This piece originally appeared in the Carothers DiSante & Freudenberger California Labor & Employment Law Blog and is republished here with permission.
This week, California’s governor signed into law urgency legislation passed by the legislature (AB 304) to amend California’s recently enacted paid sick leave law. These amendments take effect immediately and are intended to clarify some areas of ambiguity in the law as originally enacted. While the amendments do provide clarification in some areas, they nonetheless create added confusion and burden for employers that have already adopted or modified paid time off policies to take effect July 1, 2015, based on their best interpretations of the paid sick leave law in its originally enacted form. The amendments also leave a number of ambiguities in the original law unanswered. The following is a summary of the amendments:
The original law included several exemptions for certain types of employees, including in-home supportive care workers, employees covered by collective bargaining agreements (provided certain conditions are met), air carrier employees and certain employees in the construction industry. The amendments create a new exemption for certain public-sector retired annuitants. The amendments also modify the construction worker exemption by eliminating the requirement (set forth in the original statute) that the construction worker perform “on-site work.” A related bill (AB 11) would have eliminated the exemption for in-home supportive care workers, but that bill failed.
Requirement that Out of State Employee Work in California for at Least 30 Days in a Year
The original paid sick leave law included a provision stating that the law applies to out-of-state employees who work in California for at least 30 days in a year. The amendments retain this coverage provision, but clarify that the employee must work at least 30 days in California for the same employer. The amendments, however, leave unanswered the outstanding ambiguity concerning whether 30 days means 30 actual work days, or 30 calendar days.
How Much Paid Leave Must Be Provided and Which Methods Employers May Use to Comply
As originally enacted, the paid sick leave law stated that beginning July 1, 2015, employees must begin accruing paid sick leave at the rate of at least 1 hour for every 30 hours worked. However, employers may prohibit use of paid sick leave until the 90th day of employment, may limit annual use of paid sick leave to three days or 24 hours, and may impose an overall cap on accrual of six days or 48 hours. Additionally, an employer may satisfy the paid sick leave requirement through a general paid time off policy or sick leave policy that satisfies at least the minimum accrual, carryover and use requirements of the paid sick leave law, or that frontloads no less than 24 hours or three days of paid time off for employee use at the beginning of each year.
The amendments make substantial changes to these provisions, which now state the following:
- Employers who use the accrual method (as opposed to frontloading paid sick leave) may provide for accrual of paid sick leave at a rate other than 1 hour for 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.
- Employers may satisfy the accrual requirements by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of his or her 120th calendar day of employment. [This reference to the 120th calendar day of employment is entirely new and confusing, and it is inconsistent with the immediately preceding section stating that alternative accrual methods are okay as long as the employee accrues as least 24 hours of paid leave in a year (not within the first 120 days of employment).]
- Employers satisfy the paid sick leave requirement if they frontload the full amount of leave and make it available for employee use at the beginning of each year of employment, calendar year or 12-month period. The amendments further clarify that the term “full amount of leave” means three days or 24 hours.
- An employer is not required to provide additional paid sick leave to employees if the employer has a paid leave policy or paid time off policy, the employer makes available an amount of leave that may be used for the same purposes and under the same conditions provided for under the paid sick leave law and the policy satisfies one of the following:
- Satisfies the accrual, carryover and use requirements of the new law; OR
- For policies in existence prior to January 1, 2015, the policy must have provided for regular accrual of paid sick leave or paid time off of at least one day or eight hours within three months of employment of each calendar year or each 12-month period, with the employees being eligible to earn at least three days or 24 hours of sick leave or paid time off within nine months of employment. [This is a grandfather provision that allows employers to retain paid leave policies without change in these specified limited circumstances.] However, if the employer modifies the accrual method used in the policy it had in place prior to January 1, 2015, the employer shall comply with the accrual methods allowed under the paid sick leave law or provide the full amount of leave at the beginning of each year of employment, calendar year or 12-month period.
For employers who use the accrual method rather than the frontloading method, the amendments continue to allow employers to impose a cap on accrual of six days or 48 hours. The amendments also do not alter the permissible uses of paid sick leave.
Unlimited Paid Time Off Policies
As originally enacted, the paid sick leave law was silent about the subject of “unlimited” paid time off policies and whether these policies would satisfy the requirements of the law. The amendments suggest that unlimited paid time off policies will satisfy the requirements of the law, specifically stating that employers with unlimited paid time off policies may simply note “unlimited” on employee wage statements with reference to the amount of paid leave they have available.
Rate of Pay for Sick Leave
The amendments significantly change how employers should calculate pay for an employee’s use of sick leave, now providing that an employer may use any of the following methods:
- Paid sick time for nonexempt employees may be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek;
- Paid sick time for nonexempt employees may 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;
- Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.
Notice of Available Paid Sick Leave With Each Paycheck
The amendments generally retain the requirement that employers provide employees written notice of the amount of paid leave they have available with each wage statement. However, the amendments make an exception for employers covered by Wage Orders 11 and 12 (motion picture and broadcasting industries), delaying the effective date of the notice requirement for these employers until January 21, 2016.
Reinstating Sick Leave for Rehired Employees
As originally enacted, the paid sick leave law stated that employees who terminate employment and are rehired within one year are entitled to have previously accrued, but unused, sick leave reinstated. The amendments clarify that paid sick leave does not have to be reinstated if it was paid out on termination of employment (which is required if the sick leave is provided as part of a general PTO policy). The amendments also clarify that use of reinstated leave is subject to the “use and accrual limitations” of the statute. In other words, if the employer limits use of accrued leave to three days or 24 hours per year and the employee’s reinstated leave causes the employee to have more than three days or 24 hours of leave, that does not mean that the employee has to be permitted to use more leave than allowed under the employer’s policy.
Duty to Track Use of Paid Sick Leave
As originally enacted, the paid sick leave law stated that employers must retain for at least three years records reflecting the amount of paid sick leave accrued and used by employees. This led to many questions on the part of employers with general PTO policies as to whether they have to track use of PTO for a sick leave purpose (as opposed to for other purposes). The amendments clarify that an employer need not inquire into or record the purposes for which an employee uses paid leave or paid time off.
Ambiguities That Remain Unanswered
While the amendments to the paid sick leave law provide some needed clarification in a few areas (and added confusion in others), they do not resolve all of the ambiguities in the original statute that have caused compliance headaches for employers. Questions that remain unanswered include:
- Does the statute’s reference to “three days or 24 hours” mean that the maximum leave an employer must provide is 24 hours (or three days, if that is less, e.g. in the case of an employee who works less than eight hours per day)? Or does it mean that the employer must provide the greater of three days or 24 hours, making it possible for an employer to have to provide more than three days of leave to an employee who works less than eight hours per day, and more than 24 hours of paid leave to an employee who regularly works an alternative workweek schedule of more than eight hours per day? Department of Labor Standards Enforcement guidance seems to suggest the latter, but the statute does not answer this question. The same question is presented by the statute’s reference to an allowable cap on accrual of six days or 48 hours. Does this mean the greater of the two, the lesser of the two or that 48 hours is the outside max?
- For employers who use the frontloading method and want to grant leave on a calendar year basis, is it okay to pro-rate the amount of leave being provided for 2015 (from July 1 to December 31) to 1.5 days or 12 hours? Similarly, is it okay for employers to pro-rate the amount of frontloaded leave for employees hired mid-year or late in the year? Or, must the employer provide the full three days/24 hours regardless of when the employee is hired? The amendments do not expressly address the issue of pro-rating frontloaded leave. However, the amendments do contain language suggesting that the full amount of leave (three days/24 hours) must be provided up front under this method. It is possible that this language could be interpreted to preclude pro-rating. This would make it impractical for employers to simply use a calendar year approach for all employees and would instead effectively require employers to use an anniversary year for employees hired after July 1, 2015, and a July 1 to June 30 year for existing employees being provided with paid sick leave starting this year.
- With respect to the requirement that an employer reinstate accrued, unused paid sick leave to an employee who terminates and is rehired within one year, does this requirement only apply to policies that use the accrual method or does it also apply to policies that frontload at least three days/24 hours of paid sick leave? It would seem that the reinstatement right would not apply where an employer frontloads the leave at the beginning of employment (for the same reason that the carryover rule does not apply to frontloaded policies), but neither the original statute, nor the amendments, specifically address this or distinguish between accrual and frontloading policies in discussing the issue of reinstatement.
These unanswered questions are in addition to the new confusion caused by the amendments’ addition of directly conflicting provisions stating, on the one hand, that sick leave may accrue at a rate of other than one hour for every 30 hours worked as long as the employee is eligible to accrue at least 24 hours/three days in a year, and, on the other hand, that the alternative accrual method must allow the employee to accrue at least 24 hours/three days of leave by their 120th day of employment. Hopefully the legislature will clear up this confusion and answer the remaining unresolved questions so that California employers can more easily comply with this new employment law with some degree of certainty that they have protected themselves against the substantial penalties the law provides for noncompliance with its unclear provisions. In the meantime, employers should review the amendments and do their best to ensure that their policies are in compliance.