California is a state of perpetual motion when it comes to new and evolving employer regulations. While most of the 305 bills introduced in the last legislative session mentioning “employer” did not pass the Legislature, many did and were signed into law by Gov. Gavin Newsom. With that comes more rules and risks for employers dealing with non-compete agreements, anti-discrimination, Labor Code enforcement, workplace safety, leaves of absence and a plethora of minimum wage increases.
To borrow from Kelly Clarkson, “… what doesn’t kill you makes you stronger, stand a little taller …”
Elements of key state Assembly Bills (AB) and Senate Bills (SB) affecting private employers that became law Jan. 1, 2024 (unless otherwise noted) follow.
Contracts in Restraint of Trade (aka Noncompetes)
Existing California Business and Professions Code Section 16600 provides that, subject to limited exceptions, “… every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
AB 1076 clarifies and amends Section 16600 that it is to be read broadly, in accordance with the California Supreme Court’s 2008 Edwards v. Arthur Andersen LLP decision, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored.
AB 1076 also makes it unlawful for an employer to include a noncompete clause in an employment contract or to require an employee to enter into a noncompete agreement. And by Feb. 14, 2024, this bill will require employers to give written notice to current employees and former employees who were employed after Jan. 1, 2022, whose contracts include a noncompete clause or who were required to enter a noncompete agreement that the noncompete clause or noncompete agreement is void.
Such written notice must be individualized and delivered to the last known address and the email address of the employee or former employee. A violation of Section 16600.1 is an act of unfair competition under Business & Professions Code Section 17200, which provides remedies such as injunctions and restitution.
The stated purpose of SB 699 is to protect “the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person’s state of residence.” As such, SB 699 expands the reach of existing law by prohibiting employers from entering into such “noncompete” contracts or clauses with employees and, once they do, making these provisions unenforceable regardless of whether the contract was signed and the employment was maintained outside of California.
This bill also gives an employee, former employee or prospective employee a private right of civil action to sue for injunctive relief, recovery of actual damages and recover their reasonable attorneys’ fees and costs if they prevail.
Neither AB 1076 nor SB 699 apply where there is an exception to this statutory framework, such as noncompete agreements entered in connection with the certain sales of ownership in the employer.
Both bills are effective Jan. 1, 2024. Together, they amend Section 16600 of, and add Sections 16600.1 and 16600.5 to, the Business and Professions Code.
Anti-discrimination and Equal Opportunity
Diversity In Venture Capital Investment
Commencing March 1, 2025, and annually thereafter, SB 54 requires any venture capital company (a “covered entity,” as defined) to report to the California Civil Rights Department (CRD) specified information about their funding determinations, including, at an aggregate level, demographic information for the founding teams of all the businesses in which the covered entity made a venture capital investment in the prior calendar year.
The bill requires a covered entity to provide a survey to each founding team member of a business that has received funding from a venture capital company to which the covered entity has acted as an investment adviser.
The demographic information that the covered entity is to collect for each of the founding team members includes gender identity, race, ethnicity, disability status, veteran status, identifies as LQBTQ+, whether the person is a California resident and whether any such founder declined to provide any of the information. The information is to be collected and reported in an anonymized manner.
The covered entity must also report to the CRD the total amount it invested in businesses with primarily diverse founding team members in the prior calendar year as a percentage of total investments in all business, and the total amount of money it invested in each company in the same period.
If a covered entity fails to file the report by March 1 of a given year, the CRD will notify the covered entity that it must submit the report within 60 days of the notification. The bill empowers the CRD to pursue litigation to compel compliance, a penalty and recovery of attorney fees and costs.
This bill adds Section 22949.85 et. seq., to the Business and Professions Code and amends Section 12907 of the Government Code.
Equal Pay and Anti-Retaliation Protection Act
Existing law prohibits a person from discharging an employee or discriminating, retaliating or taking other adverse action against any employee or applicant for employment because they engaged in certain activity permitted or protected by the Labor Code, including asserting rights under the Equal Pay Act (EPA).
The EPA “prohibits an employer from paying an employee at wage rates less than the rates paid to an employee of the opposite sex, or of another race or ethnicity, for substantially similar work, when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions.”
Employer defenses include that the difference in pay for substantially similar work is due to seniority, merit, a system that measures production or a “bona fide factor other than sex, race or ethnicity.”
SB 497 creates a rebuttable presumption of retaliation if an employee is disciplined or discharged within 90 days of engaging in certain activity protected by the California Labor Code or EPA. Then, the burden shifts to the employer to articulate a legitimate, nonretaliatory reason for adverse action, and then shifts to the employee to prove their claim nonetheless.
Existing whistleblower law prohibits employer efforts to block an employee from disclosing information to a government or law enforcement agency, or to certain persons in charge at their employer, if the employee has reasonable cause to believe that the information discloses a violation or non-compliance with law. Employers cannot retaliate for such activity or for an employee “providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry …”
SB 497 changes the maximum civil penalty from $10,000 per violation, to that amount “per employee for each violation.” The bill also clarifies that “in assessing this penalty [under Labor Code Section 1102.5], the Labor Commissioner must consider the nature and seriousness of the violation based on the evidence obtained during the course of the investigation, … including … the type of violation, the economic or mental harm suffered, and the chilling effect on the exercise of employment rights in the workplace, …to the extent evidence obtained during the investigation concerned any of these or other relevant factors.”
This bill amends Sections 98.6, 1102.5 and 1197.5 of the Labor Code.
Existing law makes it unlawful for an employer to discriminate against a candidate or employee because of the person’s use of cannabis off the job and away from the workplace unless an exception applies, such as testing for only psychoactive cannabis metabolites (as opposed to non-psychoactive), federal law permitting testing for controlled substances, and jobs requiring federal government background investigation or security clearance.
SB 700 modifies existing law to make it unlawful for an employer—except for construction and building trades—to request information from an applicant relating to the applicant’s prior use of cannabis or to use prior criminal history of cannabis use. This bill retains the same exemptions noted above, adds an exemption where other state or federal law permits criminal cannabis use history and exempts employment in the building and construction trades.
This bill amends Section 12954 of the Government Code.
Labor Code Public Prosecutors
AB 594 expands state powers to pursue, civilly or criminally, Labor Code violations via the attorney general, or local prosecutors. In any such action, such public prosecutor will not be bound by any agreement between worker and employer that limits representative actions or mandates private arbitration and appeals of court-denied motions to compel arbitration will not stay the trial court action. Amounts recovered in such actions will be first applied to workers’ recovery. Civil penalties recovered will be paid to the state’s general fund.
The bill also expands the Labor Commissioner’s investigation and enforcement powers involving willful misclassification of an individual as an independent contractor.
This bill amends Sections 218 and 226.8, adds Section 180 et. seq., and repeals Section 181, of the Labor Code.
Hospitality and Building Services Recall Rights
Existing law requires certain hospitality and facility service provider employers to—until Dec. 31, 2024—rehire employees who were laid off due to a public health directive, government shutdown order, lack of business, a reduction in force, or other economic, non-disciplinary reason related to the COVID-19 pandemic. This law applies to hotels, private clubs, event centers, airport hospitality operations, airport service providers, and janitorial, maintenance and security service providers to office, retail or other commercial buildings.
SB 723 extends this law until Dec. 31, 2025, and refines its application to employees who separated on or after March 4, 2020. The bill also creates a presumption that a separation due to a lack of business, reduction in force or other economic, non-disciplinary reason was a reason related to the COVID-19 pandemic, unless the employer can rebut the presumption by a preponderance of the evidence.
This bill amends and repeals Section 2810.8 of the Labor Code.
Restraining Orders Protecting Employees from Harassment
Existing law permits an employer, whose employee has suffered unlawful violence or a credible threat of violence from any individual, that can reasonably be construed to be carried out or to have been carried out at the workplace, to seek a temporary restraining order (TRO) and an injunction order after hearing on behalf of the employee and, at the discretion of the court, any number of other employees of the employer.
Under this law, a credible threat of violence is “a knowing and willful statement or course of conduct that would place a reasonable person in fear for their safety, or the safety of their immediate family, and that serves no legitimate purpose.”
Effective Jan. 1, 2025, SB 428 authorizes employers to seek a TRO and an injunction against any individual who has “harassed” an employee. Employees may decline to be named in the temporary restraining order.
“Harassment” is defined in the bill as “a knowing and willful course of conduct directed at a specific person that seriously alarms, annoys or harasses the person, and that serves no legitimate purpose.” The course of conduct must be that which would cause a reasonable person to suffer substantial emotional distress and must actually cause substantial emotional distress.
Course of conduct is defined by the bill as, “a pattern of conduct composed of a series of acts over a period of time, however short, evidencing a continuity of purpose, including following or stalking an employee to or from the place of work; entering the workplace; following an employee during hours of employment; making telephone calls to an employee; or sending correspondence to an employee by any means, including, but not limited to, the use of the public or private mail, interoffice mail, facsimile, or computer email.”
With that said, the bill proscribes a court from issuing an order that would prohibit speech or activities legally protected by the Constitution, the National Labor Relations Act, or other law.
This bill amends, repeals and adds Section 527.8 of the Civil Code of Procedure.
Workplace Violence, Restraining Orders, Prevention Plans
Existing law requires employers to establish, implement and maintain an effective written injury prevention program. Among its mandated elements include identification of the persons responsible for implementing the program; the employer’s system for identifying and evaluating workplace hazards or unhealthy conditions; an occupational health and safety training program designed to instruct employees in general safe and healthy work practices and to provide specific instruction with respect to hazards specific to each employee’s job assignment; and communications and compliance protocols.
Effective July 1, 2024, SB 553 requires that employers add an effective workplace violence prevention plan—for all work areas—that contains specified information now listed at length in Labor Code Section 6401.9.
Required elements of the plan include: logging every workplace violence incident; providing annual training to employees on the workplace violence prevention plan; updating the plan and providing additional training when a new or previously unrecognized workplace violence hazard has been identified; maintaining records such as workplace violence hazard identification; evaluation, correction and training; violent incident logs; and workplace incident investigation and making them available to Cal/OSHA.
By Dec. 31, 2026, Cal/OSHA must adopt standards regarding the plan required by the bill, including “any additional requirements the division deems necessary and appropriate to protect the health and safety of employees.”
This bill amends, repeals and adds Section 527.8 of the Code of Civil Procedure, amends Section 6401.7 of, and adds Section 6401.9 to, the Labor Code.
Leaves of Absence
Paid Sick Leave
SB 616 amends California’s sick leave law to increase the amount of sick leave that employees can accrue and use. Maximum accrual has increased to 80 hours (or 10 days), from 48 hours (or six days). Employees must be allowed to use 40 hours (or five days) a year, up from 24 hours (or three days) previously. The bill increases to five days the amount of accrued paid sick days that carry over to the following year of employment. The bill also provides that some provisions of California Paid Sick Leave Law pre-empt local paid sick leave ordinances.
Unchanged is the minimum accrual requirement of one hour for every 30 hours worked. However, an employer may use a different accrual method, provided that accrual is on a regular basis so that an employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period, and no less than 40 hours of accrued sick leave or paid time off by the 200th calendar day of employment or each calendar year, or in each 12-month period.
An employer may also satisfy the accrual requirements by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of the employee’s 120th calendar day of employment, and no less than 40 hours or five days of paid sick leave that is available to the employee to use by the completion of the employee’s 200th calendar day of employment.
This bill amends sections 245.5, 246 and 246.5 of the Labor Code.
Leave for Reproductive Loss
In addition to other leaves under the California Family Rights Act and the Fair Employment and Housing Act, SB 848 provides up to five days of unpaid “reproductive loss leave” to would-be parents following a reproductive loss event. “Reproductive loss event” means the final day of a failed adoption, failed surrogacy, miscarriage, stillbirth or an unsuccessful assisted reproduction.
Such leave must be completed within three months of the event or the end date of certain other leaves, and taken pursuant to lawful existing leave policy of the employer. An employer may cap the total amount of reproductive loss leave time at 20 days—up to five days for each reproductive loss—within a 12-month period.
All such leave days may be nonconsecutive. Other paid leave accruals such as vacation, personal leave and paid sick leave may be used by the employee.
SB 848 requires an employer to maintain employee confidentiality relating to reproductive loss leave. The bill also prohibits an employer from retaliating against an individual because of their exercise of reproductive loss leave rights or giving of information or testimony as to their own reproductive loss leave, or another person’s reproductive loss leave, in an inquiry or proceeding.
This bill adds Section 12945.6 to the Government Code.
Minimum Wage Increases
Minimum wage in California increased to $16 per hour on Jan. 1 for all employers regardless of size, unless industry-specific rules or a locality require a higher minimum wage.
State minimum wage changes impact classification of most exempt workers. In addition to “duties tests” for administrative, executive and professional exemptions, a salary of at least twice the state minimum wage must be paid to meet the “salary basis test” (assuming another salary basis test does not apply). By Jan. 1, the annualized salary rate that employers must pay to meet the exempt salary requirement will advance to $66,560.
State minimum wage increases also impact companies who can lawfully rely on the inside-sales exemption, which requires that employees be paid at least 1.5 times the state minimum wage, and at least half of their other earnings be from commissions.
Many city and county governments continue to create and increase their own minimum wage for companies with employees working in their jurisdiction. Employers must pay the higher of the state, industry or local minimum wage.
These local rates typically change Jan. 1 or July 1. About 40 already exceed $16 per hour, with the highest being the city of West Hollywood at $19.08. Employers should monitor the requirements to assure compliance in each locality in which they have employees working. A good starting place is the UC Berkeley Labor Center database.
Overtime Exemption for Some Computer Professionals
Labor Code Sec. 515.5 contains an overtime pay exemption for highly skilled computer professionals who spend more than half of their working time in top-level intellectual or creative work that requires the exercise of discretion and independent judgment, such as software engineers and programmers, and systems designers and analysts. To qualify for exemption, the employee also must be paid at least a minimum amount per hour or, alternatively, a salary equal to that hourly rate. Each year, the California Department of Industrial Relations sets that pay rate based on the California CPI increase.
For 2024, the minimum rates of pay required for this exemption are $55.58 per hour, $9,646.96 per month and $115,763.35 per year.
Fast-Food Restaurant Employee Minimum Wage
AB 1228 raises the minimum wage for workers at national fast-food chains to $20 an hour, effective April 1, 2024. The bill defines national fast-food chains as those “with more than 60 establishments nationally that share a common brand or that are characterized by standardized options for decor, marketing, packaging, products and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service.”
Exempt from the bill are establishments that produce for sale bread as a stand-alone menu item and not solely as part of another menu item. Also exempt are restaurants operating within certain grocery establishments as long as the workers are employed by the grocer.
The bill also establishes a Fast Food Council within the California Department of Industrial Relations as of Jan. 1, 2024, to develop minimum standards for wages, hours and other working conditions for fast-food chains for implementation by the Labor Commissioner (in most cases) or other certain state agencies. Beginning Jan. 1, 2025, the Council may annually establish a higher minimum wage for fast-food chain employees by the lesser of 3.5 percent or the rate of average change to the applicable Consumer Price Index.
AB 1228 repeals Sections 1470, et. seq. from, and adds Sections 1474, 1475 and 1476 to, the Labor Code.
Health Care Employee Minimum Wages
SB 525 establishes five new minimum wage schedules for “covered health care employees” depending on the nature of the employer. Covered health care employees include most jobs at a health care facility employer. The new law contains densely worded definitions and specifics, of which this summary will not replace a careful read by those in the health care industry.
1. For such employees of large, covered health care facility employers, the minimum wage will be $23 per hour starting June 1, 2024, increase by $1 per hour for each of the next two years and adjust thereafter based on the Consumer Price Index calculation (CPI). Generally, these large employers have—or are part of an integrated health care delivery system or a health care system with—10,000 or more full-time equivalent employees; are a dialysis clinic, or own, control or operate a dialysis clinic; or are a covered health facility owned, affiliated or operated by a county with a population of more than five million as of Jan. 1, 2023.
2. For such employees of hospitals with a high governmental payor mix, an independent hospital with an elevated governmental payor mix, a rural independent covered health care facility, or a covered health care facility that is owned, affiliated or operated by a county with a population of less than 250,000 as of Jan. 1, 2023, the minimum wage will be $18 per hour starting June 1, 2024, to May 31, 2033, and $25 per hour starting June 1, 2033, and adjusted thereafter based on CPI.
3. For such employees of specified clinics that meet certain requirements, the minimum wage will be $21 per hour starting June 1, 2024, $22 per hour starting June 1, 2026, $25 per hour starting June 1, 2027, and adjusted thereafter based on CPI.
4. For such employees of all other covered health care facility employers, the minimum wage will be $21 per hour starting June 1, 2024, $23 per hour starting June 1, 2026, and $25 per hour starting June 1, 2028, and adjusted thereafter based on CPI.
This bill identifies 20 different “covered health care employers” within its scope. For example, physician groups are listed and defined as “a medical group practice, including a professional medical corporation …, another form of corporation controlled by physicians and surgeons, or a medical partnership, provided that the group includes a total of 25 or more physicians.” It also includes urgent care clinics, regardless of the number of physicians, and licensed home health agencies.
Covered health care facilities that are county owned, affiliated or operated must implement the appropriate minimum wage schedule described above, as applicable, beginning Jan. 1, 2025.
5. For certain health care employees of certain licensed skilled nursing facilities, the minimum wage will be $21 per hour starting June 1, 2024, $23 per hour starting June 1, 2026, $25 per hour starting June 1, 2028, and thereafter adjusted based on CPI.
Salary-basis employees who are covered health care employment must earn a monthly salary equivalent to no less than 150 percent of the health care worker minimum wage or 200 percent of the applicable minimum wage, whichever is greater, for full-time employment to qualify as exempt from the payment of minimum wage and overtime.
By Jan. 31, 2024, the state Department of Health Care Access and Information must publish on its website a list of:
(a) all large covered health care facility employers who, on their own or as part of an integrated delivery system or health care system, employ 10,000 or more full-time employees, and
(b) all hospitals with a high governmental payor mix, with an elevated governmental payor mix (and are independent hospitals), and a rural independent covered health care facilities.
This bill adds Sections 1182.14 and 1182.15 to the Labor Code.
Employers should consider how these new laws impact their business and workplace, and then review and update their personnel and document retention policies and practices with experienced attorneys or human resource professionals.
And get ready to stand a little taller …
Mark E. Terman is a partner with Faegre Drinker Biddle & Reath LLP in the firm’s Labor and Employment Group. You can reach him at faegredrinker.com.