Essential Employment Laws for California Employers  

One of the most difficult aspects of being a small business owner is deciphering which of the many California employment laws apply to your company.  Compliance with many of California ’s employment laws is dependent on the number of employees your company has.  This article aims to assist small businesses to determine which of California ’s many employment laws are applicable to them.  This is a summary only, and is not a substitute for legal advice regarding the particular rules that may apply to your company depending on your circumstances, type of industry, and other factors.

I.          Employers with Two or More Employees.  

California employers with 2 or more employees are required to comply with the following laws:  

• ·        Cal-COBRA:  The California Continuation Benefits Replacement Act of 1997 (Cal-COBRA) requires insurance carriers and HMOs to provide COBRA-like coverage for employees of smaller employers (two to 19 employees) not subject to COBRA. To be covered by Cal-COBRA, an employer must have employed 2-19 eligible employees on at least 50% working days during the preceding calendar year or, if not in business during any part of the preceding calendar year, employed 2-19 eligible employees on at least 50% of working days during the preceding calendar quarter.  
• ·        Child Labor Laws:  Employment of minors is regulated under numerous authorities such as the California Labor Code, the Education Code, the federal Fair Labor Standards Act (FLSA), and others. These laws discuss work permits, record keeping, wages, and possible penalties when codes or laws are violated.  
• ·        State Disability Insurance and Paid Family Leave:  The State Disability Insurance (SDI) and Paid Family Leave (PFL) programs are state-mandated wage replacement benefits funded through employee payroll deductions. They are administered by California 's Employment Development Department (EDD).  
• ·        Employee Safety Laws:  These laws include information on domestic violence, drug-free workplace, ergonomics, violence in the workplace, general employee safety and Cal-OSHA compliance.  
• ·        The Immigration Reform and Control Act:  Federal immigration and naturalization laws impose complex compliance requirements on every employer, regardless of size. Among other things, these laws require employers to institute procedures for verifying that an individual is authorized to work in the United States . They also establish civil and criminal penalties for knowingly hiring, referring, recruiting, or retaining in employment “unauthorized aliens” when they are identified.  
• ·        Independent Contractor Laws:  The distinction between direct employment and indirect employment (temporary workers, leased employees, and independent contractors) is often blurred by details of the arrangements and laws or court decisions designed to protect the interests of workers.  For example, the California Labor Commissioner believes that approximately 95% of all workers in California are truly employees and not independent contractors.  
• ·        New Employee Reporting Laws:  These laws include requiring certain information be reported to the EDD upon hiring of employees.  Employers must report an employee’s full name, Social Security number, home address  and start-of-work date to the EDD.  
• ·        Required Posters and Notices for the Workplace:  State and federal laws require employers to conspicuously display a variety of posters in all workplaces where they can be easily read by employees and job applicants. Additionally, employers are required to distribute notices or pamphlets to their employees either when they are hired or in connection with certain events. Failure to comply with these requirements can be punishable by a fine, imprisonment, or both.  
• ·        Privacy Laws: California is one of seven states that provide a constitutional right to privacy in addition to further limitations which are imposed by federal and state statutes, and case law.  
• ·        Sexual Harassment: Sexual harassment in the workplace has become a serious area of concern, considering that an employer’s liability is extended for acts committed by supervisors and rank-and-file employees.  
• ·        Smoking in the Workplace:  California Labor Code section 6404.5, which took effect in 1995, placed a uniform statewide ban on smoking in the workplace, with limited exceptions, and overrode local ordinances on the subject. The law specifically supersedes any local ordinances regulating smoking in the workplace.  
• ·        Time-Off:  Both California and federal laws provide for certain instances in which an employer must allow an employee time off work.  These may include, with certain caveats, Pregnancy Disability Leave, Paid Family Leave, military leave, leave for victims of violent crime, domestic violence and sexual assault, time off related to a child’s school disciplinary action, time off for jury or witness duty and time off for voting.  
• ·        Unemployment Insurance:  The unemployment insurance (UI)  system in the United States is a federal/state program. The cost of the program in California is financed by employers through state and federal UI taxes.  
• ·        Wage and Hour Laws:   California 's wage and hour laws are among the toughest in the nation. When the federal law sets a standard, California often goes beyond that standard, requiring more of employers. With dual sets of regulations, the law easily becomes confusing, thus making compliance a challenging exercise.  Topics in this area include California standards for exempt versus nonexempt employees, hourly wages, overtime, incentive pay, special pay arrangements, payment of wages, deductions from wages, maximum and minimum hours of work, meal and rest periods, recording time worked, travel time, prep time and educational and training time.  
• ·        Workers’ Compensation:  Workers’ compensation insurance is a no-fault insurance system. If an employee is injured on the job, the employer is liable for the employee’s temporary disability benefits, medical expenses, and possibly a permanent disability award based on the long-term effects of the injury. The workers’ compensation program is a trade-off that exchanges an employer’s limited absolute liability for work-related injuries and illnesses for the employees’ common law right to sue for damages.  

II.        Employers with Four or More Employees.  

California employers with 4 or more employees are also required to comply with laws regarding discrimination toward foreign workers.  

III.       Employers with Five or More Employees.  

California employers with five or more employees are also required to comply with state discrimination laws, including the Fair Employment and Housing Act, and pregnancy disability laws.   California employers are required to recognize and, therefore, avoid unlawful discrimination in the workplace.  In addition, employees who work for employers with five or more employees, and who are disabled by pregnancy and pregnancy-related conditions, are eligible for California pregnancy disability leave (PDL) and may be eligible for Family and Medical Act (FMLA) leave, but not for California Family Rights Act (CFRA) leave.  

IV.       Are Shareholders or Partners Considered “Employees”?  

            Before an employer can analyze which laws apply to his company, the employer must take a head count of its employees.  A question faced by many employers is whether to count business partners, shareholders, officers or directors as employees.  Are these individuals considered “employees” for compliance purposes?  

            The United States Supreme Court said that enforcement agencies and courts could examine the relationship between a company and its shareholders to determine whether they should be considered employees.  Specifically, the Supreme Court said that an individual's right to control the business determines whether he or she is an employee.  It relied on the following six factors created by the federal Equal Employment Opportunity Commission (EEOC) as among those to be considered:

• ·        Can the organization hire or fire the individual or set the rules and regulations for his/her work?
• ·        What is the extent to which the organization supervises his/her work?
• ·        Does he/she report to someone higher in the organization?
• ·        How much influence is he/she able to exert over the organization?
• ·        What relationship is intended, as expressed in oral or written agreements?
• ·        Does he/she share in the profits, losses, and liabilities of the organization?

While not exhaustive, this list illustrates the factors that enforcement agencies and courts may use to determine whether shareholders, directors, officers, or partners in a small business are to be treated as employees for law enforcement purposes.

 

This Memo was prepared by Stacey L. Fell. For more information, contact:

Stacey L. Fell		staceylfell@hotmail.com
Michael D. Schley	805-966-2940
Joseph F. Look	805-688-9226
Ian M. Guthrie	805-966-2985
Brett Locker	805-963-4929