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Legislative Update: Sept. 23, 2019 - Newsom Signs AB 5

Employee Classification Bill Signed into Law

California Gov. Gavin Newsom last week signed AB 5 into law, to go into effect on January 1, 2020. This bill codifies the Dynamex “ABC Test” to determine whether someone is considered an employee or independent contractor. 

The “ABC Test” specifies three criteria a person must meet to be classified as an independent contractor. Those criteria are 1) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract for the performance and execution of the work and in fact; 2) the worker performs work outside the usual course of the hiring entity’s business; and 3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. 

In signing the bill, the Governor specified his support rooted back to “workers being wrongly classified as ‘independent contractors,’ rather than employees, which erodes basic worker protections.” He went on further to state the “next step is creating pathways for more workers to form a union, collective bargaining to earn more, and have a stronger voice at work -- all while preserving flexibility and innovation.” 

As the bill made its way through the Legislature, many industries received exemptions from the “ABC Test,” allowing them to continue to be subject to the Borello test to determine worker status. These exemptions include licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry. 

Prior to being sent to the Governor, Republicans presented a slew of amendments to expand the list of exempted professions to foresters, health care professionals, physical therapists, interpreters, translators, single truck owner-operators, newspaper carriers and distributors, non-profits, franchisors, franchisees, and designers. None of the Republicans’ amendments were accepted. However, Assemblymember Lorena Gonzalez amended her AB 170 to add an additionally temporary exemption for newspaper delivery persons, which has yet to be signed. 

Following the Governor’s action on AB 5, the California Chamber of Commerce issued a statement it is “pleased with the number of professions that AB 5 recognizes should not fall under the independent contractor test set forth in the Dynamex decision. AB 5 provides clarity and certainty for those industries…[but] much work remains to be done on the Dynamex issue.” CalChamber specifically cites there still needs to be more exemptions to the “ABC Test.” 

Only Two Job Killer Bills Sent to Governor’s Desk

Only two of the 31 job killer bills identified this year by the California Chamber of Commerce have passed the Legislature and been sent to Governor Gavin Newsom.

One of the bills, SB 1 (Atkins), which the Governor has indicated he will veto, threatened to create adverse consequences by impairing the state’s ability to adaptively manage its water supply. The other job killer bill, AB 51 (Gonzalez), prohibits arbitration of labor and employment claims as a condition of employment

In response to news reports that Governor Newsom plans to veto SB 1, CalChamber President and CEO Allan Zaremberg said:

“All Californians who rely on a clean, dependable and affordable supply of water should welcome news that Governor Newsom has indicated he will veto SB 1. SB 1 posed a major threat to California’s water supply and reliability, and the Governor has shown outstanding leadership in announcing his veto of this measure. While Senator Toni Atkins and the Governor are allies, we appreciate the Governor making California water policy the priority. In addition, we are grateful for the leadership of Senator Dianne Feinstein and the other members of Congress who joined a large coalition of urban and rural water users in educating California policy makers and the public about the adverse consequences SB 1 would have brought.”

The CalChamber is asking its members to contact Governor Newsom and urge him to veto AB 51.

The CalChamber has tagged AB 51 as a job killer due to the significant increased costs employers will face as a result of more litigation and the expense of delayed dispute resolutions if the bill becomes law. The bill also proposes to add a new private right of action under the Fair Employment and Housing Act (FEHA) and exposes employers to criminal liability for any violation.

In opposing AB 51, the CalChamber has emphasized repeatedly that the bill will undoubtedly be challenged in court, creating more litigation without providing any benefit to employees as intended. Last year, Governor Edmund G. Brown Jr. vetoed a virtually identical bill, saying it “plainly violates federal law.”

Numerous opinions by the U.S. Supreme Court and California Supreme Court over the last decade have consistently held any state law which interferes with, discriminates against, or limits the use of arbitration is preempted by federal law, the Federal Arbitration Act.

On the final day of the legislative year, the job killer bill granting unemployment benefits to striking workers, AB 1066 (Gonzalez), fell short of votes needed to pass the Senate. AB 1066 would have significantly increased costs on employers engaged in a trade dispute by allowing employees on strike to receiving unemployment benefits if the strike lasted more than four weeks, incentivizing strikes, burdening employers, and potentially affecting the solvency of California’s unemployment insurance fund.

A week before the session ended, amendments to twin recycling bills, SB 54 (Allen) and AB 1080 (Gonzalez), led to the removal of the job killer tag, but the CalChamber continued to oppose the bills, which failed to pass the Legislature. SB 54 and AB 1080 would have set impractical recycling rates and deadlines, provided CalRecycle with broad emergency regulatory authority that included significant fee authority with no legislative oversight, draconian penalties for unintentional data reporting errors, and lacked assurances that local jurisdictions and waste haulers would pull material through for all recyclable and compostable materials, among other significant issues.

This story was produced by CalChamber.

Governor Newsom Announces Two Innovative Contracts for Wildfire Prevention and Response

Governor Gavin Newsom announced the selection of the first two contracts for the Wildfire Innovation Sprint, which were the result of an executive order signed by the Governor on his first full day in office on January 8, 2019. Under the executive order, the Newsom Administration intends to modernize the way the state contracts for acquisition and development of technology systems, with the goal of getting cutting-edge firefighting technology in the hands of emergency responders by next fire season.

The California Department of Forestry and Fire Protection (CAL FIRE), California Department of Technology and Department of General Services collaborated with experts and government leaders to develop a problem statement to address wildfire management, focusing on detection, prediction and notification. Out of 131 proposals, two innovators were selected to conduct what is known as a “Proof of Concept,” which is a working model that will be initially tested on a small scale in the field. Ten additional applicants were invited to become part of an innovator pool for future consideration.

The first two contracts were awarded to Technosylva Inc. and Northrop Grumman Systems Corporation.

·     Technosylva will receive $383,000 to develop a prototype that predicts the path of a wildfire in real-time using an advanced cloud-based modeling subscription service and considers the vegetation, current and predicted weather, and topography. It is the goal this Proof of Concept will help decision makers determine the probable path of fire spread to allow for early notifications to emergency decision makers for purposes of emergency notifications, evacuations, and public updates. In addition, decision makers can consider potential fire spread to order and place additional emergency response resources. This project will encompass four primary locations, including Monterey, Butte, San Luis Obispo, and Napa counties. Oversight locations will be based in Redding and Riverside. 

·     Northrop Grumman’s contract for $1.6 million will entail the creation of an early wildfire ignition detection system based on remote sensors in the sky that interfaces directly with local computer-aided dispatch systems, so appropriate resources can be dispatched in real-time. The goal of the Proof of Concept is to obtain new wildfire detections as quickly, if not quicker, than a 9-1-1 caller reporting a new emergency. This project also covers the same four primary locations of Monterey, Butte, San Luis Obispo, and Napa counties and will have the potential to expand to a total of 23 locations statewide. 

Both contracts run through December 31, 2019. At that time, CAL FIRE will determine if the projects will be amplified statewide. 

Governor Takes on Youth Vaping Epidemic

At the direction of Governor Gavin Newsom, the state is confronting the growing youth epidemic and health risks linked to vaping. The Department of Public Health (CDPH) will launch a $20 million statewide digital and social media public awareness campaign to educate youth, young adults and parents about the health risks of vaping nicotine and cannabis products. CDPH is also tasked with developing recommendations to reduce smoking among young adults and teens by establishing warning signs with health risks where vaping products are sold and on product advertisements.

The Governor also announced he signed SB 39 by Senator Jerry Hill (D-San Mateo), legislation which will impose stricter age-verification requirements for tobacco products sold online or by mail.

Vaping devices are the most commonly used tobacco product in California and more than 80% of high-school teens who consume tobacco use a vaping device. Of the California teens who consume tobacco products, 86.4% report using a flavored tobacco product. There are over 15,500 e-liquid flavors, some of which have proven to cause significant health effects.

From 2016 to 2018, vaping among California high school students rose 27%. In 2018, 10.9% of California high school students reported using e-cigarettes and 14.7% reported using cannabis.

Additionally, the Department of Tax and Fee Administration (CDTFA) will develop recommendations to remove illegal or counterfeit vaping products from stores and reducing youth vaping consumption through increased enforcement and incorporating nicotine content into the calculation of the existing tax on electronic cigarettes.

CCPA Amendment Effort Largely Fizzles Out, Only Modest Changes

Editor's Note: Majority of content written by Claire Blakey, originally published by Paul Hastings LLP.

The California State Legislature’s session ended this weekend after passing a modest selection of amendments to the California Consumer Privacy Act (CCPA). The California Governor has until October 13 to sign them into law, which he is expected to do. 

Six amendments were enacted into law, and several key measures were not. However, importantly, a limited one-year delay on the applicability of the CCPA to employment and B2B information was enacted, along with a registration requirement for “data brokers.” 

Passed CCPA Amendments 

1.      AB 25 (one-year employee/job applicant moratorium) added a one-year moratorium on certain CCPA obligations with respect to job application and employment information. However, the right of access (and certain disclosure obligations) and the private right of action for data breaches (1798.100 and 1798.150, respectively) still apply. This exemption will expire on January 1, 2021. 

2.      AB 874 (definition of personal information) made several clarifications to the definition of “personal information” in 1798.140(o) that included “information that … could reasonably be linked … with a particular consumer or household;” specified that “personal information” does not include “deidentified” or “aggregate” information; and defined “publicly available information” as “information that is lawfully made available from federal, state, or local government records,” which does not include “biometric information collected by a business about a consumer without the consumer’s knowledge.” 

3.      AB 1146 (vehicle warranty exception) amended CCPA sections 1798.105 and 1798.145 to expand the exceptions to the CCPA’s deletion right to include “fulfill[ing] the terms of a written warranty or product recall conducted in accordance with federal law;” clarify that the CCPA’s opt-out of sale right “shall not apply to vehicle information or ownership information retained or shared between a new motor vehicle dealer . . . and the vehicle’s manufacturer . . . if the vehicle or ownership information is shared for the purpose of effectuating, or in anticipation of effectuating, a vehicle repair covered by a vehicle warranty or a recall.” 

4.      AB 1564 (toll-free number exception) amended 1798.130 to specify that a business must make available to consumers a toll-free number and at least one other method for submitting requests for information, except that a business that “operates exclusively online and has a direct relationship with a consumer from whom it collects personal information” is only required to provide an email address. Further, if a business maintains a website, the business must make the website available to consumers to submit requests for information required to be disclosed pursuant to Sections 1798.110 and 1798.115 of the CCPA. 

5.      AB 1355 (clean-up/clarification bill) corrected several typographical errors and incorrect references, and made the changes to the CCPA to revise the existing Fair Credit Report Act (FCRA) exemption under the CCPA and limit its application to exclude the CCPA's section establishing a data breach private right of action. Amendments further clarified an existing CCPA exemption to specify that businesses do not need to collect Personal Information (PI) that they would not otherwise collect in the ordinary course of their business or retain PI for longer than they would otherwise retain in the ordinary course of their business; limitations of certain CCPA obligations to PI reflecting certain communication or transaction between the business and the consumer; adds express authority for the Attorney General to establish additional rules and procedures on how to process and comply with verifiable consumer requests for specific pieces of PI relating to a household; and revised the data breach private right of action to clarify it applies to any consumer whose "nonencrypted and nonredacted" PI is subject to an unauthorized access and exfiltration, theft, or disclosure. 

6.      AB 1202 (mandatory registration for “data brokers”) amendments are clarifying in nature, as they 1) incorporate necessary definitions from the CCPA; 2) provide that the bill shall not be construed to supersede or interfere with the CCPA; and 3) limit exemptions from the bill only to the extent that specified entities are covered by other governing statutory schemes.

Failed CCPA Amendments

Besides the “data broker” requirement and one-year moratoria on employee and B2B information, the CCPA doesn’t look much different from before this process began.

Indeed, most of the CCPA-related bills introduced into the legislature failed, most notably: 

1.      AB 846 (loyalty programs): Carve-out for customer loyalty and rewards programs from the prohibition against price/service discrimination due to the exercise of other CCPA rights (e.g., access, deletion, opt-out).

2.      AB 873 (deidentified data): Though other aspects of this bill were incorporated into amendments that did pass, the attempt to modify the definition of “deidentified data” to include “information that does not identify, and is not reasonably linkable, directly or indirectly, to a particular consumer […]” did not.

3.      AB 959 (disclosure of monetary value): Would have required “businesses” to disclose the average monetary value of a consumer’s data, including within its privacy policy under a section entitled, “The Value of Your Data.”

4.      AB 981 (insurance industry carve-out): Would have eliminated a consumer’s right to request a business to delete or not sell her personal information if such information was necessary to retain or share to complete an insurance transaction requested by the consumer.

5.      SB 561 (private right of action): Famously known for expanding the private right of action to any violation of rights under the CCPA (as opposed to only personal information subject to a data breach).

Legislative Update

In 2019, the Legislature has presented 1,037 bills to Governor Newsom for his approval or veto. He has already acted on 299 bills, signing 293 and vetoing 6. Of the signed measures, 184 are Assembly Bills and 109 are Senate Bills. Of the vetoed measures, 5 are Assembly Bills and 1 is a Senate Bill. Ending this week, there are 234 Senate Bills and 504 Assembly Bills still pending approval or veto by the Governor.

Here are the bills that have been acted upon this week: 

Approved by the Governor

AB 5 (Gonzalez) Worker status: employees and independent contractors. Chaptered by Secretary of State. Chapter 296, Statutes of 2019. 

SB 39 (Hill) Tobacco products. Chaptered by Secretary of State. Chapter 295, Statutes of 2019.