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Home | BakerHostetler

James Sherer Comments on Client Questions Post-Election in Law.com and The Recorder Articles

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Sarah La Voi, Lauren Bass Pen Article for The Licensing Journal on Morals Clause

<h5>Key Takeaways</h5>
<ul>
 	<li>While employers were previously required to disclose head count, pay and hours worked data for covered employees by race, ethnicity and sex in each specified job category, SB 1162 added several new obligations</li>
 	<li>Under SB 1162, the CRD may ask a court to impose a civil penalty of up to $100 per employee on any employer that fails to file the required reports. For any subsequent failures, the CRD may request a civil penalty of up to $200 per employee.</li>
 	<li>The passage of SB 1162, which will go into effect on Jan. 1, 2023, carries with it many substantive obligations with respect to pay data reporting and pay data disclosures. Employers are advised to start early to determine the appropriate occupational survey band (established by the U.S. Bureau of Labor Statistics) for each of their positions so they are prepared to provide all the requisite data come May 2023.</li>
</ul>
As we detailed here, California’s passage of SB 1162 expanded the pay data reporting obligations for private employers with 100 or more employees that file annual federal Employer Information Reports (EEO-1) to include employee pay data information in a report to the Civil Rights Department (CRD) (formerly the Department of Fair Employment and Housing). While employers were previously required to disclose head count, pay and hours worked data for covered employees by race, ethnicity and sex in each specified job category, SB 1162 added several new obligations:
<ul>
 	<li>All employers with 100 or more employees must now report to the state “[w]ithin each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.”</li>
 	<li>Employers that retain 100 or more workers through “labor contractors” must submit a separate report with data regarding pay, hours worked, race/ethnicity and gender for those workers.</li>
 	<li>Employers with at least 100 employees must submit these pay reports regardless of whether they are required to file an EEO-1 report, and they may no longer submit an EEO-1 report in lieu of the state-mandated report.</li>
</ul>
Under SB 1162, the CRD may ask a court to impose a civil penalty of up to $100 per employee on any employer that fails to file the required reports. For any subsequent failures, the CRD may request a civil penalty of up to $200 per employee.

Pay data reports, including mean and median pay rate information, will be due starting May 10, 2023. (SB 1162 also moves the reporting deadline from March to the second Wednesday in May of each year.)

SB 1162 also imposes new pay transparency requirements on California employers. Under the new law, employers with 15 or more employees must include the salary or hourly wage range in all job postings, including in job postings published, announced, posted or “otherwise made known” by a third party. The new law also expands rights previously held only by job applicants to current employees by requiring all employers, regardless of size, to provide pay scales for their positions to current employees upon a “reasonable request.”
<h5>What Exactly Is a Labor Contractor?</h5>
The requirement that raises the most questions is the mandate that employers submit a separate report for workers retained through a “labor contractor.” Part of the confusion with this requirement is definitional. That is, while “labor contractor” is defined as “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business,” the term “usual course of business” is not defined. Add to that the fact that no contract is required for an entity to be considered a “labor contractor,” and further ambiguity results as to who is or what entities are covered.

Thus, while staffing agencies and more traditional entities supplying temporary workers are certainly covered by SB 1162, the Legislature’s failure to clarify these terms may lead to other, more nontraditional entities – including those operating without a contract – being covered.

Accordingly, until the CRD provides guidance on who or what is and is not a “labor contractor” under SB 1162, employers can look to how “usual course of business” is defined in other statutory contexts. This includes California Labor Code § 2810.3, the joint employer liability statute, which defines “usual course of business” as the “regular and customary work of a business, performed within or upon the premises or worksite of the client employer.”

It is likely that California Labor Code § 2810.3’s “usual course of business” definition has equal application to SB 1162 because both statutes define “labor contractor” identically. This definition of usual course of business is a helpful aid in ascertaining who or what is a labor contractor for purposes of SB 1162’s reporting requirement.
<h5>Contractual Considerations</h5>
As stated above, the CRD may ask a court to impose a civil penalty of up to $100 per employee for initial violations and $200 per employee for subsequent violations. While SB 1162 does contain a built-in mechanism to apportion an appropriate proportion of penalties to labor contractors that fail to provide employers with the requisite reporting data, employers can take additional measures to circumscribe or eliminate potential financial consequences.

Most significantly, employers should confirm their contracts with labor contractors include appropriate indemnity clauses to cover such eventualities. Language requiring indemnification of any failure to “supply all necessary pay data to the employer (or the CRD) as is required by California Government Code § 12999,” for example, should be included.
<h5>The Bottom Line</h5>
The passage of SB 1162, which will go into effect on Jan. 1, 2023, carries with it many substantive obligations with respect to pay data reporting and pay data disclosures. Employers are advised to start early to determine the appropriate occupational survey band (established by the U.S. Bureau of Labor Statistics) for each of their positions so they are prepared to provide all the requisite data come May 2023. Employers should also revisit their contracts with any entity that may be deemed to be a current labor contractor to determine whether contractual terms should be renegotiated. Finally, employers should review all existing job postings to ensure information required by SB 1162 is included.

For more information about SB 1162, please contact BakerHostetler’s Labor and Employment Practice Group lawyers or your BakerHostetler contact.

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Los Angeles

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Shareef Farag

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Matthew J. Goodman

Labor and Employment

Wage and Hour Compliance

California Labor and Employment

California Employers: Considerations for California’s Expanded Pay Data Reporting Requirements

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