5 Ways California Employers Can Stay Ahead of the Next Problem

Things move incredibly fast in today’s market, and with the pace of business and the occasional crisis, it’s hard to stay on top of employment compliance best practices.  Based on what we’re seeing across a broad set of public and private company employers (and hearing from federal and state regulators), here’s a priority list for general counsel and employment counsel.

1. Review your staffing contracts.

Following developments in California law setting a high bar for the definition of independent contractors, plaintiffs are filing class actions targeting the alleged employment status of contractors, including those hired through third party staffing agencies. If you use contractors to supplement your workforce, you likely can’t prevent those attacks, but you may be able to mitigate their costs. 

Most agency contracts contain indemnity provisions, which vary extensively in their protections. 

• Consider negotiating agency agreements that require indemnity protections if staffing company workers assert employment claims.
• Ask if the agency uses arbitration agreements with class action waivers, which also mitigate risk.
• Assess the risks arising from the now-stringent tests for independent contractor status. Dynamex Operations West, Inc v. Superior Court, 4 Cal. 5th 903 (2018), set forth the “ABC” test for determining whether a worker should be classified as an independent contractor.

2. Check your arbitration agreements.

• Review the agreement for disfavored provisions, such as those requiring a venue cumbersome for claimants or, in California, mandatory payment of the arbitrator’s fees by the claimant. See Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000).
• Add a class action waiver to your arbitration agreements if you don’t have one.  Class actions generally should not be litigated in arbitration, which lacks court protections for defendants, such as firm requirements for class status.
• Consider changing the arbitration provider’s discovery rules if your agreement incorporates the discovery provisions available in court.
  • Streamlined discovery is a key benefit of arbitration. 
  • As the U.S. Supreme Court notes, arbitration provides a tradeoff. The “‘parties forgo procedural rigor and appellate review … to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 685 (2010).
• Keep in mind that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 allows employees bringing sexual assault and sexual harassment claims to reject arbitration agreements in favor of court proceedings. 
  • Ensure your agreement includes language excluding “claims that may not be subject to pre-dispute mandatory arbitration under federal law.”
  • Consider adding something like this to protect the agreement:

Employee may elect to pursue claims for sexual harassment and/or sexual assault (“Excludable Claims”) in court rather than in arbitration. In the event Employee elects to exclude such claims from this Agreement, Employee agrees to sever any Excludable Claims from any case brought by the Employee, and to pursue any Excludable Claims in a case separate from any arbitrable claims. Further, to the extent Employee pursues Excludable Claims, we agree to arbitrate any other claims prior to litigating the Excludable Claims in court. 

3. Catch up on California employment law developments.

Significant changes in employment laws this year include: 

• Increases to the amount of paid sick leave required for California employees (Senate Bill 616).
• An addition of up to 5 days of reproductive loss leave for eligible employees following events such as a miscarriage, unsuccessful assisted reproduction, failed adoption, failed surrogacy or stillbirth (Senate Bill 848).
• Requirements to prevent and respond to workplace violence, including creating a workplace plan and employee training by July 1, 2024 (Senate Bill 553).
• A Fair Employment and Housing Act amendment making it illegal to discriminate for cannabis use when employees are not working and away from the worksite (Senate Bill 700).
• Prohibitions from entering or attempting to enforce noncompete agreements (see below) (Senate Bill 699 and Assembly Bill 1076).
• A rebuttable presumption of retaliation if an employer takes adverse action against an employee within 90 days of that employee’s protected conduct (Senate Bill 497).
• Eliminating the automatic stay previously applicable during appeal of an order denying a petition to compel arbitration (Senate Bill 365).
• Minimum wage increases for most employers to $16 an hour. Several cities and counties implemented minimum wage increases higher than that. Fast food minimum wage increased to $20 an hour April 1.
• Requirements that employers provide more comprehensive wage theft prevention notices (Assembly Bill 636).  

4. Keep in mind that non-compete agreements have been dealt fatal blows in California. 

California’s non-compete ban now extends beyond the state’s geographical boundaries, prohibiting non-compete agreements even if they were signed or the employment occurred outside California. 

As of January 1, 2024, Senate Bill 699 and Assembly Bill 1076 amend the California Business and Professions Code Section 16000.5 to include stronger prohibitions against non-compete agreements. A newly amended section makes it unlawful for employers to enforce non-compete agreements regardless of where or when the agreement was signed and whether the employee worked outside California. 

The new law forbids enforcement of non-compete agreements and prohibits employers from entering into such contracts with employees. These prohibitions apply to any agreement that would limit competition. That may include client non-solicitation clauses.

In addition to the state ban, the Federal Trade Commission adopted a historic and far-reaching ban on noncompete agreements on April 23, 2024.  The agency said the agreements lead to an “unfair method of competition” and violate federal law. Opponents of the decision are likely to challenge it in court.

5. Train, train and train some more. 

Race discrimination claims are up, retaliation claims are steady (with the low threshold noted above) and sexual harassment claims continue to be common. Juries faced with these claims frequently make clear they expect employers to maintain robust preventative programs.  

Invest in well-planned training to explain company policies and encourage compliance and early reporting.  Consider supplementing video training with live presentations to emphasize company expectations.  Senior management should send a follow up email confirming the need for compliance.

These ideas should provide some protections from unwanted claims.  And if all else fails, we’re here to help.