New Governor, New Laws?

Both houses of California’s legislature have been held by the Democratic party since 1996.  However, with the exception of Gray Davis (who was recalled from office by the voters), the governor’s mansion has been held by the Republican party since 1982.  There is little wonder that a significant number of new laws presented to the governor over the years has been vetoed.  A striking case in point is soon-to-be-former Governor Arnold Schwarzenegger, who vetoed more than one out of every four laws to cross his desk — the highest percentage for any California governor, for as far back as such records are kept.

Now that the 2010 election is behind us and the Democrats will control both the legislature and the governor’s mansion, some recently-passed laws that died on Governor Schwarzenegger’s desk may now be revived.  “We’re going back to look at every bill vetoed in the last eight years,” said Democratic state Senator Joe Simitian, as quoted by the Los Angeles Times.  “I do think with a change it makes sense to look at bills this governor wasn’t inclined to sign and the new governor might.”

Here are some employment-related laws of interest to the entrepreneurial community that were vetoed over the last two legislative sessions, but are now good candidates to be revived — and possibly enacted into law — in the near future.

Criminal sanctions for failing to pay wages Wages for “non-exempt” employees are generally required to be paid immediately upon termination of employment, and heavy monetary penalties are awarded against employers who violate this rule.  The legislature recently tried to stiffen these penalties by making the failure to pay within 90 days of employment termination a misdemeanor — a crime for which jail time could theoretically be served (AB 2187).  Governor Schwarzenegger vetoed the bill in September, stating in his veto message that California law was sufficiently protective of employee rights in this area.

Increased penalty for minimum wage violations This bill would have doubled the “liquidated damages” penalty for employers who violate the minimum wage law (AB1881).  The governor vetoed this bill in September as well, again stating that the measure was unnecessary.

Overtime for agricultural workers Unlike most workers who are paid by the hour in California, agricultural workers do not get overtime pay if they work more than eight hours in a day.  Governor Schwarzenegger vetoed the legislature’s attempt to end this exemption (SB 1221).

Overruling “Chavez” In a case called Chavez v. City of Los Angeles, the California Supreme Court held that Superior Court plaintiffs who win discrimination, wrongful termination, and other employment cases can be denied recovery of all attorneys’ fees and costs of suit, if their verdict is for less than $25,000.  The Chavez decision was based on a rule requiring small-dollar cases to be brought in a lower court; hence the plaintiff and the plaintiff’s lawyer can essentially be punished for picking the wrong court, by losing the right to recover their attorneys’ fees and costs from the losing employer.  The legislature passed a bill to overrule the Chavez case (AB 2773), but the governor vetoed it in September.  This bill is a top priority for plaintiff’s-side employment lawyers, because it will virtually guarantee large attorneys’ fees awards to plaintiffs, even where juries and judges award very low monetary damages in employment cases.  Expect to see this law cross the governor’s desk again in 2011.

Restricting credit checks California law currently permits employers to use credit reports as part of a background check for job applicants, provided that certain notice requirements are met.  Recent legislation (AB 482) would have virtually eliminated the practice for most hourly-paid employees.  The governor vetoed this measure in September, citing increased exposure for “potential litigation over the use of credit checks.”

Independent contractor liability By unlawfully misclassifying bona fide “employees” as “independent contractors,” some employers and employees try to avoid a complex and costly array of labor and employment laws.  For those who are caught, the penalties are steep — but those penalties are often unenforceable (for example, against bankrupt or “fly-by-night” employers).  In 2008, the legislature passed (but the governor vetoed) a law to make paid advisors jointly liable with the employer if the advice to treat the person as an independent contractor turns out to be wrong (SB 1583).  Because lawyers are exempt from the law, the apparent targets of this proposed law were financial advisors and CPA’s.  In vetoing the proposed law, the governor pointed to the “confusion” in the laws governing the difference between employees and independent contractors, and asserted that this law would chill the giving of advice, leaving employers “without any guidance in an increasing litigious environment.”

Penalties for misclassifying employees Also in the legislative session ending in 2008, the legislature passed, and the governor vetoed, a law making it unlawful for any person or employer to willfully misclassify an employee as an independent contractor, with civil fines for those who violate the statute (SB 622).  In his veto message, the governor referred to the measure as a “job killer.”

Increased benefits for permanent disability — In 2008 the legislature passed a bill (SB 1717) increasing worker’s compensation benefits for permanent injuries that occur after January 1, 2009.  The law would essentially have doubled the permanent disability benefit.  Governor Schwarzenegger vetoed the bill, complaining about a “billion dollar benefit increase” to the system.  It was the third consecutive year such a measure was vetoed.

Nondiscrimination for medical causation decisions —
Senate Bill 1115 would have prohibited discrimination on the basis of genetic predisposition and other factors when doctors apportion a worker’s compensation claim’s medical causation, for purposes of determining the employer’s liability for permanent disability awards.  The governor’s September 2008 veto message asserted that the proposed law was redundant and unnecessary, and might lead to “increased litigation.”

Time will tell how our new governor will respond to similar legislation, if and when it is presented to him in 2011.  We will report on breaking developments in this area in future issues of The Entrepreneurial Counselor.