California Assembly Bill (AB) 5, the Opportunity to Work Act, was recently approved by the California Assembly Committee on Labor and Employment in April 2017.  The Appropriations Committee postponed a hearing on the bill that was scheduled for May 3, 2017.  Given the strong industry opposition to this bill and its harmful impact on employers, it is likely that the Appropriations Committee is taking a closer look at the bill and the negative consequences that it would create.  If passed in its current form, AB 5 would create far more problems for both California employers and employees than it intends to resolve.

AB 5 Bill Requirements and its Lack of Clarity

Largely modeled after San Jose’s Opportunity to Work Ordinance that went into effect on April 1, 2017, AB 5 would require employers that have 10 or more employees in California to offer their current non-exempt employees additional hours of work before hiring new employees or subcontractors.  However, employers would not have to offer the hours to existing employees if those hours would result in the payment of overtime compensation to those employees under wage and hour law or a collective bargaining agreement. The bill would also require employers to post a notice to be created by the Division of Labor Standards Enforcement (DLSE) outlining employee rights under the law.

In conjunction with the requirement to offer additional hours to existing employees prior to hiring new employees or contractors, the bill would impose additional recordkeeping requirements on employers.  Primarily, employers would be responsible for retaining the following:

1. For any new hire of an employee or subcontractor, documentation that the business offered additional hours of work to existing employees prior to hiring the new employee or subcontractor.
2. Work schedules of all employees.
3. Any other records or documents that the DLSE requires the employer to maintain to demonstrate compliance with this law.

Finally, AB 5 would provide for enforcement of these requirements by administrative proceedings before the California Division of Labor Standards Enforcement, or by private right of action.  While the text of the bill indicates that employers would be subject to a civil penalty, it does not specify what that civil penalty may be.  The bill’s civil penalty component is not the only risk for employers though.  The bill also prohibits employers from distributing additional hours of work among existing employees in a discriminatory manner, and from retaliating against an employee for exercising their rights under the Act.

Impact on Employers

Given the lack of clarity on how to comply with the proposed bill, the potential impact on employers is quite large.  In addition to posting the notice and the hefty recordkeeping requirements, employers would have to maintain strict administrative practices to ensure that they comply with the Act.  However, there are numerous questions about how employers would comply with the bill that need to be flushed out in order to limit employer risk of costly litigation.  For instance, the bill provides no guidance on how long an offer must be left open until an employer can hire a new employee, how many employees does the employer need to offer additional hours to, and what happens if an employee quits or a company begins to outgrow its operations.

The bill would apply to a large majority of California employers.  Although the bill’s sponsors claim that it could offer much needed benefits and protections for retail and fast food workers, the bill casts a much wider net than just those industries.  It applies to all employers with 10 or more employees in California.

The increased administrative burden to distribute additional hours to current employees could also hinder economic development and job growth.  Requiring employers to provide additional hours to their current employees naturally reduces job growth and the opportunity to hire individuals that are currently unemployed.  The hiring of additional employees to increase business and profits could ultimately carry along the risk of a lawsuit.  Finally, staffing agencies will suffer greatly due to this bill, and temporary workers who rely on this type of employment may ultimately be left unemployed.

Given the numerous questions that remain and the lack of clarity on how employers can comply with the bill, employers are certainly vulnerable to costly lawsuits if the bill is passed in its current form.   Employers are not only subject to claims for failure to offer additional work hours, but they are also subject to discrimination and retaliation claims.  The breadth of potential liability that employers face under the current version of the proposed bill, without further guidance, will ultimately harm California employers and hinder economic development.  Employers should pay close attention to this bill, and consider speaking to their local legislators about the negative impact the bill could have on their businesses.