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Noteworthy Legislation Affecting California Employers in 2005

Noteworthy Legislation Affecting California Employers in 2005

With the Governor’s approval of various senate and assembly bills, as well as the recent election, California employers have much to consider in 2005. The following is a brief summary of the noteworthy legislation affecting California employers this coming year:

Mandatory Harassment Training for Supervisors
Employers with fifty (50) or more employees must provide two (2) hours of sexual harassment training to all supervisory employees who are employed as of July 1, 2005 and such training must be completed no later than January 1, 2006.  “Supervisory employee” is defined as “anyone having authority to exercise judgment as to hiring, transfer, suspension, lay off, discharge, discipline, direct work of others, or effectively recommend any of these actions.” However, if an employer has already provided the required sexual harassment training to the supervisory employee after January 1, 2003, then it is relieved of the January 1, 2006 deadline. After January 1, 2006, each employer must provide the sexual harassment training to all supervisory employees once every two (2) years. It should be noted that newly hired or promoted supervisors must receive the training within six (6) months of assuming the supervisory position. With respect to the training curriculum, the law requires “two (2) hours of classroom or other effective interactive training and education regarding sexual harassment,” and such training must include information and practical guidance regarding the federal and state anti-harassment statutory provisions, as well as related remedies and practical examples. The statute expressly states that its provisions establish a minimum threshold for training and education and employers are free to provide additional training.

With respect to the statute’s applicability to California employers, employers who regularly employ fifty (50) or more employees or regularly receive the services of fifty (50) or more persons pursuant to contract (e.g., independent contractors) are subject to the training requirements.  Therefore, the statute intends to include employees and independent contractors in establishing the fifty (50) person threshold.  Additionally, although the likely intent of the statute was to only include individuals rendering services in the state of California, the express language of the statute neglects to include such language.  Accordingly, California employers should err on the side of caution and include all persons rendering services for the employer in determining the applicability of the fifty (50) person threshold.

Insurance Benefits for Registered Domestic Partners
This legislation, A.B. 2208, requires all health care service plans and other health insurers to provide the same coverage to the registered domestic partner of an employee, subscriber, insured or policy holder as the insurer provides to the spouses of those persons. While the insurer is permitted to obtain documentary proof in order to verify the status of the domestic partnership, such verification can only be obtained if the insurer also requests similar verification from a spouse of an employee or subscriber. The law applies to all insurance policies issued, amended, delivered or renewed in the state of California after January 1, 2005 and all group health service plans and insurance policies issued, amended, delivered or renewed after January 2, 2005. Accordingly, with limited exceptions, when purchasing new policies or implementing existing policies, employers must ensure that when coverage is provided for spouses of employees, the same coverage is provided to registered domestic partners of employees.

Reforms to the “Sue Your Boss” Law
On January 1, 2004, The Labor Code Private Attorney General Act (the “Act”) took effect which allowed individual employees to sue their employers for violations of the Labor Code not pursued by state agencies, and further provided employees financial incentives to file such suits by allowing for recovery of attorneys’ fees and penalties. The law resulted in hundreds of lawsuits against employers, many of which related to trivial violations of the Labor Code, such as an employer’s failure to display required labor posters. As a result, S.B. 1809 was enacted as emergency legislation and took immediate effect on August 11, 2004.  While S.B. 1809 does not repeal the Act in its entirety, it provides, in pertinent part, that a civil penalty for any violation of a posting or notice requirement of the Labor Code, other than a posting or notice requirement relating to mandatory payroll or workplace injuries, may only be recovered by the applicable state enforcement agency. Furthermore, it sets forth a detailed administrative process which employees must comply with before initiating a civil action. Additionally, S.B.1809 authorizes a court to award to an aggrieved employee a lesser amount than the maximum civil penalty specified by the underlying statute on which the claim is based, discretion which the Act did not previously provide. The law further requires a court to review and authorize any settlement. S.B. 1809 expressly made these new provisions apply retroactively to January 1, 2004.

Mandatory Healthcare Law Rejected by California Voters
In 2003, S.B. 2 was passed requiring medium sized employers (20-199 employees) and large sized employers (200 or more employees) in California to pay at least eighty percent (80%) of the premium for employee health insurance; large sized employers were also required to provide dependent care coverage. With certain minimal exceptions, the new law would require compliance for large sized employers in January 1, 2006 and medium sized employers in January 1, 2007. However, Proposition 72, a referendum on S.B.2, subsequently qualified for the statewide ballot. As a result, S.B. 2 was put “on hold” and would have taken effect only if Proposition 72 was approved by the voters at the November 2004 election. California voters ultimately rejected Proposition 72 and therefore, compliance with S.B. 2 is no longer required.

Reforms to California’s Unfair Competition Law
California voters’ passage of Proposition 64 significantly reformed the state’s unfair competition law, Business and Professions Code A717200. Previously, under A717200, lawyers could file suit on behalf of the general public and there was no requirement that the represented plaintiff have an actual injury with respect to the challenged business practice as a condition of bringing an action. This resulted in hundreds of frivolous lawsuits. However, as a result of the passage of Proposition 64, only injured plaintiffs can now recover under A717200 and actions on behalf of the general public can only be brought by state or local officials. Additionally, a plaintiff who seeks to represent other individuals must now abide by the rules and procedures governing class actions, a requirement which previously did not exist. Proposition 64 took effect on November 3, 2004 and there is significant debate as to whether its provisions are to apply retroactively, an issue which will likely take months to resolve.

Changes to Nonqualified Deferred Compensation Plans
In addition to the above California legislation, H.R.4520, commonly referred to as the American Jobs Creation Act of 2004 (the “Act”), has been signed by the President and contains broad non-qualified deferred compensation reform. The Act adds Section 409A (“Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans”) to the Internal Revenue Code. Section 409A provides for more stringent tax laws regarding nonqualified deferred compensation plans or other individual or group arrangements deferring recognition of compensation for federal income tax purposes. The Act will take effect for amounts deferred after Dec. 31, 2004. As a result, all nonqualified deferred compensation plans must be amended to comply with the new rules. However, the Treasury has allowed existing plans until December 31, 2005 to bring such plans into compliance.

This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.

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