Despite employer objections, the Senate Labor and Industrial Relations Committee this week passed two California Chamber of Commerce-opposed job killer bills. One deals with releasing company pay data and the other with unlawful employment practices.
Both bills are opposed by a large coalition of employer groups and local chambers of commerce.
• SB 1284 (Jackson; D-Santa Barbara) Disclosure of Company Pay Data.
• SB 1300 (Jackson; D-Santa Barbara) Removes Legal Standing and Prohibits Release of Claims.
SB 1284: Pay Data Report
SB 1284 requires that in 2019, an employer that is incorporated in California with 100 or more employees must submit a pay data report to the Department of Industrial Relations (DIR).
CalChamber has identified SB 1284 as a job killer because the bill creates a false impression of wage discrimination or unequal pay where none exists and therefore subjects employers to unfair public criticism, enforcement measures, and significant litigation costs to defend against meritless claims.
Just last year, Governor Edmund G. Brown Jr. vetoed AB 1209 (Gonzalez Fletcher; D-San Diego), which was a very similar bill. SB 1284 provides the same uncertainty and ambiguity as AB 1209.
The CalChamber and coalition also oppose SB 1284 because it:
• Exposes employers to public shaming for wage disparities that are not unlawful.
• Allows employers to use the federal Employer Information Report, otherwise known as the EEO-1 Report.
• Utilizes data that may be affected by employee choices.
CalChamber Policy Advocate Laura Curtis explains to the Senate Labor and Industrial Relations Committee why SB 1284 (Jackson; D-Santa Barbara) is a job killer.
SB 1300: Legal Standing/Release of Claims
SB 1300 removes the current legal standing requirement for specific Fair Employment and Housing Act (FEHA) claims and limits the use of nondisparagement agreements and general releases.
CalChamber has identified SB 1300 as a job killer because these provisions will significantly increase litigation against California employers and limit their ability to invest in their workforce.
The CalChamber and coalition also oppose SB 1300 because it:
• Removes the current standing requirement and allows anyone to sue a company for specific harassment claims.
• Is unnecessary and exposes employers to costly litigation. Sexual harassment prevention is already regulated by the Department of Fair Employment and Housing (DFEH).
• Will deter employers from conducting self-audits and providing severance agreements.
• Will chill the use of settlement agreements, disadvantaging employers and employees.
Both SB 1284 and SB 1300 passed Senate Labor and Industrial Relations on April 11 by votes of 4-1:
Ayes: Pan (D-Sacramento), Jackson (D-Santa Barbara), Mitchell (D-Los Angeles), Wieckowski (D-Fremont).
No: J. Stone (R-Temecula).
Both SB 1284 and SB 1300 will be considered next by the Senate Judiciary Committee.
The CalChamber is urging members to contact their senator and members of the committee and ask them to oppose SB 1284 and SB 1300 as job killers.
Launches Capitol Insider Blog
The California Chamber of Commerce yesterday released its annual list of job killer bills and launched its new Capitol Insider Blog, which, in this first installment, provides details about the list and the 21 bills that have been identified as those that pose the greatest threat to California’s job climate and economy. Sign up to follow the Capitol Insider blog at http://capitolinsider.calchamber.com/
In releasing the job killer list, CalChamber President and CEO Allan Zaremberg said, “Each bill on this year’s job killer list poses a threat to certainty for employers and investors in our state. Besides undermining the state’s economic health, job killer bills have a cumulative negative impact on the businesses and entrepreneurs who provide the resources necessary to fund critical state programs like health care and education. Legislators must measure the impact that each of these proposed new laws will have, not just when the economy is expanding but also when California experiences the inevitable downturn.”
The 2018 list of job killer bills follows:
AB 1745 (Ting; D-San Francisco) Vehicle Ban — Bans the sale of combustion engine vehicles in the state by prohibiting the registration of a new vehicle in the state after 2040 unless it is a zero-emission vehicle.
AB 1761 (Muratsuchi; D-Torrance) Customer Blacklist and Hotel Workers Panic Button — Denies hotel guests due process, by requiring hotels to create a blacklist of guests who have been accused, yet not proven, to have engaged in inappropriate behavior toward hotel employees, and precludes the hotel from allowing those guests on the blacklist to enter their properties for three years.
AB 1902 (Levine; D-San Rafael) Interference with Contracts — Discourages and reduces “personal service contracts” as defined, by unfairly increasing the contract price for these services based upon an undefined and unspecified “area income” rate that presumably will include wages from different industries and different occupations that are not comparable to personal services. It also provides the Department of Industrial Relations with extraordinary authority to value companies, determine “similar services” to be included under the provisions of this bill, and what constitutes “area income.”
AB 2069 (Bonta; D-Oakland) Medical Marijuana in Employment — Undermines employer’s ability to provide a safe and drug-free workplace by creating a new protected classification of employees who use marijuana for medical purposes, and exposing employers to costly and unnecessary litigation under the Fair Employment and Housing Act (FEHA) whenever the employer terminates an employee in this new protected class who has created a safety hazard in the workplace.
AB 2351 (Eggman; D-Stockton) Targeted Tax on High Earners -- Unfairly increases the personal income tax rate from 13.3% – which is already, by far, the highest income tax rate in the country – to 14.3% for one category of taxpayers (including some proprietors), who already pay half of California’s income taxes, forcing them to mitigate these costs through means that include reducing workforce, in order to provide more funding for higher education.
AB 2527 (Muratsuchi; D-Torrance) Costly Litigation Against Small Employers — Exposes small businesses who are seeking financial investors in their company to devastating class action litigation by banning the use of arbitration agreements, which is preempted by the Federal Arbitration Act, prohibiting class action waivers, allowing for the award of treble damages, punitive damages, and attorney’s fees, and interferes with contractual negotiations between sophisticated parties by dictating the choice of forum and choice of law for such litigation.
AB 2571 (Gonzalez Fletcher; D-San Diego) Public Employee Retirement Systems Investment Policy — Seeks to publicly shame investment managers and the hospitality companies in which they invest, by forcing them to submit an annual report subject to a public review, that discloses employee wage information according to gender, ethnicity, and race, exposing such companies to costly litigation.
AB 2765 (Low; D-Campbell) Portable Benefits for The Gig Economy — Imposes onerous and costly mandates on companies in the gig economy labeled as the “digital marketplace” by adding them under the provisions of the Fair Employment and Housing Act (FEHA), expanding the protected classifications under FEHA for contractors of the digital marketplace to include “familial status,” and creates further confusion and uncertainty regarding the use and classification of independent contractors. These new mandates will dramatically increase the amount of frivolous litigation under FEHA and the Private Attorneys General Act (PAGA) for the digital marketplace.
AB 3080 (Gonzalez Fletcher; D-San Diego) Ban on Settlement Agreements and Arbitration Agreements — Significantly expands employment litigation and increases costs for employers and employees by banning settlement agreements for labor and employment claims as well as arbitration agreements made as a condition of employment, which is likely preempted under the Federal Arbitration Act and will only delay the resolution of claims. Banning such agreements benefits the trial attorneys, not the employer or employee.
ACA 22 (McCarty; D-Sacramento) Middle Class Fiscal Relief Act — Unnecessarily increases California’s 8.84% corporate tax rate, already one of the highest in the nation, to 18.84%, which will encourage companies to leave the state and discourage companies from expanding or relocating here.
SB 1284 (Jackson; D-Santa Barbara) Disclosure of Company Pay Data — Unfairly requires California employers to submit pay data to the Department of Industrial Relations, creating a false impression of wage discrimination or unequal pay where none exists and, therefore, subjecting employers to unfair public criticism, enforcement measures, and significant litigation costs to defend against meritless claims.
SB 1300 (Jackson; D-Santa Barbara) Removes Legal Standing and Prohibits Release of Claims — Significantly increases litigation by removing standing requirement for plaintiff alleging failure to prevent harassment or discrimination when no harassment even occurs, limits the use of severance agreements, and prohibits the use of a general release or nondisparagement clause in employer/employee contracts.
SB 1398 (Skinner; D-Berkeley) Increased Tax Rate — Threatens to significantly increase the corporate tax rate on publicly held corporations and financial institutions up to 15% according to the wages paid to employees in the United States, and threatens to increase that rate by 50% thereafter, if the corporation or institution reduces its workforce in the United States and simultaneously increases its contractors.
2017 JOB KILLER CARRY-OVER BILLS
AB 127 (Committee on Budget) Threatens Energy Reliability — Threatens energy reliability and will lead to the elimination of jobs by mandating the closure of the Aliso Canyon natural gas storage facility.
ACA 4 (Aguiar-Curry; D-Winters) Lowers Vote Requirement for New Tax Increases — Unnecessarily reduces the voter threshold from two-thirds to 55% for local governments to enact special taxes, including parcel taxes, for the purpose of improving public infrastructure and affordable housing, which creates an opportunity for discriminatory and higher taxes to be imposed against disfavored industries and commercial property owners.
ACA 11 (Caballero; D-Salinas) Targeted Retail Industry Tax Increase — Exposes the retail industry to increased taxes by imposing a quarter-cent sales tax increase to fund affordable housing and homeless shelters, without creating greatly needed market-rate housing.
SB 49 (de León; D-Los Angeles) Creates Uncertainty and Increases Potential Litigation Regarding Environmental Standards — Creates uncertainty by giving broad and sweeping discretion to State agencies to adopt rules and regulations more stringent than the federal rules and regulations in effect on January 19, 2017 through an expedited administrative procedure without public participation or input, when the State agencies determine that federal action leads to less stringent laws and regulations than those in effect on January 19, 2017; and increases the potential for costly litigation by creating private rights of action under California law, which may be triggered when a State agency takes the foregoing discretionary action.
SB 538 (Monning; D-Carmel) Arbitration Discrimination — Unfairly and unlawfully discriminates against arbitration agreements by restricting the formation of antitrust arbitration agreements in hospital contracts, leading to costly litigation over preemption by the Federal Arbitration Act.
SB 562 (Lara; D-Bell Gardens) Government-Run Health Care — Penalizes responsible employers and individuals and results in significant new taxes on all Californians and California businesses by creating a new single-payer government-run, multibillion-dollar health care system financed by an unspecified and undeveloped “revenue plan.”
SB 774 (Leyva; D-Chino) Increased Permitting Fees and Delayed Permitting — Exposes permittees to unknown, increased fees by providing the Department of Toxic Substances Control (DTSC) a blank check to impose additional fees on permittees to implement and perform its statutory requirements when its primary sources of funding have structural deficits and creates substantial uncertainty and delay of facility permitting by interjecting a new board into the organizational structure.
SCA 6 (Wiener; D-San Francisco) Lowers Vote Requirement for Tax Increases — Unnecessarily reduces the voter threshold from two-thirds to 55% for local governments to enact special taxes, including parcel taxes, for the purpose of providing transportation services, which creates an opportunity for discriminatory and higher taxes to be imposed against disfavored industries and commercial property owners.
Cumulative Job Killer Vetoes
2017: 27 job killers identified, 3 sent to Governor Brown, 2 signed, 1 vetoed.
2016: 24 job killers identified, 5 sent to Governor Brown, 4 signed, and 1 vetoed;
2015: 19 job killer bills identified, 3 sent to Governor Brown, 1 signed, and 2 vetoed;
2014: 27 job killer bills identified, 2 sent to Governor, signs 2;
2013: 38 job killer bills identified, 1 sent to Governor, signs 1;
2012: 32 job killer bills identified, 6 sent to Governor, signs 4, 2 vetoed;
2011: 30 job killer bills identified, 5 sent to Governor, 1 signed, 4 vetoed;
2010: 43 job killer bills identified, 12 sent to Governor, 2 signed, 10 vetoed;
2009: 33 job killer bills identified, 6 sent to Governor, 6 vetoed;
2008: 39 job killer bills identified, 10 sent to Governor, 1 signed, 9 vetoed;
2007: 30 job killer bills identified, 12 sent to Governor, 12 vetoed;
2006: 40 job killer bills identified, 11 sent to Governor, 2 signed, 9 vetoed;
2005: 45 job killer bills identified, 8 sent to Governor, 1 signed, 7 vetoed;
2004: 23 job killer bills identified, 10 sent to Governor, 10 vetoed;
2003: 53 job killer bills identified, 13 sent to Governor, 11 signed, 2 vetoed;
2002: 35 job killer bills identified, 17 sent to Governor, 12 signed, 5 vetoed
2001: 12 job killer bills identified, 5 sent to Governor, 3 signed, 2 vetoed;
2000: No job killers identified. Of 4 bad bills identified at end of session, Governor Davis signs 2 and vetoes 2.
1999: 30 job killer bills identified, 9 sent to Governor, 6 signed, 3 vetoed;
1998: 64 job killer bills identified, 11 sent to Governor, 11 vetoed.
1997: 57 job killer bills identified, 9 sent to Governor, 9 vetoed.
The California economy is humming. Unemployment is at historic lows, even in many parts of the state often left behind in good times.
But even this silver lining has a cloud.
Parts of the Bay Area and Southern California are beyond full employment, which means some California regions are creating more jobs than the labor force can support.
As Robert Kleinhenz of Beacon Economics wrote, “with the state at full employment, job growth and general economic gains will largely be constrained by the availability of workers. This is good for workers who might achieve pay increases in the coming months and quarters, but it poses a challenge for firms that want to grow but cannot because they are unable to hire the necessary workers.”
Nationally, half of open, available positions go unfilled because the candidates aren’t available. At the same time, 40% of businesses can’t take on more work because they can’t fill open jobs.
We have an extraordinary mismatch between our talent needs and the pipeline of new or potential workers.
The flip side is that many of our students face a different future. Only 40% of the state’s 2.2 million young adults hold an associate’s degree or higher and many lack the skills needed for workforce success.
According to the Public Policy Institute of California, California needs an additional 1.1 million career-ready college graduates by 2030 to meet the needs of the economy. Unless trends are reversed, California’s stature as a vibrant, global economy is at risk.
In other words, we’re all in this together.
Fortunately, many public leaders and groups are working to address these needs. For my part, I want to share the promise of Linked Learning—which we believe can provide a long-term pipeline of well-qualified students, as well as enabling high school and college graduates to stay in California in jobs that pay well and provide for upward mobility.
Linked Learning is based on the idea that students work harder and dream bigger if their education is relevant to them. The Linked Learning approach integrates four key elements to develop college- and career-ready graduates:
First, the probability of making a living wage in today’s economy without some form of postsecondary education is already low and will only diminish. Increasingly, career success depends on a postsecondary degree or credential.
Second, without an explicit goal for preparing high school students for a full range of post-graduation opportunities, we risk reverting to tracking students whom an adult may think are incapable of college.
A core component of the experience in any Linked Learning pathway is work-based learning, which allows students to apply their classroom learning in professional settings and gain real-world experience in the process. Students learn what it takes to thrive in the professional world through partnerships with local employers that offer internships, mentoring, job shadows and similar opportunities. This adds depth and meaning to students’ education, as classroom learning becomes more meaningful and relevant to students when paired with opportunities to experience the subject matter firsthand.
Where do we in the business community fit in?
Our challenge is to overcome a current lack of engagement by the California business community in providing workplace experiences for youth, despite a strong business case for the recruitment of young people. Talent pipeline strategies support long-term business productivity and competitiveness in an aging society. Investing in young people helps employers engage with their community and strengthen their brand. Growing your own workforce is also more cost-effective than buying the skills on the open market.
Our response to the twin challenges of a talent pipeline deficit and high school graduates underprepared for career and college is to continue our momentum to engage chambers of commerce and other local economic development organizations to promote employer engagement in work-based learning.
Labor Law Standards Subject to Interpretation
California employers are once again left with uncertainty regarding the Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual following a California Supreme Court ruling earlier this month.
The state high court’s March 5 ruling in Alvarado v. Dart Container Corporation of California dealt mainly with how an employer must calculate overtime compensation for an employee who earns both an hourly rate and a flat sum nondiscretionary bonus.
In its analysis, the Supreme Court also provided lengthy discussion on whether the DLSE’s manual was binding authority on the courts. The Supreme Court concluded that the DLSE Enforcement Manual is a void underground regulation and not entitled to any deference. However, the Supreme Court held that it still could consider the DLSE’s interpretation if the court was independently persuaded that the interpretation was ultimately correct.
In this case the Supreme Court was persuaded and adopted the DLSE’s method of calculating overtime on flat sum bonuses. The DLSE’s method was more favorable to the plaintiff than the federal standard used by the employer.
This is not the first time that the California Supreme Court has opined about the validity of the DLSE manual. More than two decades ago, the California Supreme Court discussed the legitimacy of the DLSE manual in Tidewater Marine Western, Inc. v. Bradshaw (December 19, 1996).
In Tidewater, the Court was tasked with deciding whether the DLSE manual constituted regulations within the meaning of the Administrative Procedure Act (APA).
If a policy constitutes a regulation under the APA, it must follow specific protocols to be adopted. The APA outlines a technical process that requires public participation to “ensure that those persons or entities whom a regulation will affect have a voice in its creation as well as notice of the law’s requirements so that they can conform their conduct accordingly.”
If a regulation is not properly adopted per the APA requirements, it will be deemed unlawful. Notably, the DLSE manual has never been adopted through the APA process.
Procedures Not Identical
Although the Labor Code does include procedural protections for adopting some regulations “analogous to those in the APA,” the procedures are not identical to the APA. The procedures also apply only to the Industrial Welfare Commission and not the DLSE manual.
Ultimately, the Tidewater court held that because the DLSE manual provided interpretation of the law itself in its policy manual, the manual is actually regulatory in nature. And since “[n]o state agency shall issue, utilize, enforce, or attempt to enforce … a regulation” without complying with the APA’s notice and comment provisions, the DLSE manual was found to be a void underground regulation.
The Tidewater court went on to say that the DLSE manual is simply “one among several tools available to the court,” stating that “[d]epending on the context, it may be helpful, enlightening, even convincing,” or “[i]t may sometimes be of little worth.”
So, where does this leave employers? Employers are still in the same position they have been in for decades. Tidewater and now Alvarado v. Dart have unfortunately not changed a thing. The DLSE will continue to interpret and enforce state labor laws and employers still will not know in advance whether the courts will uphold the DLSE’s interpretations—potentially subjecting an employer to a retroactive interpretation and penalties and/or damages, as seen in Alvarado v. Dart.
Businesses need more certainty that they’re correctly applying the law and shouldn’t be left to guess. For now, employers should still rely on legal counsel when making difficult employment decisions and should assume that the courts will continue to utilize the DLSE manual as “one among several tools available to the court” when interpreting California law.
California’s corporate tax base may increase by up to 12% as a result of federal tax reform legislation, according to a study recently released by the State Tax Research Institute (STRI).
This means that revenues from California’s corporate income tax could increase by as much as $1.3 billion—without any action by state lawmakers to increase corporate tax rates or income definitions.
Larger tax revenues will result from the new tax reform law, which limited deductions and changed foreign tax rules. The federal tax law imposed new restrictions on companies’ ability to deduct interest payments, exchange property without paying capital gains taxes, deduct some fringe benefits and immediately write off future research costs. At the federal level, those changes were far outweighed by the rate cut.
According to Karl Frieden, vice president and general counsel at the Council on State Taxation, the study’s sponsor, “The state tax increase for corporations is totally inadvertent.”
The windfall from federal tax reform will likely produce even more revenue than would a recently proposed constitutional amendment to impose a 10% surcharge on corporate net incomes of more than $1 million.
The avowed purpose of that measure is “to share with ordinary California taxpayers the economic gains provided by federal income tax cuts for corporations with over one million dollars ($1,000,000) in net income.”
It turns out that federal tax reform will accomplish that goal without the Legislature casting a vote.
“The Impact of Federal Tax Reform on State Corporate Income Taxes” was prepared for STRI by Ernst & Young. STRI is the 501(c)(3) research affiliate of Council on State Taxation, a nonprofit trade association of multistate corporations.