California Is At It Again: A Dozen New Laws Will Significantly Impact The State's Employers

By Stephen Berry, Shelby Angulo & Stephen Harris

California voters overwhelmingly responded to a key theme in the recent gubernatorial recall campaign - to heal California's ailing economy in part by eliminating laws and regulations that drive business, and therefore, jobs out of the state. The Legislature apparently was not listening as it passed a dozen new employment-related laws that, for the most part, impose additional responsibilities, burdens and costs on California employers. Despite the urgings of Governor-elect Schwarzenegger that he veto many of these laws, Governor Davis signed nearly all of them. All but two of the laws take effect on January 1, 2004. The exceptions are AB 205, which takes effect on January 1, 2005 and SB 2, which takes effect over two years, starting January 1, 2006.

This article highlights the changes resulting from the recently-completed legislative session. Paul Hastings is presenting complimentary seminars on the many practical interpretation and compliance questions these laws evoke. For dates, locations, and to register, please go to www.paulhastings.com, select 'News', and click on 'Seminars'.

SENATE BILL 727 (Paid Family Leave)

This law amends SB 1661, which was passed last year and created a new disability compensation program called "Family Temporary Disability Insurance" (FTDI). AB 727 renames this government-provided (employee-paid) benefit "Paid Family Leave" (PFL) and makes other "conforming and clarifying changes" to the laws enacted as part of SB 1661.

Currently, the State Disability Insurance (SDI) program provides temporary disability compensation for employees who cannot work due to a non-work related injury or illness and who are not covered by a disability insurance program provided by the employer. PFL benefits will be provided to employees who are unable to work due to the serious health condition of a family member or the birth or adoption of a child or placement of a foster child. Employees will start paying for these benefits with increased SDI withholdings in January 2004. They will be eligible to receive PFL benefits beginning July 1, 2004. Benefits will be 55% of the employee's base pay rate, up to a maximum of $728 per week in 2004 and $840 in 2005.

Eligible Employees

Any employee who presents medical certification establishing a serious health condition of a family member that "warrants the participation of the employee" is eligible for PFL benefits. The phrase "warrants the participation of the employee" includes, but is not limited to, "providing psychological comfort, and arranging 'third party' care for the child, parent, spouse or domestic partner, as well as directly providing and participating in the medical care." "Family member" means a child, parent, spouse or registered domestic partner. A "serious health condition" has the same meaning as this term is defined in the California Family Rights Act (CFRA).

An employee is not eligible for PFL benefits on any day in which:

the employee receives unemployment compensation;

the employee receives or is entitled to receive cash benefits as defined in Section 2629 of the Unemployment Insurance Code (e.g., temporary disability payments for work-related injuries);

the employee is entitled to receive SDI benefits; or

another family member is able and available to provide the required care for the same period of time that the employee claims a need to provide such care.

The last disqualifier depends on whether the other family member (spouse, child, parent or domestic partner) is "ready, willing, able and available for the same period of time of the day as the employee who is providing the required care." In addition, an employee can avoid this limitation by providing medical documentation showing that the other family member's physical and mental condition makes him or her "unavailable" to provide the required care. Presumably, if two family members are "available" to provide the required care at the same time, only one would be disqualified from receiving PFL benefits and on expiration of one family member's benefits, the other would be entitled to receive PFL.

Must An Employee Satisfy Any Minimum Period of Employment to be Eligible?

Neither the new law nor the proposed regulations contain or directly incorporate the eligibility criteria of the CFRA (i.e., 12 months employment and 1250 hours of service). To the contrary, the EDD has publicly stated that an employee does not need to work a minimum number of hours or days before becoming eligible for PFL.

Did SB 727 or 1661 Create a New Leave Entitlement?

Probably not. The law states: "An individual who is entitled to leave under the FMLA and the CFRA must take PFL concurrent with leave taken under the FMLA and the CFRA." Though an argument can be made that the law creates a new six-week leave without regard to FMLA/CFRA eligibility, and that the foregoing language simply means that an employee cannot tack on six weeks to the FMLA/CFRA leave, this interpretation does not appear reasonable . The legislative history suggests that PFL benefits are intended to provide compensation for employees (1) who are eligible for an FMLA/CFRA leave, but cannot afford to take the time off on an unpaid basis, and (2) whose employer voluntarily allows them to take time off even though the employees are not otherwise eligible for leave under FMLA or CFRA.

Amount of Benefits

As with SDI, an employer may establish a voluntary plan for payment of PFL benefits. If the employer has no such plan, an eligible employee may receive up to six weeks of PFL benefits from the state within any rolling 12-month period. PFL benefits are subject to a 7-day waiting period. In addition, an employer may require an employee to take up to two weeks of earned but unused vacation time before applying for PFL benefits. However, any such required use of vacation time will count toward the waiting period.

Employers may not require employees to use sick leave before applying for or while receiving PFL benefits. However, employees may have the right to use sick leave under California's "kin care" sick leave law (Labor Code 233) or under company policy. As with SDI, an employer presumably can require employees to coordinate PFL benefits with available vacation time to provide full wage replacement.

Notice to Employees

Employers must provide notice of PFL benefits to all employees hired on or after January 1, 2004, and to all current employees who leave work on or after July 1, 2004, due to pregnancy, non-occupational injury or illness, or the need to care for an ill family member or new child. The employer also must provide a "bonding certificate" to employees who take leave for the purpose of child bonding. The EDD has stated it will mail information to all California employers in November 2003 regarding these obligations including, presumably, copies of a brochure and bonding certificate for employee distribution.

ASSEMBLY BILL 76 (Liability for Sexual Harassment by Non-Employees)

In 2002, the California Court of Appeal in Salazar v. Diversified Paratransit, Inc., ruled that an employer could not be held liable under the Fair Employment and Housing Act (FEHA) for sexual harassment of an employee by a customer or other third party. AB 76 overturns that decision and makes employers liable for sexual harassment not just by co-workers and managers, but also by customers, clients, and other third parties. In addition to employees, the law protects "persons providing services [to the...