12 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com Covenants Not to Compete California broadly bans even narrowly drawn restraints on trade and thus complicates employers’ efforts to enforce various covenants traditionally enforceable in other states, including many (if not all) reasonable covenants not to compete, customer non-solicitation clauses, employee non-solicitation clauses, and no-rehire clauses in settlement agreements (see § 12). Workers’ Compensation California makes it unlawful, absent “business necessity,” to dismiss an employee on workers’ compensation leave, even pursuant to a policy setting a uniform maximum length for all leaves (see § 17). Independent Contractors California is generally hostile to companies that treat workers as independent contractors instead of employees. California requires defendants, rather than plaintiffs, to bear the burden of proof on whether a worker is an employee or an independent contractor (see §19.2). Most significant of all, California presumes that a company hiring a worker is the worker’s employer unless the hirer can prove all three parts of an “ABC test”: (A) the worker is free from the hirer’s control and direction in performing the work, both under the contract of hire and in fact, (B) the worker performs work outside the hirer’s usual course of business, and (C) the worker has been customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed (see § 19.6). California imposes fines of up to $25,000 for willfully misclassifying employees as independent contractors (see § 19.7). Thankfully, for many employers, there may be some relief from the oppressive effects of PAGA. Effective June 19, 2024, the California Legislature enacted Assembly Bill 2288 and Senate Bill 92, which reform existing Labor Code section 2698 et seq. and imposes many long-awaited and much-needed reforms to PAGA. The PAGA reform bills introduce the following significant changes: (1) there is now a cap on penalties for employers who take reasonable steps for compliance (15%) or who take steps for compliance after receipt of the PAGA notice (30%); (2) wage statement penalties are capped at $25 where there is no harm; (3) the California Supreme Court’s Estrada decision is codified and explicitly provides that trial courts “may limit the evidence to be presented at trial or otherwise limit the scope of any claim filed pursuant to this part to ensure that the claim can be effectively tried”; (4) a plaintiff must now personally experience the Labor Code violations they are seeking to pursue on a representative basis; (5) a plaintiff must experience the Labor Code violation within the one-year statute of limitations; (6) no more derivative penalties; (7) caps on penalties for isolated errors; (8) a change in the distribution of PAGA penalties from 75% to the LWDA and 25% to affected employees, to 65% and 35%, respectively; (8) new and expanded cure provisions; (9) options to request a stay of litigation and an Early Neutral
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