We at Israel & Samuels, LLP wish you a healthy and Happy Holidays. Stay safe – and here’s to a successful and prosperous 2022! We hope to hear from you, and be with you, in the New Year.
Starting January 1, 2022, New Disclosures Are Required of LLCs and Corporations
Effective January 1, 2022, limited liability companies (LLCs) and corporations will be required to make the following disclosure in their Statements of Information: whether any of their managers or members (in the case of an LLC), or any officer or any director (in the case of a corporation) has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal is pending, for the violation of any wage order or provision of the Labor Code.
This new disclosure is required by the new law AB 3075, which expands successor liability for labor code judgments and requires the Statement of Information of LLCs and corporations to contain the above information.
The California Secretary of State has recently updated the Statement of Information forms for LLCs (Form LLC-12) and corporations (Form SI-550) on its website to reflect this change in law. LLCs and corporations that file their Statements of Information after December 31, 2021 must use the new forms.
If any of your LLC managers or members, or any of your corporate officers, have a final judgment against them for Labor Code violations, consult your legal counsel to determine your reporting responsibilities and practical ways to avoid such reporting if it applies to your company.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Compliance with California’s Sexual Harassment Prevention Training Requirements
In 2018, the California Legislature passed multiple laws to prevent sexual harassment in the workplace. One of those laws was SB 1343. It expanded employee protections to require employers who employ 5 or more employees, including temporary or seasonal employees, to provide at least 2 hours of sexual harassment prevention training to all supervisory employees and at least 1 hour of sexual harassment prevention training to all nonsupervisory employees. Before enactment of SB 1343 these regulations only applied to employers with 50 or more employees. The initial deadline for providing new training to those employees not previously covered under prior state law was January 1, 2020. However, a subsequent Senate Bill extended the deadline to January 1, 2021.
The Department of Fair Employment and Housing (DFEH) has developed 1-hour and 2-hour online training courses for this purpose available in several languages.
Employers, with 5 or more employees, must provide:
- At least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees;
- At least one hour of classroom or other effective interactive training and education regarding sexual harassment to all nonsupervisory employees;
- Sexual harassment prevention training and education once every two years;
- New nonsupervisory employees with training within six months of hire; and
- New supervisory employees with training within six months of the assumption of a supervisory position.
The training must include:
- Information and practical guidance regarding the prohibition against sexual harassment under federal and state statutes;
- The prevention and correction of sexual harassment;
- The remedies available to victims of sexual harassment in employment; and
- Practical examples to instruct supervisors about prevention of harassment, discrimination, and retaliation.
The training may be completed by employees individually or as part of a group presentation and may be completed in shorter segments, as long as the total hourly requirement is met. If an employer provided this training in 2019, it is not required to provide it again until 2 years after the 2019 training.
In addition, Temporary Agencies are required to provide sexual harassment prevention training to their employees within 30 calendar days after the hire date or within 100 hours worked, whichever occurs first, relieving employers of such temporary workers of a training obligation. Likewise, an employer need not train independent contractors, volunteers, and unpaid interns on sexual harassment prevention even though such person counts toward determining whether an employer meets the 5-employee threshold.
Employers should keep detailed attendance records from training sessions in case the company ever needs to prove compliance and discuss with their legal putting in place policies to assure compliance.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Statutory Changes Applicable to California Contractors
In 2021, multiple laws affecting how construction contractors operate were enacted into law. These include:
A.B. 938 changed the three-day right of a consumer to cancel a home improvement contract. Senior citizens will now get five days to cancel the contract.
A.B. 1561 eliminates the “A, B, C” test with respect to relationships between contractors and subcontractors for work performed before January 1, 2025 and provides instead that a subcontractor is deemed to be an independent contractor rather than employee under the following seven-part test if: (a) the subcontract is in writing; (b) the subcontractor is licensed by the CSLB and the work is within the scope of that license; (c) the subcontractor is domiciled in a jurisdiction that requires the subcontractor to have a business license or business tax registration and the subcontractor has a business license or business tax registration; (d) the subcontractor maintains a business location that is separate from the business or work location of the contractor; (e) the subcontractor has the authority to hire and fire other persons to provide or to assist in providing the services; (f) the subcontractor assumes financial responsibility for errors or omission sin labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services provided; and (g) the subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.
S.B. 727 extends the liability of a direct contractor for unpaid wages, fringe or other benefit payments or contributions, including interest owed by a subcontractor, to also include penalties and liquidated damages. The new law will apply to contracts entered into on or after January 1, 2022.
A.B. 569 increases the civil penalty limit that can be issued by the Contractor’s State License Board (CSLB) from $5,000 to $8,000. It also enhanced the civil penalty limit that can be issued by the CSLB for unlicensed persons from $15,000 to $30,000 and expanded the enhanced civil penalty limit to contractors failing to secure workers’ compensation insurance when required.
A.B. 607 increased the license bond amount of construction contractors from $15,000 to $25,000 and qualifier bonds from $12,500 to $25,000 beginning January 1, 2023.
A.B. 830 defines a “responsible managing employee” of a construction contractor as an employee permanently employed by a contractor and working 32 hours per week or 80% of the total hours per week of the contractor’s regular business hours, whichever is less. The new law requires the CSLB to develop an employment duty statement whereby a contractor, as a condition of licensure, provides detailed information on a qualifier’s duties and responsibilities for supervision of the contractor’s construction operations.
These are just a few of the new laws applicable to California contractors. With these multiple changes, it is imperative for every California contractor to contact their legal counsel in order to assure compliance, change contact language where needed, and review their organization and operations to assure compliance with the strictures of the CSLB.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Intentional Employer Wage Theft Now Punishable As Grand Theft
Under newly enacted California Assembly Bill 1003 (AB 1003), any employer found to have engaged in the intentional theft of wages, gratuities, benefits, or other compensation, in an amount greater than $950 from any one employee, or $2,350 in the aggregate from 2 or more employees, in any consecutive 12-month period may be convicted of grand theft. These wages, gratuities, benefits, or other compensation that are the subject of a prosecution under these provisions can be recovered as restitution. For the purposes of these provisions, independent contractors are included within the meaning of employee, and hiring entities of independent contractors are included within the meaning of employer.
Under the new law it is imperative that employers timely pay their employees and their independent contractors, provided there is no good faith bona fide dispute over the compensation due. The impetus for the new law arose from tip pooling arrangements where the employer took a portion of the tips. However, it is not limited to such circumstances. Under the expansive new provision employers now run the risk of criminal prosecution if they intentionally fail to timely pay or provide any portion of an employee’s or independent contractor’s wage, gratuities, benefits or other compensation.
Before an employer withholds any portion of an employee’s or independent contractor’s wages, gratuities, benefits or other compensation it is essential that the employer consult with its legal counsel in order to avoid criminal grand theft charges.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Prohibition On Non-Disclosure Provisions In Settlement Agreements Expanded
Currently, Code of Civil Procedure section 1001 prohibits settlement agreement provisions that bar disclosure of factual information regarding an administrative or civil claim for sexual assault, sexual harassment, harassment or discrimination based on sex, failure to prevent such an act, or retaliation against a person for reporting such an act. For purposes of agreements entered into on or after January 1, 2022, Section 1001 will expand this prohibition to include acts of workplace harassment or discrimination not based on sex.
The law permits a settlement agreement provision that shields the identity of the claimant and facts that could lead to the discovery of the claimant’s identity, including pleadings filed in court, to be included at the request of the claimant. Also, the law does not prohibit the entry or enforcement of a provision in any agreement that precludes the disclosure of the amount paid in settlement of a claim. The law also does not limit the ability of parties to agree to complete confidentiality in settlements of threatened claims that have not been filed before an administrative agency or court.
In addition to Section 1001, Senate Bill 331 (SB 331) also amends a portion of the California Fair Employment and Housing Act (“FEHA”), Government Code section 12964.5. Under current law, FEHA makes it an unlawful employment practice for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment, to require an employee to sign a non-disparagement agreement or other document that purports to deny the employee the right to disclose information about “unlawful acts in the workplace,” including, but not limited to, sexual harassment or discrimination.
This new law provides that, after January 1, 2022, unlawful acts in the workplace include any harassment or discrimination and prohibits an employer from requiring an employee to sign a non-disparagement agreement or other document in exchange for a raise or bonus, or as a condition of employment or continued employment if it has the purpose or effect of denying the employee the right to disclose information about those acts. Further, if an employer requires employees to sign a nondisclosure agreement during employment, the new law requires that employers include the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
SB 331 also expands existing law by making it unlawful for an employer or former employer to include in any separation agreement a provision that prohibits the disclosure of information about unlawful acts in the workplace. Beginning January 1, 2022, any nondisparagement or other contractual provision that restricts an employee’s or former employee’s ability to disclose information related to conditions in the workplace must include, in substantial form, the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is
unlawful.” Further, SB 331 requires: (1) that a separation agreement notify the employee that they have a right to consult an attorney regarding the agreement; and (2) the employer to provide the employee with a reasonable time period (at least five business days) in which to do so.
Importantly, the requirements above regarding separation agreements (i.e., the required statement and notice regarding right to counsel) do not apply to a “negotiated settlement agreement to resolve an underlying claim that has been filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.” Therefore, employers must include the disclaimers and provide the required review/consideration period only in releases where employees have not yet filed a claim or charge with an administrative agency or in court, or pursued through an employer’s internal complaint process—e.g., in routine separation agreements during a layoff or restructuring. Employers also should note that “negotiated,” in this context, means that the agreement is voluntary, deliberate, and informed, the agreement provides consideration of value to the employee, and the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.
Agreements or other documents that violate the new law are contrary to public policy and unenforceable.
To protect employers from public disclosure of settled employment claims it is imperative that the employer identify threatened claims and reach resolution before the employee files with an administrative agency or court. Thus, as soon as an employer hears of a potential claim it should contact their legal counsel to strategize the best resolution of the matter in order to attempt to avoid public disclosure of the claim.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
California Test For Joint Employer Status Broadened
In Santiago Medina v. Equilon Enterprises, LLC, (Santiago) the California Court of Appeals broadened the test for joint-employer status. Joint employers are jointly and severally liable to an employee for wage, hour and safety violations.
The Santiago case involved Equilon Enterprises, LLC, a subsidiary of Shell Oil Company that operates as a “Multi-Site Operator” or “MSO” model. Under the MSO model, Shell entered into nonnegotiable form agreements with “MSO operators” that operated the station. These agreements required each station to pay monthly rent and have its employees perform all work at the station. Shell had the right to terminate the contract with notice, and Shell could add or withdraw stations from the operator’s cluster at any time, for any reason. Shell also had the right to access the operators’ bank accounts to withdraw fuel revenue from the account and deposit revenue from convenience store sales and car washes.
Plaintiff sued the MSO operator and Shell, alleging violations of the Labor Code and arguing that Shell was his joint employer, based upon the level of control Shell exercised over the operations of its gas stations. The Court distinguished the prior decisions that Shell was not a joint employer in the MSO context because it determined that the facts were substantively different from the facts in Santiago.
The Court found that Shell was a joint employer, at least for wage and hour purposes, of the employees of the MSO operators that operated Shell’s gas stations. The Court applied the pre-existing test for joint employment that held “to employ” means (1) to exercise control over wages, hours, or working conditions, directly or indirectly, or through an agent or any other person; (2) to “suffer or permit to work”; or (3) to engage.
In Santiago the Court found Shell exercised “near-complete control over the MSO operators’ finances, day-to-day operations, facilities, and practices” such that it could have stopped employees from “working in their stations through a variety of means.” The Court noted the significance of the facts that Shell’s employees told plaintiff they had the power to fire him or to have him fired, Shell had contractually mandated control over the MSO operators’ bank accounts, and Shell had the ability to add or remove individual stations to and from MSO operator clusters at any time, for any reason.
Departing from prior decisions the Court of Appeal found “[i]f the putative joint employer instead exercises enough control over the intermediary entity to indirectly dictate the wages, hours, or working conditions of the employee, that is a sufficient showing of joint employment.”
Employers should be aware of the multitude of factors used to evaluate the risk of being deemed a joint employer of a contractor’s employees. Such evaluation should include reassessing the provisions of their contracts and need for training employees who interact with a contractor’s workers to remind them of their lack of authority and control over such workers. A business found to be a joint employer runs a significant risk of liability for costly litigation, including but not limited to defending against what could be financially significant claims of unpaid wages and hefty penalties. Therefore, before entering into to contracts that require an employee to work for more than one employer employers should seek out the counsel of their employment attorneys.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Employees May Not Be Bound By Their Employer’s Arbitration Agreements
California has initiated a regulatory scheme to give employees more power to reject their employer’s arbitration agreements and to do so without retaliation or consequence by their employer. Assembly Bill 51 (AB 51) prohibits a person from requiring any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act (FEHA) or other specific statutes governing employment as a condition of employment, continued employment, or the receipt of any employment-related benefit. It also prohibits an employer from threatening, retaliating or discriminating against, or terminating any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of the California Fair Employment and Housing Act or the California Code, including the right to file
and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.
There remain significant concerns about the enforceability of AB 51. Employers contend that it violates the Federal Arbitration Act (FAA) California has attempted similar schemes in the past. However, the Federal Courts have often ruled such schemes as improper in light of the public policy in favor of arbitration set forth in the FAA. To date, no Court has ruled on whether AB 51 violates the FAA, however, a number of cases addressing this issue are pending in Federal Court.
From an employer’s perspective, if an arbitration agreement is offered it should not be offered on a take it or leave it basis and the negotiations for the agreement should you reflect that the employee was not required to enter into the arbitration agreement and did so voluntarily with full knowledge of the consequences and after having the opportunity to speak with an attorney. Otherwise, it may be in the employer’s best interest not to seek an arbitration agreement with its employees at all. In either case, before employers revise their practices in light of AB 51 they should consult with qualified legal counsel.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Requests for “Full” Insurance Coverage Do Not Mean That Is What Your Broker Has to Provide to You
When an insured requests or inquires about a particular type or extent of insurance coverage, insurers may have some obligation to notify the potential insured of deficient limits. However, according to the California Court of Appeal in Vulk v. State Farm insurers and their agents do not have a legal obligation to ensure that a homeowner’s policy covers the full amount of a loss to property. Thus, a non-specific request for the best policy and a general assurance of full coverage does not qualify as an assurance of 100% replacement cost coverage.
The case arose from the 2014, Boles Fire that devastated the town of Weed, CA. The plaintiffs lost their homes as a result of that wildfire. They filed suit against State Farm alleging various claims, including breach of contract and negligence. They argued that their homes were insufficiently insured due to State Farm’s negligent failure to calculate reasonable policy limits for the full replacement costs of their homes. State Farm argued that there was no breach of a contractual duty of care, or the implied covenant of good faith because all benefits due under the plaintiffs’ policies were paid and the claims handled reasonably and in accordance with industry standards.
The court held that neither insurers nor their agents have a duty to inform an insured that additional insurance coverage may be needed on their property. The court also outlined specific exceptions to this general rule, but, determined none of them applied in Vulk. Consequently, the court’s decision protects insurers who take reasonable measures to inform and advise their clients as to their property insurance coverage.
Insurance companies and their agents do not have an affirmative duty to inform an insured of the likely need for them to increase policy limits to cover the replacement costs of their home. The court advised that there are three exceptions to this general rule:
- the insurance agent misrepresents the nature, extent, or scope of coverage being offered or provided;
- there is a request or inquiry by the insured for a particular type or extent of coverage; or
- the agent assumes an additional duty by either express agreement or by holding themselves out as having expertise in a given field of insurance being sought by the insured.
In Vulk there was no evidence that the plaintiffs specifically requested that their insurance agent include full replacement cost coverage for their home before the fire took place or that they ever asked the agent whether their insurance coverage was adequate to replace their home in the event of a total loss. Plaintiffs never determined a current estimate of the cost to rebuild the home despite this being recommended by State Farm in its bi-annual disclosure form, which is designed to prevent underinsurance of an insured’s property.
The court concluded that the insureds’ requests that they be given “the best policy” and the agent’s assurances that he had “full coverage” were not enough to show that the agent breached any special duty of care owed the plaintiff, or that the words used resulted in a breach of contract or negligent act by the insurance agent.
The agent did not have a duty of care under these circumstances to ensure that the policy limits were adequate enough to cover the full costs of rebuilding the home after it was destroyed by the fire.
The Vulk decision provides clarity to insureds as to the insured’s requests that could trigger an insurer’s obligation to provide adequate coverage. Before requesting property insurance coverage, especially homeowners insurance, insureds should consult with their attorney and heed the advice set forth in Vulk to assure that they actually get full replacement cost insurance and the best policy.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Department of Justice Prosecuting Businesses for “No-Poach” Agreements
The United States Department of Justice (DOJ) is criminally prosecuting “no-poach” agreements between two or more employers that agree not to hire employees away from each other.
The DOJ’s first criminal prosecution of no-poach agreements led to a Texas federal grand jury indictment of Surgical Care Affiliates LLC (SCA), a unit of UnitedHealth Group, for allegedly entering into agreements with two other healthcare companies to not poach each other’s senior-level employees. DOJ’s criminal pursuit of no-poach agreements is not a surprise. It has been the DOJ’s position for years that no-poach agreements are illegal. Future enforcement actions are expected since the present administration has signaled support for elimination of non-compete restrictions.
In at 2016 joint guidance by the DOJ and Federal Trade Commission (FTC), corporations and HR professionals were warned about the application of federal antitrust laws to hiring practices and non-poach agreements. The agencies advised the DOJ intended to “proceed criminally against naked-fixing or no-poaching agreements.” The DOJ reaffirmed its intention to criminally prosecute no-poach and at the end of 2020 when it commenced the first criminal prosecution targeting a staffing company for entering into wage-fixing agreements with its competitors. The former owner of the company could face up to 10 years in prison and a $1 million fine, in addition to potential FTC penalties and fines. A violation of the Sherman Act (anti-trust law) carries a maximum penalty of $100 million for corporations.
Employers who are approached by competitors or collaborators about no-poach agreements or agreements to pay the same wages or salaries should immediately consult with legal counsel. Employers that have entered into agreements resembling a no-poach agreement should also consult with counsel to extricate themselves from such arrangements.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
