California employers face new requirements under recently enacted laws and regulations

31 October 2023 13 min read

By Cassie Boyle

At a glance

California’s 2023 legislative session recently came to a close, with several bills bearing significant implications for California employers signed by Governor Gavin Newsom.
Recent changes to existing regulations also impose new obligations on employers operating in the State.
The key changes have been highlighted below.

Expanded sick leave

On October 4, 2023, Governor Gavin Newsom signed Senate Bill (SB) 616 into law, amending California’s paid sick leave law to significantly expand the amount of mandatory paid sick leave from 24 hours (or three days) to 40 hours (or five days).

The law also modifies the employer’s alternate sick leave accrual method. Employees can continue to provide paid sick leave at one hour for every 30 hours worked. If a different accrual rate is used, the law requires that an employee have at least 40 hours of accrued sick leave or paid time off by the 200th calendar day of employment or each calendar year (or in each 12-month period), and at least twenty-four hours by their 120th day of employment. SB 616 also increases the annual usage cap from 24 to 40 hours and the annual accrual cap from 48 hours (or six days) to 80 hours (or ten days).

While SB 616 continues to provide an exemption for certain collective bargaining agreements (CBA), it extends some requirements to non-construction industry employees covered by a CBA. In particular, the law requires employers to allow such employees to use sick leave for the same reasons as employees who are not subject to a CBA; prohibits employers from requiring an employee to search for or find a replacement worker when using sick days; and prohibits retaliation against employees who use paid sick leave (with a rebuttable presumption of retaliation if an employer takes adverse action within 30 days of certain protected activity).

The new requirements take effect on 1 January 2024. While many cities and localities have enacted laws that provide for more leave than SB 616, employers are encouraged to review their sick leave policies and practices to ensure compliance.

Employers required to take steps to prevent workplace violence

On 30 September 2023, Governor Newsom signed SB 553, which requires California employers to take steps to prevent and respond to workplace violence. Specifically, effective 1 July 2024, virtually all California employers are required to:

Establish, implement, and maintain, at all times in all work areas, an effective workplace violence prevention plan containing specified information;
Record information in a violent incident log for workplace violence incidents;
Provide effective training to employees on the workplace violence prevention plan, among other things, and provide additional training when a new or previously unrecognised workplace violence hazard has been identified and when changes are made to the plan;
Create and maintain records of workplace violence hazard identification, evaluation, and correction; training records; and violent incident logs and workplace incident investigation records; and
Make certain records available to the division, employees, and employee representatives, as specified.

Notably, SB 553 requires every employer to include the workplace violence prevention plan as part of their effective injury prevention program, a violation of which can be a misdemeanour in certain circumstances.

SB 553 also includes enforcement and citation provisions and requires the Division of Occupational Safety and Health to propose, no later than 1 December 2025, and the standards board to adopt, no later than 31 December 2026, standards regarding the required workplace violence prevention plan.

Ban on non-competition agreements and notification requirements

On 13 October 2023, Governor Newsom signed Assembly Bill (AB)1076, which codifies existing case law by specifying that the statutory provision voiding non-compete contracts is to be broadly construed to void the application of any non-compete agreement in an employment context, or any non-compete clause in an employment contract, no matter how narrowly tailored, that does not satisfy specified exceptions. It further provides that the existing state law restricting non-competition agreements is not limited to contracts where the person being restrained from engaging in lawful profession, trade, or business is a party to the contracts.

AB 1076 also makes it unlawful for an employer to include a noncompete clause in an employment contract, or to require an employee to enter a non-compete agreement, that does not satisfy specified exceptions. In addition, the law requires employers to provide individualised written notices to all current and former employees (employed after 1 January 2022) stating that any post-employment non-compete clause or agreement is void. A violation of these provisions is an act of unfair competition pursuant to the UCL.

The Governor’s approval of AB 1076 follows his signing of SB 699 on 1 September. SB 699 prohibits employers from entering into or attempting to enforce post-employment non-compete agreements. The law further provides that any contracts that are void under California law are unenforceable regardless of where and when the contracts were signed. Significantly, SB 699 provides a private right of action, authorising employees, former employees, and prospective employees to seek injunctive relief and / or actual damages, and entitles a prevailing plaintiff to recover reasonable attorneys’ fees and costs.

Both laws take effect on 1 January 2024.

New criminal background check process

Amendments to regulations interpreting California’s Fair Chance Act took effect on 1 October 2023, altering the background check process for California applicants and employees. Among other changes, the amendments:

Expand coverage under the existing law by clarifying that the law applies not just to applicants and current employees seeking another position within the company, but also to employees whose backgrounds are checked in connection with a change in control of the company or a change in the employer’s policies or practices;
Prohibit employers from considering criminal offence information received directly from applicants or employees prior to a conditional offer;
Prohibit employers from advertising or including in any recruiting materials that they will not consider applicants with criminal histories;
Change the pre-adverse action process by expanding the scope of the initial assessment to be completed and identifying new subfactors that employers must consider;
Prohibit employers from mandating that individuals provide information in response to a pre-adverse action letter or refusing to consider any information provided;
Clarify that the time period for applicants to provide information in response to any pre-adverse action letter is five business days after the applicant has received the letter; and
Specify types of evidence of rehabilitation or mitigating circumstances to be considered during the pre-adverse action process.

Employers are encouraged to review their policies and procedures to ensure compliance with the new regulations.

Litigation allowed to continue pending arbitration appeal

On 10 October 2023, Governor Newsom signed SB 365, which amends the California Code of Civil Procedure to provide that California trial court proceedings are not automatically suspended during the appeal of an order dismissing or denying a petition to compel arbitration. Rather, trial courts will have discretion to determine whether to continue proceedings.

The new law is a departure from current standards and federal law. Notably, in June in Coinbase, Inc v Bielski, the US Supreme Court resolved a circuit split and mandated that a district court must continue its pre-trial and trial proceedings when a defendant appeals the denial of a motion to compel under the Federal Arbitration Act (FAA). The decision makes clear that the stay is automatic, and district courts lack discretion to proceed with the litigation until the appeal is decided. As the Court explained:

If the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably loss.

SB 365 is scheduled to take effect on 1 January 2024, and could mean employers are forced to continue litigating claims that are subject to a valid arbitration agreement. We will continue to monitor developments related to this law and arbitration agreements in California.

Fast food industry minimum wage law

On 28 September 2023, following a series of negotiations and compromises among representatives of the industry and unions, Governor Newsom signed AB 1228 into law. The law repeals provisions in the earlier FAST Food Accountability and Standards Recovery Act – including the Fast Food Council – and sets a USD20 per hour minimum wage for sector workers effective 1 April 2024.

The law further establishes a new Fast Food Council (the Council) with more limited powers. While the Council can promulgate standards related to wages and other working conditions, those standards will be subject to the rulemaking process set forth in the Administrative Procedure Act (the prior Council had authority to set binding regulations).

AB 1228 contains various other provisions. For example, the law withdraws controversial provisions imposing liability on a franchiser for employment law violations of its franchisees; eliminates re-funding of the Industrial Welfare Commission; states that local jurisdictions may enact more protective standards (provided the law is not specific to the fast food industry but generally applicable to all industries); and prohibits an employer from retaliating against any employee for participating in a proceeding with the Council.

More changes are expected. For example, the author of AB 1228, Assembly Member Chris Holden, has stated that the definition of 'fast food restaurant' in the bill was not intended to include certain restaurants (e.g. fast food restaurants located within an airport; those connected to or operated in conjunction with a hotel, event centre, theme park, museum, or gambling establishment; certain restaurants located in and operated in conjunction with a building(s) or campus used for office purposes) and announced his intention to introduce legislation to codify this clarification.

Workplace violence restraining order law expanded to protect against harassment

On 30 September 2023, Governor Newsom signed SB 428, which expands California’s workplace violence restraining order law to protect against certain workplace harassment. Under current law, any employer whose employee has suffered unlawful violence or a credible threat of violence from any individual that can reasonably be construed to be carried out or to have been carried out at the workplace can seek a temporary restraining order and an injunction on behalf of the employee and other employees.

SB 428 additionally authorises any employer whose employee has suffered harassment to seek a temporary restraining order and an injunction upon a showing of clear and convincing evidence that an employee has suffered harassment (as defined by the law), that great or irreparable harm would result to an employee, and that the respondent’s course of conduct served no legitimate purpose. The employer must provide the employee whose protection is sought, the opportunity to decline to be named in the order, before the filing of the petition.

SB 428 will take effect on 1 January 2025.

New protections for victims of sexual offences sued under state defamation law

Approved by Governor Newsom on 10 October 2023, AB 933 expands the state's civil law definition of a privileged communication in defamation actions to include communications made by an individual, without malice, regarding an incident of sexual assault; sexual harassment; workplace harassment or discrimination, failure to prevent an act of workplace harassment or discrimination, aiding, abetting, inciting, compelling, or coercing an act of workplace harassment or discrimination, or an act of retaliation against a person for reporting or opposing workplace harassment or discrimination; and cyber sexual bullying.

The law also provides that a prevailing defendant in any such defamation action to recover their reasonable attorneys’ fees and costs, plus treble damages for any harm caused to them by the defamation action, in addition to punitive damages or other relief permitted by law.

AB 933 takes effect on 1 January 2024.

Expanded enforcement of Labour Code

On 10 October 2023, Governor Newsom signed AB 594 which, until 1 January 2029, authorises public prosecutors to prosecute a civil or criminal action for a violation of specified Labour Code provisions or to enforce those provision independently. It further provides that any individual agreement between a worker and employer that purports to limit representative actions or to mandate private arbitration will not affect the authority of a public prosecutor or the Labour Commissioner to enforce the Labour Code.

In addition, AB 594 authorises a public prosecutor or the Labour Commissioner to enforce certain wilful misclassification provisions through specified methods, including by investigating an alleged violation, ordering temporary relief, issuing a citation, and filing a civil action. It also permits specified employees, the Labour Commissioner, or a public prosecutor to alternatively recover certain penalties as damages payable to the employee.

AB 594 takes effect on 1 January 2024.

Venture capital firms required to report demographic information

On 8 October 2023, Governor Newsom approved SB 54, Fair Investment Practices by Investment Advisers, which requires covered venture capital firms to collect and report data on the demographic composition (e.g. gender, race, ethnicity, disability, LGBTQ+, veteran, residency in California) of the founding teams of the companies in which they invest beginning on 1 March 2025 and annually thereafter. The Civil Rights Department is required to notify the covered entity that it must submit the report within 60 days of the notification and is authorised to seek specified relief, including penalties, in the event of non-compliance.

Among other provisions, SB 54 states that the covered entity is required to provide each founding team member of a business that has received funding with an opportunity to participate in a survey to collect the information on a standardised form specified by the department which will include a 'decline to state' option for each question. The covered entity is also required to provide founding team members a written disclosure prior to or concurrently with the survey notifying them that the founding team member’s decision to disclosure their demographic information is voluntary, that no adverse action will be taken if they decline to participate, and that aggregate data will be reported to the department.

SB 54 takes effect on 1 March 2025.

Employers required to provide leave for reproductive loss

On 11 October 2023, Governor Gavin Newsom signed into law SB 848, which requires employers to allow eligible employees to take up to five days of leave following a reproductive loss event, which is the day or final day of a failed adoption or surrogacy, a miscarriage or stillbirth, or an unsuccessful assisted reproduction. The leave must be completed within three months after the event or within three months after the end date of any leave they started before or immediately after the event, if they were entitled to that leave under state or federal law. If they experience multiple reproductive loss events within a 12-month period, they can take up to 20 total days of leave in response to those events within a 12-month period.

SB 848 takes effect on 1 January 2024.

California adds new protections for whistleblowers

Approved by Governor Newsom on 8 October 2023, SB 497 creates a rebuttable presumption in favour of the employee’s claim if an employer engages in any action prohibited by this provision within 90 days of the protected activity specified in this provision. The law also establishes that an employer is liable for a civil penalty of up to USD10,000 per employee for each violation, to be awarded to the employee who was retaliated against.

SB 497 takes effect on 1 January 2024.

California bars employer questions about prior cannabis use and protections for personal use of cannabis

Approved by Governor Newsom on 7 October 2023, SB 700 makes it illegal for an employer to request information from an applicant for employment relating to the applicant's prior use of cannabis (subject to certain exceptions). In addition, information about a person’s prior cannabis use obtained from the person’s criminal history can only be considered if the employer is permitted to consider or inquire about that information under a specified provision of the California Fair Employment and Housing Act or other state or federal law. SB 700 takes effect on 1 January 2024.

AB 2188, which was passed and signed in 2022, also takes effect on 1 January 2024. AB 2188 amends the Fair Employment and Housing Act to make it unlawful for an employer to discriminate against an applicant or employee for the use of marijuana 'off the job and away from the workplace' or for an employer-required drug screening test that finds the person to have non psychoactive cannabis metabolites in their system.

The law does not prohibit an employer from discriminating against a person based on scientifically valid pre-employment drug screening conducted through methods that do not screen for non psychoactive cannabis metabolite. It also exempts certain applicants and employees, including those in the building and construction trades and those hired for positions requiring a federal background investigation or clearance, as specified. The law also does not overrule state or federal laws requiring applicants or employees to be tested for controlled substances as a condition of employment, receiving federal funding or federal licensing-related benefits, or entering into a federal contract.

Increase in minimum wage

California’s minimum wage will increase to USD16 for all employees on 1 January 2024, which increases the minimum salary for exempt employees to USD66,560.

Several bills vetoed

Governor Gavin Newsom vetoed a number of employment bills, including AB 524 (protected class for family caregivers), SB 403 (protected class for caste), AB 1356 (expanding WARN obligations), SB 731 (expanding protections for employees working from home), SB 799 (allowing unemployment insurance for strikers), and more.

If you have questions about how these or other laws may impact your workforce in California, please reach out to your DLA Piper attorney or any of our California employment partners.