California continues to expand worker protections and aims to increase pay transparency in the workplace. Closing out the legislative session, California Governor Gavin Newsom recently signed significant new legislation aimed at increasing pay transparency and addressing employee off-duty cannabis use.

Pay Transparency for Equity Act (Senate Bill (“SB”) 1162)

SB 1162, the Pay Transparency for Pay Equity Act, amends California Government Code § 12999 and Labor Code § 432.3, to impose greater obligations on employers in the area of pay transparency and equity in employment and hiring.

Increased Pay Data Reporting for Employees Hired Through Contractors

Effective January 1, 2023, amended Government Code § 12999 expands pay data reporting requirements for private employers with 100 or more employees. In particular, SB 1162 requires employers to submit a pay data report to the California Civil Rights Department (formerly known as the California Department of Fair Employment and Housing) on or before the second Wednesday in May of each calendar year reflecting the mean and median hourly rates paid to employees sorted by each combination of race, ethnicity, and sex. For purposes of establishing the numbers required to be reported, employers are required to create a “snapshot” that counts all of the individuals in each job category by race, ethnicity, and sex who were employed during a single pay period of the employer’s choice between October 1 and December 31 of the prior calendar year.

In addition, SB 1162 requires private employers with 100 or more employees hired through labor contractors within the prior calendar year to submit a separate pay data report to the California Civil Rights Department setting forth pay information regarding employees hired through labor contractors in the prior calendar year. In connection with this second report, employers must disclose the ownership names of all labor contractors used to supply employees. The statute mandates that the labor contractor supply all necessary pay data information to the private employer.

SB 1622 also expands the scope of employers who are required to submit pay data reports. While the prior version of Government Code § 12999 was limited to employers with 100 or more employees who were required to file an annual Employer Information Report (EEO-1) under federal law, the amended statute expands the reach of the statute to all employers with 100 or more employees, regardless of whether they are also required to file EEO-1 reports. (Although the text of the statute does not specify whether employers should only count California employees for purposes of the section, the California Civil Rights Department has issued guidance that Government Code § 12999 applies to employers who have 100 or more employees anywhere in the United States as long as they have one employee in California.)

In addition, under SB 1622, (a) an employer cannot submit a copy of its EEO-1 report to the California Civil Rights Department in lieu of a pay data report, and (b) employers with multiple establishments are no longer required to submit a consolidated report for all employees.
In addition to expanding employer reporting obligations, the amended statute increases potential civil penalties for non-compliance. Upon request by the California Civil Rights Department, a court may impose a civil penalty not to exceed $100 per employee on any employer who fails to file the required report and a civil penalty of up to $200 per employee on any employer for a subsequent failure to file the required report. The penalties would be payable to the Civil Rights Enforcement and Litigation Fund. If the employer’s failure to provide a complete and accurate report is attributable to the labor contractor’s failure to provide requisite pay data, the court may apportion an “appropriate” amount of penalties to the any labor contractor, although “appropriate” is not defined in the statute.

Increased Pay Transparency in Employment and Hiring

The Pay Transparency for Pay Equity Act also amends Labor Code § 432.3, which required employers to provide pay scale information to job applicants upon reasonable request and prohibited employers from relying on salary history information for job applicants when deciding whether to offer employment and seeking salary history information from job applicants.

Under the amended statute, effective on January 1, 2023, employers must provide current employees with the pay scale for their current positions upon request. In addition, SB 1162 also requires employers with 15 or more employees to include in all job postings the pay scale for the advertised position. If these employers engage a third party to announce, post, publish, or otherwise make known a job posting, they must provide the pay scale to the third party, and the third party must include that pay scale in the job posting. “Pay scale” is defined as the salary or hourly wage range that the employer reasonably expects to pay for the position.

The amended statute further requires employers to maintain records of job title and wage rate history for each employee for the duration of their employment plus three years thereafter. These records are open to inspection by the labor commissioner and failure to keep these records results in a rebuttable presumption in favor of the employee’s claim.

Employees who claim to be harmed by a violation of the section are permitted to file a written complaint with the Labor Commissioner within one year after learning of the violation. The complaint must state the name and address of the employer and provide a detailed account of the alleged violation. If a violation is found, the labor commissioner is authorized to order the employer to pay a civil penalty of between $100 and $10,000 per violation. Civil penalties collected pursuant to the section will be deposited into the Labor Enforcement and Compliance Fund for distribution to the Division of Labor Standards Enforcement.

The statute also builds in a private cause of action for injunctive relief and “any other relief the court deems appropriate.”

Finally, the statute includes a safe harbor provision for first-time violations of the statute’s new requirements for providing and posting the pay scale for employees and job applicants. No penalty will be assessed for first-time violations if the employer demonstrates that all job postings for open positions have been updated to include the requisite pay scale under the section.

Assembly Bill (“AB”) 2188

Protection for Off-Duty Employee Cannabis Use

Effective January 1, 2024, AB 2188 will prohibit employers from discriminating against an applicant or employee based on (1) the person’s use of cannabis off the job and away from the workplace or (2) an employer-required drug screening test that has found the person to have nonpsychoactive cannabis metabolites in their hair, blood, urine, or other bodily fluids.

While recreational marijuana use has been legal in California since 2016 and use of marijuana for medical purposes has been legal since 1996, the California legislature had not created employment protections for marijuana users, including medical marijuana use. Furthermore, in 2008, the California Supreme Court had ruled that the California Fair Employment and Housing Act did not require employers to accommodate the use of medical marijuana, in part because marijuana is prohibited under federal law. With this new statute, which will be codified as Government Code § 12954, California joins an increasing number of states in prohibiting employers for taking action against employees for off-duty marijuana use, regardless of whether the use is for medical purposes.

AB 2188 exempts from its protection employees in the building and construction trades and applicants or employees hired for positions that require a federal government background investigation or security clearance in accordance with federal regulations. In addition, the law does not preempt state or federal laws requiring applicants or employees to be tested for controlled substances. Notably, however, the statute does not include an exception for safety-sensitive positions, including positions requiring the employee to drive as a regular part of their duties.

Additionally, employers are not prohibited from taking action in hiring, or any term or condition of employment, if an employee fails a drug test that does not screen for nonpsychoactive cannabis metabolites, such as impairment tests that measure an individual employee against their own baseline performance, and tests that identify the presence of THC in an individual’s bodily fluids.

The new law also makes clear that nothing in the law permits an employee to possess, be impaired by, or use cannabis on the job. Nor does it affect the rights or obligations of an employer to maintain a drug- and alcohol-free workplace under state or federal laws or regulations.