November 2018 Update
Case Law and Statutory Developments
Employers must avoid questions about an applicant’s salary history. Effective January 1, 2018, Lab C §432.3 provides that an employer “shall not rely on the salary history information of an applicant for employment as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.” Further, the employer may not “orally or in writing, personally or through an agent, seek salary history information, including compensation and benefits, about an applicant for employment.” Lab C §432.3(a)–(b). On reasonable request, the employer must provide the pay scale for a position to an applicant for employment. Lab C §432.3(c). Amendments of Lab C §432.3 effective January 1, 2019 clarify that a “pay scale” for these purposes means a salary or hourly wage range, and a “reasonable request” means a request made after an applicant has completed an initial interview with the employer. Lab C §432.3(c). See §1.4.
An applicant may voluntarily and without prompting disclose salary history information to a prospective employer, and under those circumstances, the employer may consider or rely on that information in determining the applicant’s salary. Lab C §432.3(g)–(h). In addition, an employer may ask an applicant about his or her salary expectation for the position being applied for. Lab C §432.3(i). In any event, under California’s Fair Pay Act (Lab C §1197.5), prior salary cannot, by itself, justify a pay disparity between employees of opposite genders. See §1.4.
In Syed v M-I, LLC (9th Cir 2017) 853 F3d 492, the court held that a prospective employer willfully violated the Fair Credit Reporting Act in procuring a job applicant’s consumer report because it included a liability waiver in the same document as the statutorily mandated disclosure. See §1.8.
In Epic Sys. Corp. v Lewis (2018) 584 US ___, 138 S Ct 1612, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) (9 USC §§1–16) requires courts to enforce arbitration agreements between employers and employees according to their terms, even when the agreements provide only for arbitration through “individualized proceedings” rather than class procedures. In so holding, the Court refused to read the National Labor Relations Act (NLRA) (29 USC §§151–169) as prohibiting arbitration agreements waiving class arbitration as an impermissible restriction on employees’ rights under NLRA §7 to engage in concerted activities for the purpose of mutual aid or protection, holding that §7 focuses on the right to organize unions and bargain collectively and “does not even hint at a . . . wish to displace the [FAA].” See §§1.17, 3.62.
If an arbitration agreement has no specific provisions on arbitration costs, a court will interpret the agreement as impliedly providing the employer must bear the arbitration forum costs. Farrar v Direct Commerce, Inc. (2017) 9 CA5th 1257. See §1.17.
In Poublon v C.H. Robinson Co. (9th Cir 2017) 846 F3d 1251, the court found that although there was one substantively unconscionable provision in the arbitration agreement—the provision that permitted the employer, but not the employee, to seek judicial resolution of specified claims—this provision could be carved out, and the balance of the agreement enforced. See §1.17.
An employer’s misplaced reliance on its human resources director to comply with the Immigration and Nationality Act (INA) was held not to be a good faith defense for over 500 I-9 violations in DLS Precision Fab LLC v U.S. Immigration & Customs Enforcement (9th Cir 2017) 867 F3d 1079. See §2.6A.
On December 22, 2017, the Tax Cuts and Jobs Act (HR 1) was signed by the President and became law. See Pub L 115–97, 131 Stat 2054. That act amended IRC §217, to provide that except for certain members of the armed forces, the deductibility of moving expenses is suspended for tax years beginning after December 31, 2017 and before January 1, 2026. IRC §217(k). See §3.16.
In Minnick v Automotive Creations, Inc. (2017) 13 CA5th 1000, 1007, the court held that a vacation policy providing that employees did not begin to earn vacation time until after their first year of employment is permissible under California law. See §§3.29, 9.13.
Under IRC §162(m), compensation in excess of $1 million paid to the chief executive officer and the other four most highly compensated officers, whose compensation must be reported to shareholders, is not deductible by the employer. Although compensation that is linked to performance used to be exempt from this $1 million limit, the performance-based compensation exemption was eliminated in 2018. See §8.21.
The National Labor Relations Board has adopted a new standard for evaluating whether workplace policies, rules, or handbook provisions would potentially interfere with Section 7 rights under the National Labor Relations Act (NLRA) (29 USC §§151–169). The Boeing Co. (Dec. 14, 2017) 365 NLRB No. 154. See §9.2.
Certain businesses and establishments must post a Department of Justice model notice containing information regarding slavery and human trafficking. Effective January 1, 2018, hotels, motels, and bed and breakfast inns were added to the list of businesses that must post such a notice. (Personal residences are excluded from this requirement.) See §9.57A.
Government Code §12950.1 requires California employers having 50 or more employees to conduct sexual harassment prevention training for all supervisors every 2 years. The training must include information on the federal and state statutes prohibiting sexual harassment and the remedies available to victims of sexual harassment, as well as prevention of abusive conduct, as defined in Govt C §12950.1. Effective January 1, 2018, the training also must address harassment based on gender identity, gender expression, and sexual orientation. See §9.60.
The protections of the California Family Rights Act (Govt C §§12945.1–12945.2), available to the employees of an employer having 50 or more employees, have essentially been extended by California’s New Parent Leave Act for Small Employers (Govt C §12945.6), which applies to employers with 20–49 employees. See §11.2.
New Book Sections
California’s statewide “ban the box” law (AB 218) went into effect January 1, 2018. Under that law, it is an unlawful employment practice for an employer with five or more employees to do any of the following (Govt C §12952(a)):
To include on any application for employment any question that seeks the disclosure of an applicant’s conviction history;
To inquire into or consider the conviction history of the applicant, until after the employer has made a conditional offer of employment to the applicant; or
To consider or disseminate information about any of the following while conducting a conviction history background check in connection with any application for employment: (1) arrests not followed by a conviction (except when the applicant is seeking employment at specified health facilities or when after an arrest the applicant is out on bail or released on the applicant’s own recognizance pending trial); (2) referrals to or participation in a pretrial or posttrial diversion program; or (3) convictions that have been sealed, dismissed, expunged, or statutorily eradicated.
New §1.4A discusses the law in greater detail. The discussion of San Francisco’s and Los Angeles’ ban the box laws has been moved to new §1.4B.
In October 2017, Governor Jerry Brown signed AB 450 (Stats 2017, ch 492) into law. Designated the California Immigrant Worker Protection Act, it adds new Govt C §§7285.1, 7285.2, and 7285.3 and Lab C §§90.2 and 1019.2. The law became effective January 1, 2018, and imposes a number of requirements on employers vis-à-vis enforcement actions by federal immigration agents. The law contains four general provisions: worksite access, records access, notice requirements, and reverification. See new §2.30B for discussion.
In Dynamex Operations W. v Superior Court (2018) 4 C5th 903, the California Supreme Court adopted a new test for purposes of claims under the IWC wage orders (e.g., for minimum wage, overtime, wage statement violations, and meal and rest period violations). See new §4.3A for discussion.
Changes in Forms
The form “Sample Employment Application With Applicant’s Statement” has been modified to reflect new prohibitions against inquiries of job applicants seeking salary or criminal history information. See §1.3.
The form “Notice of Intent to Procure Consumer Report, Consumer Credit Report, Investigative Consumer Report, and Authorization” has been modified to delete the reference to prior criminal history. See §1.8.
The form “Applicant’s Information for Background Check Agency” has been modified in the same manner. See §1.9.
The checklist “Audits and On-Site Inspections” has been modified to cross-reference the new section on the California Immigrant Worker Protection Act, and to include new notice requirements under that act. See §2.33.
The checklist “Raids” has also been modified to include the requirement under the California Immigrant Worker Protection Act that the employer provide affected employees and their union representatives with notice of the results of an inspection performed by federal immigration agents. See §2.34.
The form “Place of Employment” has been modified to eliminate the move-in requirement that was previously a condition for deducting moving expenses. Under the Tax Cuts and Jobs Act (HR 1), moving expenses are no longer deductible—at least until 2026. See §3.16.
The form “Duty of Loyalty” has been substantially expanded, to include examples of conduct that would constitute a breach of the employee’s duty of loyalty to the company. See §7.11.
The “Checklist for Stock Option Grants” has been modified to reflect a change in the federal securities law exemption amount for stock option grants by private companies under SEC Rule 701. The amount was increased from $5 million to $10 million in grants over a 12-month period. See §8.25.
The same change was made in the “Checklist for Restricted Stock Purchases.” See §8.27.
The “Checklist for Stock Option Exercise” has been modified to include issues related to an IRC §83(i) election. See §8.26.
The option agreement form “Exercise of Option” has been modified to include mention of an IRC §83(i) election. See §8.57.
The option agreement form “Tax Consequences” has a new provision, “Election to Defer Taxation on Exercise,” which relates to making an IRC §83(i) election. See §8.66.
The form “Exhibit A: Terms of Exercise; Taxes” has a new provision and commentary about making an IRC §83(i) election. See §8.77.
The form “Anti-Harassment Policy” has been updated to reflect current protected categories under the Fair Employment and Housing Act (FEHA) (Govt C §§12900–12996). See §9.30.
Civil Code §1542, commonly quoted verbatim in settlement agreements and releases of claims, has been amended to clarify that the terms “creditor” and “debtor” as used in the statute include “releasing party” and “released party,” respectively. The form “Basic Settlement and Release Agreement” in §11.13 and the form “Long-Form Settlement Agreement and General Release” in §11.14 have been revised to include the new language of §1542.