FEB 2012 – Labor laws developments for the California employers

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by Mark C. Edwards, Esq., Mirau, Edwards, Cannon, Lewin & Tooke, Redlands

            With the coming of 2012, Employers inCaliforniaare faced with a number of new laws, governing their hiring, employment and termination practices.  Some are of minor consequence, or are of concern to only certain employers or industries.  Others, however, are applicable to all or virtually allCaliforniaemployers.  Those of broadest applicability are specifically discussed in this Article.  As always, the careful employer will review their employment practices with their attorney to assure compliance with all legal obligations.   With 2012’s changes, the cost of non compliance has gone up substantially.

Employment Use of Credit Reports

New California Labor Code, section 1024.5, places significant restrictions on the use of consumer credit reports in the employment context.    For most employees or prospective employees, use of a credit report or information from a credit report for employment decisions is prohibited.  Credit reports may still be used in certain situations, including:

  • Managerial positions;
  • Police officers and certain Department of Justice personnel;
  • Positions where the employee will have regular access to certain customer identity and credit information;
  • Positions where the employee will have certain control rights with respect to the employer’s and/or its customer’s money and bank accounts; and
  • Positions where the employee will have access to certain confidential information of the employer.

            Where use of a consumer credit report is permitted, Section 1785.20.5 of the Civil Code requires the employer (or prospective employer) to give advance notice to the employee or prospective employee.   Additionally, where employment is denied, in whole or in part because of the information in a credit report, additional notice must be given to the applicant, including identifying the agency supplying the credit data used in the decision. 

New Written Notice Requirements:

            Commencing January 1, 2012, a written notice containing specific information must be given at the time of hire to new employees.   The new Wage Theft Protection Act of 2011 changed and added a number of provisions of the Labor Code.   Among those new provisions, section 2810.5 requires a new employee be given, at the time of hiring, a written notice setting forth the following information: (i) the rate of pay and the basis upon which it is calculated, whether by the hour, shift, day, week, salary, piece, commission, or otherwise, and including rates for overtime compensation; (ii) dates of the employer’s regular paydays; (iii) the name of the employer, including any fictitious or “doing business as” names used; (iii) the physical address of the employer’s main office or principal place of business, and a mailing address, if different; (iv) the telephone number of the employer; (v) the name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and (vi) any other information the Labor Commissioner determines should be added to the notice.   The notice must be in the language the employer regularly uses to communicate with the employee.  Fortunately, the State has made it easier by preparing forms to use for such notice, including forms in English, Spanish, Vietnamese, Chinese, Korean, and Tagalog.   Those forms can be found at: www.dir.ca.gov/DLSE

            Additionally, whenever any of the information required is to be included in that notice changes, an additional written notice must be given to all affected employees within seven (7) days of the change unless the change is only an increase in the rate of pay which is reflected on the employee’s pay stub.

            There are certain employees exempted from these notice requirements, including “exempt” employees (those exempt from requirements of overtime compensation underCalifornialaw).

Classification as Independent Contractor  

            Not uncommonly, employers (and sometimes employees) seek to classify workers as independent contractors.   Generally this is done to avoid the cost and complexity of tax payment, withholding and filing.   However, under bothCaliforniaand Federal law, independent contractor status is disfavored and is not easily defended.  Too often, an employer finds this out when an audit is conducted, and a far greater tax (and penalty) payment is incurred because the worker did not qualify legally as an independent contractor. 

            The potential cost of misclassification of an employee as an independent contractor just got significantly greater inCalifornia.

            Effective as of January 1, 2012, an employer who “willfully” misclassifies an individual as an independent contractor is subject to a civil penalty of $5,000, to $15,000.  Moreover, if that misclassification is part of a pattern of behaviors (i.e. multiple misclassifications) the penalty is $10,000 to $25,000 (Labor Code section 226.8).

            Classifying workers as independent contractors has always been risky, and potentially very costly.   The new law makes it all the more so.  AnyCaliforniabusiness seeking to classify a worker as an independent contractor should obtain the advice of an experienced employment law attorney to assure that the classification is defensible under the law.