April Showers Bring Employment Empowers

April is not only the month for Californians to fixate on taxes but this year it has been an active month of change in the employment arena. Changes have occurred that many Californians deem as socially necessary and morally correct, but will no doubt place a heavy burden on small businesses in the state.  California legislators proposed a $15 minimum wage initiative called “Fair Wage Act of 2016” (#15-0032) and alternative legislation was proposed to this bill, Senate Bill 3, which Governor Jerry Brown signed into law this month.  The signed alternative legislation still raises California’s mandatory minimum wage to $15 an hour but allows for an additional year to complete the task by the year 2022.  New York is the only other state to commit to such an increase to the minimum wage.

Even the Governor appeared to question the economic rationale of his commitment but stood by this decision based on the fact that it morally made sense, indicating that individuals should be able to support their families based on the minimum wage. The legislation amends  Labor Code Section 1182.12 to now designate each incremental escalation for employers who employ 26 or more employees to increase the minimum wage by January 1, 2017 to $10.50. By January 1, 2018, the minimum wage would be increased to $11 and each January 1st until the year 2022 the wage would increase in one dollar increments. (Labor Code Section 1182.12(b)(1)(A)-(F).)  Employers with 25 or fewer employees have an additional year to begin the increase with the first increase to $10.50 commencing on January 1, 2018. By January 1, 2019, the wage would increase to $11 dollars and continue to increase in one dollar increments until the year 2023. (Labor Code Section 1182.12(b)(2)(A)-(F).)

The amendments to this Labor Code section tie the raises to inflation and also carved out the ability to allow the Governor to delay minimum wage hikes in the event of an economic decline.  Each July 28th the Director of Finance must make a determination and certify to the Governor and Legislature whether enumerated conditions are met in order to annually ensure that economic conditions in California can support a minimum wage increase. (Labor Code Section 1182.12(d)(1).) The Governor is left with the ability to temporarily suspend the minimum wage increases scheduled for the following year.

Another empowering change for employees this month happened in the City by the Bay.  San Francisco became the first city to approve fully paid parental leave.  California’s parental leave scheme allows employees to receive 55 percent of their pay from employee-paid public disability insurance for 6 weeks for employees who contribute to the California State Disability Insurance fund. (Unemployment Insurance Code Section 3300 et seq.)  San Francisco’s Board of Supervisors unanimously passed a law requiring full pay for parental leave with employers paying the gap of 45 percent in pay. The ordinance will amend the Police Code to add Article 33H to require employers to provide supplemental compensation to employees who receive State paid family leave for the purposes of bonding with a new child. (Board of Supervisor’s File No. 160065.) The intention of the ordinance is to supplement the California Paid Family Leave partial wage replacement by providing compensation that in combination will total 100 percent of an employee’s weekly salary.

The city ordinance will go into effect on January 1, 2017 for companies that have 50 or more employees. The law will go into effect on January 1, 2018 for companies that employ 20 or more workers. The legislation applies to both parents.  The law also applies to both births and adoptions. The city ordinance is for both part-time/temporary and full time employees who work at least 8 hours of work per week within San Francisco. The ordinance contains rebuttable presumptions that a wage decrease or a termination within 90 days of an employee having made a request or application for California Paid Family Leave was done to avoid the covered employer’s supplemental compensation obligations under article 33H. That presumption must be rebutted with clear and convincing evidence that the actions were taken solely for reasons other than avoiding an obligation to pay supplemental compensation, otherwise the employer will be obligated to pay the employee’s supplemental compensation during the leave period even if terminated. One protection for the employer is a provision that requires an employee who voluntarily leaves work within 90 days of the end of the leave period to reimburse the employer for the full amount of the supplemental compensation the employee received. The employer should ensure that the employee signed a form prescribed by the Agency as a precondition of receiving supplemental compensation and the employer must make a request for reimbursement in writing.

The economic effect of these changes will undoubtedly have the most significant impact on small businesses as the increased costs of maintaining a workforce grow.  These changes will either result in an increase in consumer costs and prices or a large increase in unemployment as businesses may be forced to cut the workforce and cut costs by reducing hours or laying off employees. Companies would likely only keep the most productive employees at the higher minimum wage rate. Only time will tell what the economic effects will be on businesses and the workforce in California from these changes in  the employment arena.

By Mariel Covarrubias, Esq.