Major Changes Facing California Employers In 2001

Beginning January 1, 2001, the state minimum wage increased from $5.75 to $6.25 an hour. The Industrial Welfare Commission unanimously approved the increase, to be followed by an increase to $6.75 an hour starting January 1, 2002.

The phase-in was a compromise, recognizing employer concerns over the potential impact of one sudden large increase.

Beginning January 1, 2001, any business or government entity that is required to file a federal Form 1099-MISC for services performed by an independent contractor also must comply with the new state independent contract reporting requirements under SB 542 (Burton).

Companies must report to the Employment Development Department (EDD), using Form DE 542, within 20 days of either making payments totaling $600 or more or entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier.

Employers who hire independent contractors and fail to file a report to EDD within 20 days may be fined from $24 to $490.

The purpose of the law is to help collect delinquent child support payments. To avoid late reporting penalties, employers should consider reporting all payments made to independent contractors at the inception of the contract. This is especially true for small businesses that do not maintain accounting departments or who record their transactions on a quarterly or annual basis.

Note, the custodial parent may sue a business that fails to file a form on an independent contractor who happens to be delinquent on child support payments.

This new requirement only applies to payments made to sole proprietors, not to partnerships, limited liability companies, or corporations.

Every employee (with very limited exceptions) will now have access to his/her personnel records. The former law allowed employees of private employers and employees of certain limited public employers access to personnel records.

The new law deletes most existing exemptions for state and local public employers from having to provide access to personnel files.

Highly skilled computer professionals can be exempt from overtime if certain requirements are met. This law has been effective since September 16, 2000.

Under the federal Fair Labor and Standards Act, highly skilled computer workers already were exempt. California will now follow the same standards.

A nonsupervisory employee can be held personally liable for sexual harassment regardless of whether the employer knows about his/her actions.

The new amendment to the Fair Employment and Housing Act (FEHA) overturns existing California case law, which exempted a nonsupervisory employee who sexually harassed a coworker from personal liability under the FEHA.

Employers can expect higher litigation costs as a result of this bill. The bill enables an alleged victim of sexual harassment to sue a coworker, even if the company disciplined the harasser.

An employer may be required to indemnify an alleged harasser for litigation costs, including attorney's fees incurred in defending a harassment lawsuit.

The definition of physical and mental disability has been expanded, and California law no longer conforms with the federal Americans with Disabilities Act (ADA).

Under the new law, a physical or mental disability under the state FEHA includes one that simply limits a major life activity. This is very different from the ADA, which defines a physical or mental disability as an impairment that "substantially limits" one or more of the major life activities of an individual. Cases have been dismissed before trial on the ground that a physical or mental impairment did not "substantially limit" any major life activity.

Removing the word "substantially" in the definition of disability makes it significantly easier for employees to establish a disability under California law.

This will mean greater legal exposure for California employers. Employees will have greater incentive to bring their suits in state court, rather than federal court. Employers should revise their programs to ensure compliance with the expanded state law.

Employers with 25 or more employees may not discharge or discriminate against a domestic violence victim who takes time off work to seek medical attention for resulting injuries; to obtain social services, including psychological counseling and domestic violence services; or to participate in safety planning, including temporary or permanent relocation.

California wage and hour laws have been modified. Noteworthy changes include:

• Increasing the interest rate employers must pay on overdue unpaid wages to be consistent with the legal rate of interest payable upon a contract in default where the contract does not specify the legal rate.
• Increasing the penalties for employers who intentionally pay wages by checks with insufficient funds.
• Requiring employers who appeal decisions or awards by the state Labor Commissioner to post a bond in the amount of the contested award.
• Requiring employers who pay on a piece-work basis to include the number of piece-rate units and the applicable piece rate on the pay stub and to identify this information in the payroll records.
• Prohibiting employers from requiring employees to work during any meal or rest period mandated by the applicable wage order and establishing fines for violation.
• Preventing employers from deducting credit card fees from employees' tips that were charged by customers and requiring employers to pay gratuities made by patrons using credit cards not later than the next regular payday.