California’s Increased Paid Family Leave Benefits and San Francisco’s Paid Parental Leave Ordinance

Long considered to be at the forefront of providing benefits to employees who take family and medical leave, California recently enacted a new law aimed at increasing the benefits paid out to employees who take time off to care for an ill or injured family member or for new child bonding. Meanwhile, San Francisco’s Board of Supervisors also recently passed a new ordinance requiring employers to provide “supplemental compensation” to employees who work in San Francisco and who take time off for new child bonding, making San Francisco the first city to require such paid parental leave.

Even if you don’t do business in California or San Francisco, these new laws reflect a growing trend across the country to provide greater protections and benefits to employees who take family leave. New York, for example, recently passed a law similar to California’s, providing wage replacement benefits to individuals who take family leave.  Similar legislation is also pending in Connecticut, Massachusetts, and Washington, D.C.  These laws continue the recent trend of mandating paid leave to employees that began with mandatory paid sick leave laws, which have passed in 28 jurisdictions at the state, county or city level.

Read on to find out more about the new California laws.

Increased Benefits Under California’s Paid Family Leave Law

California was the first state in the country to establish a paid family leave insurance program. Called the Paid Family Leave law or PFL, this law provides employees with wage replacement benefits for periods of leave taken to care for a seriously ill family member or to bond with a newborn baby, newly adopted child, or new foster child.  Under a recent amendment, employees commencing a covered leave on or after January 1, 2018, but before January 1, 2022, will be entitled to increased weekly PFL benefits of 60% or 70% of their weekly wages, depending on the highest quarterly wages earned during a base period.  These increased benefits also apply to disability benefits for individuals who are unable to work due to non-work related illness or injury, pregnancy, or childbirth.  Effective January 1, 2018, the amendment also eliminates an existing 7-day waiting period.

San Francisco’s Newest Ordinance on Paid Parental Leave

Employers who do business in San Francisco should also be aware of a new city ordinance requiring them to pay “supplemental compensation” to employees who take leave to bond with a new child and are receiving PFL benefits. This new ordinance, the first of its kind in the country, requires employers to make up the difference between an employee’s regular wages and their weekly wage replacement benefits under the PFL program.

Following are key highlights of the new ordinance:

  • It applies to any employer with 20 or more employees regardless of location. The exact date on which an employer must begin complying depends on the size of the employer.
  • Covered employees must meet several requirements, including minimum length of employment and required hours worked in San Francisco, as well as PFL eligibility for new child bonding.
  • With some caveats, employers will be obligated to supplement an employee’s PFL benefits during the time an employee is on leave for new child bonding for a period of up to six weeks so that the employee’s compensation during that time is 100% of their normal gross weekly wages.
  • Employers can require employees to use up to two weeks of accrued vacation during the time they are on leave for new child bonding to help satisfy or otherwise offset their obligation to pay supplemental compensation. Caution should be exercised, however, if the employee otherwise qualifies for leave under the California Family Rights Act in light of new regulations under that statute which prohibit an employer from requiring an employee to use accrued vacation when receiving PFL benefits or similar partial wage replacement benefits.
  • Employers can also require employees to reimburse them for the supplemental compensation if the employee voluntarily terminates their employment within 90 days of the end of their leave.
  • Employers will be subject to notice and record-keeping requirements.
  • Terminating an employee who has requested supplemental compensation under the new ordinance comes with increased risks; the employer may be required to continue supplemental payments after termination and may be subject to a rebuttable presumption concerning retaliation.
  • The Office of Labor Standards Enforcement is authorized to enforce the ordinance and employees also have a private right of action, subject to administrative exhaustion. Remedies include administrative penalties, liquidated damages, reinstatement, backpay, and attorneys’ fees and costs.

While no immediate action is required with respect to PFL benefits, employers may wish to review their policies to ensure that they accurately reflect and state what benefits are provided through this state program. For employers who have employees that work in San Francisco, it may be prudent to beginning reviewing your parental leave policies and consult with experienced counsel to make sure they are in compliance with the new ordinance.


DOL Issues Guidance on Its Broad View of Joint Employment

On January 20, the Department of Labor’s Wage and Hour Division (WHD) issued new guidance on joint employment under the Fair Labor Standards Act (FLSA).  The guidance marks the third time in recent years that WHD has stressed the broad definition of “employment” under the FLSA, following June 2014 guidance on joint employment in the home health care industry and July 2015 guidance on misclassification of employees as independent contractors.  WHD’s consistent focus reiterates that the agency believes that many workers are classified incorrectly and will focus its enforcement activity on these areas.

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Supreme Court Reiterates High Pleading Bar for Stock Drop Cases

As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”

In its first substantive ruling in a post-Dudenhoeffer stock-drop case, the U.S. Supreme Court yesterday held that the Ninth Circuit had failed to hold the plaintiffs in Amgen Inc. v. Harris to these high standards.  In the Supreme Court’s view, the Ninth Circuit in Harris failed to assess a factor that the Dudenhoeffer decision specifically instructed lower courts to consider: whether the complaint “plausibly alleged” that a prudent fiduciary in the same position “could not have concluded” that removing the company stock fund from the plan’s investment lineup “would do more harm than good.”  The court remanded the case for the district court to determine whether to allow the plaintiffs to amend their complaint.

The Harris decision reinforces the requirement that a stock-drop complaint should be dismissed unless the complaint alleges specific facts addressing each factor laid out in the Dudenhoeffer decision.  As a result, it will continue to be difficult for plaintiffs to bring stock-drop suits that can survive a motion to dismiss.

Covington & Burling LLP and Keating Muething & Klekamp PLL represented the employer, Fifth Third Bancorp, in the U.S. Supreme Court.

Employees in France and Germany May No Longer Have to Respond to Work-Related Emails Out of Working Hours

As people head off on their summer breaks, regulators in Europe, particularly Germany, are increasingly focused on the breakdown of the division between home and work life and how this division is changing as mobile devices become used for work-related emails. Regulators are considering new rules that would limit an employer’s ability to require employees to respond to work-related requests outside of office hours.  For a breakdown and analysis of the proposals, please click here.

Bruno Standaert is a trainee in the Brussels office of Covington & Burling LLP.  He received his law degree from the University of Leuven.

SEC’s New Pay Ratio Disclosure Rule Explained

On August 5, 2015, the Securities and Exchange Commission adopted, by a three-to-two vote, a rule that will require most public companies to disclose, annually, the ratio of the median of the annual total compensation of the company’s employees to the annual total compensation of the company’s principal executive officer. Companies must comply with the pay ratio rule for the first fiscal year beginning on or after January 1, 2017. As a result, companies with December 31 fiscal years will first be required to provide pay ratio disclosure, for the 2017 fiscal year, in their proxy statements for their 2018 annual meeting of shareholders.

Our colleagues in Covington’s Securities practice group have prepared a nice overview of the new rule, which you can view here.

Will Cybersecurity Best Practices Morph into Cyber Mandates?

The federal government has been encouraging employers to adopt best practices to address both external and internal threats to critical business information and infrastructure. These best practices have included an important human resources element, including policies and programs covering current and former employees.

For example, the Obama Administration opened its initiative to combat trade secret theft with a report that listed human resources policies as one of four areas in which employers need to adopt best practices. Similarly, the Framework for Improving Critical Infrastructure Cybersecurity developed by the National Institute of Standards and Technology and the recently published Best Practices for Victim Response and Reporting of Cyber Incidents developed by the U.S. Department of Justice include multiple recommendations regarding human resources policies needed to manage cybersecurity risks. As we have noted before, employees can be among the best protectors of employers’ critical information, or its worst threat.

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Closing the Backdoor on Roth Conversions of After-Tax Amounts?

White House budget proposal released earlier this year would eliminate several methods used by certain taxpayers to convert after-tax contributions into Roth amounts.  Although such a change would likely require congressional action, taxpayers who use or are considering these methods should be mindful of the proposed change.

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Time to Focus on Directors’ Pay?

Although executive compensation has been under significant scrutiny for many years, directors’ compensation has flown somewhat under the radar. That may be about to change: in Calma v. Templeton, a Delaware court recently held that the level of compensation granted to non-employee directors should be reviewed under the “entire fairness” standard rather than under the more lenient “business judgment” standard. The court concluded that the stricter standard was appropriate because:

  • the directors had a conflict of interest when they were deciding whether to award themselves any equity compensation; and
  • the company’s shareholders did not “ratify” the directors’ equity awards when they approved the plan under which the awards were granted, since the plan did not include “meaningful limits” on the potential awards.

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Labor Department Addresses Worker Misclassification

The classification of workers as employees or independent contractors is an ongoing headache for employers.  Different government agencies use different tests to determine a worker’s status.  The one thing the tests have in common is that they are subjective: two people applying the same test to the same worker will often reach different conclusions about the worker’s status.  Employers face substantial liabilities under tax provisions, employee benefit plans, workplace rules, overtime requirements, and other laws if they misclassify an employee as an independent contractor.

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