Employment Law Alert: California’s New Sick Leave Law (Pre AB 304 Version)

This is an updated version of our employment law alert originally published on September 18, 2014, last revised on April 11, 2015.

On September 10, 2014, California Governor Jerry Brown signed the Healthy Workplaces, Healthy Families Act of 2014 (Assembly Bill 1522) into law, which requires employers to provide accrued sick leave to employees.  We believe that this may be the most significant new California employment law passed within the last few years, as it will require virtually all employers to revise their sick leave policies and practices.

Employer/Employee Coverage & Effective Date

The new law applies to all California employers, regardless of size.  The law 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. The law covers all employees regardless of full-time, part-time, exempt, or non-exempt status.  While the new 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 requires employers to begin providing accrued sick leave on March 2, 2015, without a requirement that employees work 30 days to become eligible.  The Oakland municipal code provision only applies to employees eligible for a minimum wage under California law who work at least 2 hours in Oakland during a week.

Minimum Accrual Requirement, Caps, & Carry Over

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 must 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 prior to July 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.

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.  For San Francisco and Oakland employees, however, the cap must be at least 72 hours (for employers with 10 or more employees) under city laws.

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).  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.

Employee Usage & Qualifying Reasons

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.

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 San Francisco and Oakland 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.

Under San Diego’s city sick leave ordinance employers would also be required to allow sick leave use for closure of a school or day care of the employee’s child due to a public health emergency.  While the San Diego ordinance was originally enacted to go into effect on April 1, 2015, a successful voter petition has postponed the effectiveness of the ordinance (pending an election vote that may not occur until June 2016).

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.  With respect to employees working in San Francisco and Oakland, however, city laws do not permit a usage cap.

The state law allows employers to limit sick leave usage to 3 days or 24 hours per year of employment.  With respect to employees working in San Francisco and Oakland, 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

The law provides that the rate of sick leave pay shall be the employee’s hourly wage.  However, “[i]f the employee in the 90 days of employment before taking accrued sick leave had different hourly pay rates, was paid by commission or piece rate, or was a nonexempt salaried employee, then the rate of pay shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.”

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.

Existing Policies & Alternative to Accrual Approach

As to existing sick leave policies, including general PTO policies that combine vacation and sick leave, the law provides that an employer is not required to offer additional sick leave if the employer makes available paid leave that may be used for the same purposes, and either:  (1) the employer satisfies the law’s accrual, carry over, and use requirements; OR, (2) provides no less than 24 hours or three days of paid sick leave, or equivalent paid leave for each year of employment, calendar year, or 12-month basis.  Unfortunately, option (2) 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 similar to option (2).

Please note that even employers with existing policies that meet the requirements of (1) or (2), above, will likely need to have their policies revised to satisfy other provisions of the law.  Some of the most important existing types of policy provisions to review, and revise as necessary for compliance, include those pertaining to:  the definition of eligible employees; accrual rates, timing, carry over, and caps; pay rates; family member definition; any usage requirements pertaining to work coverage, advance notice, or medical documentation; disciplinary consequences for excessive and/or unpredictable use of leave; and, possible reinstatement of unused leave upon re-hire.  All employers are advised to work with counsel to review their existing policies to determine what, if any, modifications are needed to ensure compliance.

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. The new law’s requirements to guarantee a minimum amount of sick leave per year, and to track its use (see below), are inconsistent with the concept of unaccrued PTO.  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 become 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. ([email protected]; 408-486-9977)

Brian K. Nagatani, Esq. ([email protected]; 408-486-9988)

Mary Wang, Esq. ([email protected]; 408-486-9933)