. The notice must contain the following information:

1. The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable;
2. Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;
3. The regular payday designated by the employer in accordance with the requirements of this code;
4. The name of the employer, including any "doing business as" names used by the employer;
5. The physical address of the employer's main office or principal place of business, and a mailing address, if different;
6. The telephone number of the employer;
7. The name, address, and telephone number of the employer's workers' compensation insurance carrier;
8. Any other information the Labor Commissioner deems material and necessary.

If any of the above information changes, the employer must, within seven days of any such change, provide the employees with notice in one of the following methods:

1. By providing a written amendment to the statement;
2. By issuing an entirely new notice;
3. Via paycheck stub, if the updated information is contained on the paycheck stub.

This law does NOT apply to exempt employees, public employers, or employees who are already covered under a collective bargaining agreement (unionized employees).

Expansion of Prohibition on Discrimination Based on Genetic Information

In 2008, the federal government passed the Genetic Information Nondiscrimination Act ("GINA"), which applies to employers with 15 or more employees. The federal law (1) forbids discrimination on the basis of genetic information when hiring or firing employees or making decisions related to compensation, terms, conditions, or privilege of employment; and (2) bars employers from requesting, requiring, or purchasing genetic information with certain limited exceptions and limits the disclosure of genetic information.

On January 1, 2012, California Senate Bill 559, known as the "Padilla Bill," will go into effect, extending prohibition of discrimination on the basis of genetic information to California employers employing five or more persons.

California employers should take particular note that their potential for damages for discrimination on the basis of genetic information is also increased significantly by the enactment of SB 559. While under GINA penalties are capped between $50,000 and $300,000 depending on the size of the employer, there is no statutory limit on the amount of damages which may be awarded to an employee found to be the victim of genetic discrimination under the amended California law.

Employers should make sure that policies and handbooks (including insurance and wellness program language and medical certification forms) are updated and that supervisors are properly trained to comply with these laws. Employers should also be sure to post the most recent version of the "Equal Employment Opportunity is the Law" poster.

Limitations On Consumer Credit Reports

With the new year, a new section of the California Labor Code -- Section 1024.5 -- will go into effect, significantly restricting the ability of California employers to use "consumer credit reports" in connection with employment applications or decisions to retain current employees. Effective January 1, 2012, California employers are prohibited from obtaining a consumer credit report in connection with an employee background check unless the employee or applicant holds or would hold any one of the following positions:

• A managerial position which qualifies for the executive exemption from overtime pay requirements under the California wage orders;
• A position that affords regular access to bank or credit card account information, Social Security numbers, or dates of birth for any one person (as long as the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment);
• A position for which the employer is required by law to consider credit history information;
• A position for which the information contained in the report is required by law to be disclosed or obtained;
• A position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money or authorized to enter into financial contracts on the employer's behalf;
• A position that affords access to confidential, proprietary, and/or trade secret information;
• A position that affords regular access during the workday to the employer's, a customer's or a client's cash totaling at least $10,000;
• A position in the State Department of Justice; or
• A sworn peace officer or law enforcement position;

After January 1, 2012, an employer who obtains a background check and credit report for an employee who falls under one of the exceptions listed above should continue to provide the employee with appropriate written notice and an opportunity to receive a free copy of the credit report. Additionally, the employer must now also provide the employee/application with advance written notice identifying the applicable exception(s) which apply to the employee/applicant This latter requirement did not exist prior to enactment of the new law.

The Equal Employment Opportunity Commission (EEOC) is actively investigating use of credit reports by employers in other states that have already enacted similar laws. Employers who run background checks should make sure that the person(s) who conduct such investigations are properly trained in these changes in law and that the paperwork used (e.g., consent forms and notifications) are in compliance with the new law.

Despite these new restrictions, employers should know that they may still obtain income or employment verification reports which do not contain credit-related information and may further obtain "investigative consumer reports." Please keep in mind, however, that there are technical requirements that must be followed in obtaining and/or using any investigative consumer reports.

New Notification Requirements for Background Checks Other Than Credit Reports

Effective January 1, 2012, California Labor Code Section 1786.22 will require employers that order background reports other than consumer credit reports (such as criminal background reports or motor vehicle reports) to provide the subjects of the report with the Internet website address of the consumer reporting agency. If the agency has no Internet website address, the employer must provide notification of the telephone number of the agency where the individual can find information about the agency's privacy practices.

Misclassification of Independent Contractors Carries Hefty Fines

Beginning on January 1, 2012, any "person" (not just those statutorily defined as "employers") who willfully (voluntarily and knowingly) misclassifies an employee as an independent contractor may be liable for penalties ranging from $5,000 to $25,000 for each incident of willful misclassification. Under newly added Labor Code Sections 226.8 and 2753, employers who are found to have willfully misclassified independent contractors will further be required to publicize findings of their violations of the new law on their company websites for a year. The notice, which must be signed be a corporate officer, must include a statement that (i) the employer has committed a serious violation by willfully misclassifying employees, (ii) the employer changed its business practice to prevent future violations of section 226.8(a), and (iii) any employee who believes he or she is misclassified may contact the Labor and Workforce Development Agency.

The new laws also forbid an employer who has willfully misclassified an individual from charging that individual a fee or making any deductions from the individual's compensation (e.g., for goods, materials, space rental, services, licenses, repairs, and maintenance) where such fee or deduction would have been illegal if the individual were not an independent contractor. Under this new legislation, there is still an open legal question whether every improper deduction or fee charged to a willfully misclassified independent contractor could give rise to a separate penalty of up to $25,000!

Employers should expect considerable litigation in the coming years regarding whether independent contractors have been willfully misclassified and what constitutes an "incident." Employers should prepare themselves by seeking counsel regarding the various legal factors to apply in determining whether independent contractors are properly classified.  

Changes in Health Benefit Contribution Requirements to Employees on Pregnancy Disability Leave

While employers with five or more employees are already required to permit employees disabled by pregnancy to take a leave of absence of up to four months, they will now be required, effective January 1, 2012, to continue to provide up to four months of group health coverage to those employees on pregnancy disability leave ("PDL") on the same terms and conditions as if the employee continued actively reporting to work. For example, if the employer usually pays the entire premium for employee health coverage, it must continue to do so, for up to four months, for an employee on PDL. Employers may require employees who generally contribute to the premium to continue to pay their portion while on PDL.  

If an employee disabled by pregnancy fails to return to work, the employer may be able to recover from the employee the premium that the employer paid under the group health plan under limited circumstances provided under the law.

Employers should note that the requirement to continue health insurance for employees on PDL is in addition to the requirement that employers with 50 or more employees continue to provide medical benefits to an employee who takes time off post-delivery to bond with the baby under the Family Medical Leave Act ("FMLA") and California Family Rights Act ("CFRA").

We recommend that California employers review their policies and procedures relating to pregnancy disability leaves and medical benefits to ensure compliance with this new law.