Employment Law Alert: California’s New Sick Leave Law (As Amended July 13, 2015)

This is an updated version of our employment law alert originally published on September 18, 2014, last revised on September 10, 2015.

On September 10, 2014, California Governor Jerry Brown signed the Healthy Workplaces, Healthy Families Act of 2014 (“AB 1522”) into law, which requires employers to provide accrued sick leave to employees.  On July 13, 2015, Governor Brown signed Assembly Bill 304 (“AB 304”) making several significant changes to the law (effective immediately).  We believe that AB 1522 and 304 may be the most significant new California employment law passed within the last several years, as they require virtually all employers to revise their sick leave policies and practices.  This article summarizes key provisions of the California sick leave law, and highlights some additional paid sick leave requirements under local laws in Emeryville, Oakland, and San Francisco.

Employer/Employee Coverage & Effective Date

The new law applies to all California employers, regardless of size.  It defines an eligible employee as one who, on or after July 1, 2015, works in California 30 or more days within a year from the commencement of employment. This includes all employees regardless of full-time, part-time, exempt, or non-exempt status.  While the law’s minimum sick leave requirement is tied to July 1, 2015, the California Labor Commissioner has interpreted other requirements of the law to become effective January 1, 2015 (see, in particular, the notice and record-keeping requirements discussed below).  The law does not apply to employees covered by collective bargaining agreements (subject to certain conditions being met), providers of in-home supportive services, or flight deck and cabin crew employees of air carriers who receive at least equivalent compensated time off.

In contrast to the state law, a new City of Oakland municipal code provision required employers to begin providing accrued sick leave on March 2, 2015, without a requirement that employees work 30 days to become eligible.  The Oakland and Emeryville sick leave laws only apply to any employees eligible for a minimum wage under California law who works at least 2 hours during a week in the at-issue city.  By contrast, the San Francisco city sick leave law generally applies to both exempt and non-exempt employees who work 56 hours or more in a calendar year in San Francisco.

Minimum Accrual Requirements

Employers must provide at least 1 hour of accrued sick leave per 30 hours of work beginning at the commencement of employment, or the operative date of the law, whichever is later.  Exempt employees are generally deemed to work 40 hours per week for purposes of sick leave accrual, unless the employee’s normal workweek is less than 40 hours.

Unfortunately, there is significant ambiguity regarding when accruals were required to commence under the new state law.  The law does not specifically not define its “operative date.”  While new California statutes are presumed to take effect on January 1 of the year following enactment (which would be January 1, 2015), we believe that the use of July 1, 2015 in the employee eligibility definition most likely makes July 1, 2015 the operative date, at least with respect to accrual requirements.  Consistently, the California Labor Commissioner has interpreted the law to require employers to:  (a) give employees credit for time worked starting January 1, 2015 toward the 30 days of work eligibility requirement; and, (b) measure accrual as starting from July 1, 2015, or the employee’s start date, whichever is later.

AB 304 authorizes employers to adopt sick leave accrual methods other than 1 hour per every 30 hours worked, provided that the accrual is on a regular basis so that an employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period. By way of example, AB 304 would appear to allow weekly, bi-weekly, semi-monthly, or monthly accrual arrangements that meet the adjusted minimum requirements. The above-referenced accrual rate extrapolates to approximately 73 hours per year, as compared to the general annualized rate of 69 and 1/3 hours (1 hour per 30 hours of work for full-time employment). AB 304 does not authorize pro-ration of the adjusted minimum accrual requirement for part-time employment. Employers should seriously consider adopting non-hourly accrual methods (e.g., based upon regular payroll periods) to simplify both sick leave administration and related attendance management issues. Please note, however, that the local sick leave laws in Emeryville, Oakland, and San Francisco do not authorize accrual methods other than 1 hour of sick leave per 30 hours of work.

AB 304 announced for the first time a type of grandfather protection for certain plans that existed before January 1, 2015. Under this grandfather provision, employers are not required to provide additional paid sick days to employees covered by a paid leave policy or paid time off policy that meets all of these requirements: (a) was in effect prior to January 1, 2015; (b) uses a regular accrual method other than 1 hour of sick leave per 30 hours of work; (c) provides at least 1 day or 8 hours of accrued sick leave or paid time off within 3 months of employment of each calendar year, or each 12-month period; (d) makes the employees eligible to earn at least 3 days or 24 hours of sick leave or paid time off within 9 months of employment; and, (e) allows the time to be used for the same purposes and under the same conditions as sick leave law generally requires. The accrual rates in (c) and (d) would extrapolate to 32 hours per year, much lower than the annualized accrual rate of 1 hour of sick leave per 30 hours of work for full-time employment (69 and 1/3 hours). AB 304 does not authorize pro-ration of these minimum requirements for less than full-time work. AB 304 also does not permit employers to benefit from this new grandfather protection if they lower the amount of paid sick leave or paid time off provided. The grandfather protection would not apply to classes of employees who were ineligible for the sick leave or paid time off prior to January 1, 2015 (e.g., in many cases, temporary employees or part-time employees regularly scheduled to work less than a threshold hours-per-week requirement). Please note that local sick leave laws in Emeryville, Oakland, and San Francisco do not provide any similar form of grandfathered-policy protection. Employers should consult directly with legal counsel to determine whether, and to what extent, they may take advantage of grandfather protection for plans in effect prior to January 1, 2015.

Accrual Carry Over & Caps

Accrued sick leave must carry over from year to year (i.e., no forfeiture), unless the employer provides no less than 24 hours or three days of paid sick leave at the outset of each year (discussed further below).  Employers may cap sick leave accrual at 48 hours or 6 days.  However, the cap must be at least 72 hours for employees working in San Francisco or Oakland if the employers with 10 or more employees, and for employees working in Emeryville if the employer has 55 or more employees.

Employers are not required to pay out accrued sick leave upon termination of employment (assuming the sick leave is not provided pursuant to a general PTO plan).  However, an employer must reinstate unused accrued sick leave if a former employee is re-hired within one year (and must allow its immediate use, subject to the use and accrual limitations set forth in the law).  Under pre-existing California law, accrued general paid time off (PTO) must be paid out to employees upon cessation of employment just the same as if it were accrued vacation.

Yearly Allotment (or Lump Sum) Alternative to Accrual

The state law provides that, in lieu of accrual, employers may provide employees with the full amount of 3 day 24 hours of paid sick leave at the beginning of each year of employment, calendar year, or 12-month period.  Unfortunately, the yearly allotment approach does not appear to be a feasible option for employees working in San Francisco or Oakland.  San Francisco and Oakland city laws require employers to provide accrued sick leave, and fail to include any unaccrued alternative.

When Employees May Start Using Their Sick Leave

Employees may start using accrued sick leave beginning on the 90th day of employment under the state law. Employment prior to July 1, 2015 is counted towards the 90-day period.  By contrast, the Oakland municipal code provides that employees hired after March 2, 2015 may be denied use of sick leave until after 90 calendar days of employment.  This means that the 90 day requirement may not be applied to Oakland employees who were hired on or before March 2, 2015.

A particularly ambiguous provision of AB 304 appears to allow employers to require 120 calendar days of employment before an employee becomes eligible to use sick leave when the full amount is provided at the beginning of each year of employment, calendar year, or 12-month period. In light of the ambiguity of this provision, consult directly with legal counsel before incorporating it into an employer policy. Please note again that local laws in Oakland and San Francisco require sick leave accrual and do not authorize this type of yearly allotment approach. While the local sick leave law in Emeryville appears to allow the yearly-allotment method, it’s unclear whether Emeryville would permit the 120 days of employment eligibility requirement for usage of such sick leave.

Qualifying Reasons

Qualifying reasons for sick leave use include diagnosis, care or treatment of, or preventative care for an existing health condition of the employee or a family member of the employee.  “Family member” is defined to include any:

  • Child, stepchild, or legal ward.
  • Parent (including in loco parentis, i.e., someone who has acted in the de facto capacity as a parent), stepparent, or legal guardian of the employee or the employee’s spouse or registered domestic partner.
  • Spouse or registered domestic partner.
  • Grandparent or grandchild.
  • Sibling.

In addition, leave in relation to being a victim of domestic violence, sexual assault, or stalking is also qualifying.

Under Emeryville, Oakland, and San Francisco city laws, if an employee has no spouse or registered domestic partner, the employee is entitled to designate one person for whom he or she may use paid sick leave to aid or care for.  Employers must offer employees the opportunity to identify such a designated person no later than when the date the employee has worked 30 hours after sick leave begins to accrue, and annually thereafter.

The Emeryville sick leave law also requires employers to allow an employee to use sick leave to aid or care for a guide dog, signal dog, or service dog of the employee, employee’s family member, or designated person (as discussed above).

Employee Sick Leave Usage Conditions

To use sick leave, the employee must provide reasonable advance notice if the need for leave is foreseeable.  Otherwise, the employee must provide notice as soon as practicable.  Employers may set a reasonable minimum increment of leave usage, as long as it is not greater than a 2 hour increment under the state law.  The San Francisco sick leave ordinance, however, provides that employers may require a minimum usage increment of 1 hour (and larger minimum increment requirements may be permissible only under special circumstances).  The Oakland Municipal Ordinance does not directly address this issue, but may be interpreted to require minimum usage increments of no greater than 1 hour.

The state law allows employers to limit sick leave usage to 3 days or 24 hours per year of employment, calendar year, or 12-month basis.  With respect to employees working in Emeryville, Oakland, or San Francisco, however, city laws do not permit a usage cap.

The California Labor Commissioner has clarified how it interprets “3 days” for part-time employees in FAQs published on its website.  The Labor Commissioner has taken the position that “3 days” are “based on an 8 hour work day” regardless of part-time status.  Consequently, the Labor Commissioner opines that “3 days” means “24 hours” even for a part-time employee regularly scheduled to work fewer than eight hours per day.  We respectfully disagree with the Labor Commissioner’s interpretation.   In our view, the actual language of the law “no less than 24 hours or 3 days” should be read to give employers a choice of two ways to measure sick leave.  If an employee is regularly scheduled to work 4 hours per day, for example, then it would make more sense for the employee to receive 3 four-hour days of sick leave rather than 3 eight-hour days of sick leave.  While we respectfully disagree with the Labor Commissioner’s interpretation, employers that wish to take the safest approach should comply with it pending a possible future change in interpretation by the Labor Commissioner or a court ruling.

The FAQs also clarify how the Labor Commissioner interprets “24 hours or 3 days” with respect to an employee working an alternative workweek of 4 days at 10 hours/day.  The Labor Commissioner opines that “24 hours or 3 days” means the greater of 24 hours or 30 hours (3 days times 10 hours) for an employee working a 4 x 10 schedule.  Obviously, this seems inconsistent with the Labor Commissioner’s above suggestion that a work day equals eight hours regardless of part-time status.  Again, employers that wish to play it safe should comply pending a possible future change in interpretation by the Labor Commissioner or a court ruling.

The state law fails to provide employers with the right to request medical certification of the need for sick leave, which implies that employers may not request medical certification except as permitted by another leave law (e.g., FMLA, CFRA, PDL, ADA, etc.)  The law also forbids an employer from requiring as a condition of using sick leave that an employee search for or find a replacement worker.

Pay Rate

For non-exempt employees, AB 304 allows the employer to pay for sick leave using either of these rates: (a) the “regular rate of pay” (i.e., based upon the technical overtime law definition of the term) for the workweek in which sick time is used, regardless of whether the employee actually worked overtime during that workweek; or, (b) total wages (not including overtime) divided by total hours worked in the full pay periods of the prior 90 days of employment. For exempt employees, AB 304 requires sick time to be calculated in the same manner as the employer calculates wages for other forms of paid leave.  AB 304 changed the pay requirements that were originally incorporated into AB 1522.  Employers with policies based upon the the original language of AB 1522 should work with legal counsel to determine whether changes are necessary to comply with AB 304.

Unfortunately, the San Francisco sick leave ordinance further complicates matters by setting these different pay requirements:

(a)  Employees paid by piece rate or commissions:  total earnings in base wages and commissions or piece rates for the prior calendar year divided by the total hours worked as commissioned or piece rate employees during the prior calendar year (if the employee does not have a prior calendar year’s work history, then the calculation time period will instead be from date of hire to present).  This rate is capped, and may not exceed, two times the San Francisco minimum wage.

(b)  If  an employee has two jobs at different pay rates, or a fluctuating pay rate for the same job, the scheduled rate(s) of pay for the job during the time when sick leave is taken.

San Francisco employers will be required to determine whether the state law or ordinance pay rate is more generous in each case, and pay the more generous rate.

General PTO Policies & Possible Attendance Management Impact

The new law could disproportionately complicate attendance management issues for employers that provide general paid time off (PTO) for sick leave use, i.e., instead of separate vacation and sick leave. While we’re not suggesting that all California employers with PTO policies convert to separate vacation and sick leave, we are suggesting that they consider how the new law can impact the balance of pros and cons with respect to these policy alternatives. For many employers, we believe the issue will boil down to whether their higher business priority is to retain the flexibility and simplicity of general PTO, or to have more power to control unpredictable sick leave related absences.

As discussed further below, the new law protects employees from retaliation, including termination or other disciplinary consequences, for absences using PTO or sick leave for qualifying reasons. Consequently, an employer that makes all PTO available for sick leave use will make all PTO subject to protected use for inherently unpredictable sick leave reasons. An employer could reduce the amount of leave available for protected sick leave use by replacing PTO with separate traditional vacation (not subject to the sick leave law) and a smaller amount of sick leave (subject to the new law’s requirements). Prior to the new law, California’s Kin Care law made only half of accrued PTO or sick leave subject to protected use to care for an ill family member. While the Kin Care law itself provided some attendance-management incentives for employers with PTO policies to consider converting to separate vacation and sick leave, the new law adds to those incentives for a variety of reasons (including that the new law protects all sick leave use, instead of only half of accrued leave used to care for an ill family member).

We anticipate that many employers will decide to retain general PTO policies, because preserving the flexibility/simplicity of general PTO will remain of greater concern than the anticipated impact of the law on attendance management. Employers that are more concerned about attendance management would be wise to consider changing from PTO to separate vacation and sick leave. Each California employer should carefully weigh with its legal counsel the pros and cons of the various policy alternatives available to comply with the new law, and determine the best approach consistent with the employer’s business priorities. Even if an employer elects not to change the type of policy it uses to provide sick leave, we believe that virtually all existing PTO and sick leave policies will require revisions to comply with the new law.

Unaccrued Vacation or PTO Policies

The law does not specifically discuss unaccrued “take what you need” vacation or PTO policies. Employers with such policies that cover only vacation will need to ensure they have a separate policy providing the requisite sick leave.

Employers with unaccrued PTO policies that cover time off for both vacation and sick leave should consider replacing such policies with an unaccrued vacation policy, and a separate sick leave policy meeting the law’s requirements.  As discussed further below, the law requires employers to provide written notice on each regular payroll date of the amount of paid sick time or paid time off available. AB 304 states that if the employer provides unlimited sick time or paid time off, the employer can meet this requirement by indicating “unlimited” on the written notice. We strongly caution employers to consult directly with legal counsel before providing such notice of unlimited sick leave. If an employer’s policy provides paid time off subject to business needs and/or management approval, then it may not be considered truly “unlimited,” or compliant with the sick leave law. The sick leave law protects employees’ rights to use their sick leave regardless of business needs or management approval. Moreover, providing truly unlimited sick leave that employees can use on a legally protected basis can lead to serious attendance management problems. We generally do not regard unlimited plans as good vehicles to use to satisfy the requirements of sick leave laws.

Guaranteeing a minimum amount of guaranteed PTO under an unlimited plan does not appear to be a good work around.  Designating any amount of general PTO as guaranteed each year will cause it to be deemed “accrued” under California law, i.e., such that any unused amount must be paid out upon cessation of employment.  (See California Labor Commissioner Opinion Letter, May 11, 1987).  In light of the complexity of the issues involved, employers with unaccrued PTO policies should review their policies with counsel to confirm what steps should be taken to ensure compliance.

No Retaliation for Sick Leave Usage & Other Protected Activities; Liabilities

The law not only prohibits retaliation against employees for requesting to use or using sick leave, it establishes a rebuttable presumption of retaliation if an employee is terminated or experiences other adverse action within 30 days of engaging in certain protected activities (including filing a complaint with the California Labor Commissioner, cooperating with an investigation or prosecution, or opposing a policy, practice, or act that violates the law).  The law establishes a wide range of penalties and other liabilities for failure to comply with any of its requirements.

Notice & Record Keeping Requirements

In contrast to the minimum sick leave requirement, the California Labor Commissioner has taken the position that the law’s other requirements became effective January 1, 2015.  The most significant other requirements include notice and record keeping requirements concerning paid sick leave.

The law requires employers to provide a variety of notices regarding employee sick leave rights.  First, on each pay date, employers must provide written notice “that sets forth the amount of paid sick leave available, or paid time off leave [provided] in lieu of sick leave” on either the employee’s itemized wage statement, or a separate writing.

Second, employers must post information about employee sick leave rights in each workplace.  The California Labor Commissioner has published a poster employers may use to meet this requirement.

Third, the law modifies the new hire notice required by California Labor Code Section 2810.5 (for non-exempt employees) to include information about sick leave rights.  The California Labor Commissioner has published a template employers may use to meet this requirement.  The Labor Commissioner’s FAQs advise that employers must provide new notices to employees hired before, during, and after 2015. The Labor Commissioner confirms that employers are required to provide such notices to employees regardless of whether the employer has made changes to its sick leave or PTO policy, because the notice conveys information about the sick leave law itself. The Labor Commissioner advises that employers are also required to provide new written notice when changing sick leave and/or PTO policy provisions. Existing employees are entitled to written notification of changes in information covered by their prior notices within seven days (or on their next itemized wage statement). Employers are advised to consult with counsel to determine how to make appropriate revisions to their non-exempt new hire notice forms, and how to best provide follow up notice to existing employees regarding changes in their sick leave rights.

Employers must maintain records for at least three years to document employee hours worked, paid sick days accrued, and sick days used for each employee.  Failure to comply with this requirement establishes a presumption that, at any given point in time, the employee is eligible for the maximum number of sick leave hours.  Given the frequency with which employers need to discipline or terminate employees based upon attendance problems that can be seen as excessive sick leave use, failure to maintain appropriate records may substantially increase legal risks of attendance-based terminations in many cases.

Training Recommended

To ensure compliance and minimize exposure risks, employers are advised to train their supervisory, management, and HR staff on the new law’s requirements.

More general information about the California sick leave law may be found in answers to FAQs published by the California Labor Commissioner.

Employers seeking further guidance on any of these issues may contact any of the firm’s lawyers listed below.

Raymond H. Hixson, Esq. (ray@hnemploymentlaw.com; 408-486-9977)

Brian K. Nagatani, Esq. (brian@hnemploymentlaw.com; 408-486-9988)

Mary Wang, Esq. (mary@hnemploymentlaw.com; 408-486-9933)

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