[co-author: Sylvia J. Kim]

On Sept. 22, 2021, Gov. Gavin Newsom signed into law a bill that specifically targets warehouse distribution centers with extensive restrictions that regulate the use of production quotas. The law is the first of its kind in the United States and it goes into effect on Jan. 1, 2022. A.B. 701 is written in broad terms and is thus potentially applicable to employers across a wide range of industries that utilize warehousing and distribution facilities in California. Accordingly, employers with warehousing and distribution facilities in California should not wait until the new year to bring their operations into compliance with A.B. 701.

Warehouse distribution centers covered by A.B. 701

A.B. 701 was introduced to address alleged safety concerns in the fulfillment centers of high-profile online retailers. But the bill broadly applies to entities that: (1) are primarily engaged in operating merchandise warehousing and storage facilities, sell durable and/or nondurable goods to other businesses, or are primarily engaged in selling merchandise using non-store means, such as through the Internet or catalogs; and (2) meet a moderate employee population threshold.

The new law does not define a “warehouse distribution center.” Instead, it provides that a warehouse distribution center includes any establishment defined by any of four North American Industry Classification System (NAICS) codes: (1) General Warehousing and Storage (493110); (2) Merchant Wholesalers, Durable Goods (423); (3) Merchant Wholesalers, Nondurable Goods (424); and (4) Electronic Shopping and Mail-Order Houses (454110). It then requires employers to determine whether their warehouse and/or distribution centers fit into one or more of those NAICS codes. The law specifically exempts establishments that qualify as Farm Product Warehousing and Storage under NAICS Code 493130.

It is irrelevant which NAICS code entity has been assigned to an employer’s establishment. If any of the four NAICS codes could apply to an employer’s establishment, its warehouse and/or distribution center qualifies as a covered warehouse distribution center under A.B. 701 – and it thus needs to determine whether it meets the employee population threshold.

A.B. 701 applies to employers that employ or exercise control over the wages, hours or working conditions of 100 or more employees at a single warehouse distribution center or 1,000 or more employees at one or more warehouse distribution centers in California. This includes individuals employed “directly or indirectly, or through an agent or any other person, including through the services of a third-party employer, temporary service, or staffing entity” if the entity exercises control over the wages, hours or working conditions of those individuals. In calculating their employee populations, employers must include all employees falling within the employer’s “commonly controlled group” who work at its warehouse distribution centers in California.

A.B. 701’s new restrictions on and notice requirements for quotas

Qualifying employers that use quotas are required to follow – and should quickly implement – A.B. 701’s new restrictions and notice requirements.

First, A.B. 701 does not prohibit employers from using quotas for their nonexempt warehouse employees, but those quotas now have specific restrictions. The new law defines “quota” to mean a work standard (i.e., a specified productivity speed, a quantified number of tasks or a quantified amount of material to be handled or produced). Under A.B. 701, employers cannot utilize quotas that prevent compliance with meal or rest periods, use of bathroom facilities (including “reasonable” travel time to and from such facilities), or occupational health and safety laws. The time employees spend complying with occupational health and safety laws must be considered “time on task and productive time” for purposes of any quota, but meal and rest breaks are not considered productive time unless the employees remain on call.

Second, beginning Jan. 1, 2022, A.B. 701 requires employers to provide each new hire with a written description of each quota to which they will be subject. A compliant written description must include each work standard, the defined time period in which the work standard must be completed and any potential adverse employment actions if the quota is not met. Current employees must be provided with a written description of each quota to which they are subject by Jan. 31, 2022.

Third, while A.B. 701 does not prohibit employers from taking adverse action against employees who do not meet their quotas, employers cannot do so if the quotas prevent compliance with meal or rest periods or occupational health and safety laws. Additionally, employers cannot take adverse actions against an employee for failing to meet any quota(s) unless the employee first received written notice of the quota(s) as required under the new law.

Fourth, current or former employees who believe that a quota violated their right to meal or rest breaks or any occupational health and safety laws can make a written or oral request for (1) a written description of each quota that applied to them and (2) the employee’s work speed data for the previous 90 days. “Employee work speed data” includes, among other things, the quantities of tasks performed, the quantities of items or materials handled or produced, and the rates or speeds of tasks performed.

Employers must provide this information to the requesting employee no later than 21 calendar days from the date of the request. The new law limits former employees to one such request; it places no limitations on the number of requests current employees can make. A request for records under A.B. 701 does not include qualitative performance assessments, personnel records or itemized wage statements, which remain governed by other Labor Code sections.

A.B. 701 opens the door to new claims against employers

The law also provides multiple avenues for employees to pursue new quota-based claims against employers.

First, A.B. 701 creates a rebuttable presumption of unlawful retaliation if an employer takes any adverse action against any employee within 90 days of the employee either (a) requesting for the first time in the calendar year their quota or work speed data or (b) complaining to their employer or any government agency about an alleged violation of A.B. 701.

Second, A.B. 701 allows current and former employees to bring an action for injunctive relief for any alleged violations of the new law and authorizes those employees to recover costs and reasonable attorneys’ fees if they prevail in that action.

Third, A.B. 701 authorizes current and former employees to pursue civil penalties under the California Labor Code Private Attorneys General Act (PAGA) for alleged violations of the new law. Like certain other claims under PAGA, the new law also allows employers to cure any alleged violations pursuant to Cal. Lab. Code 2699.3 before an employee files suit.

Additionally, A.B. 701 puts in place enforcement mechanisms and requirements for government agencies. Among other actions, the new law permits a state or local enforcement entity to request or subpoena the records of the warehouse distribution center’s quotas and employee work speed data upon their mere receipt of a complaint regarding a violation of A.B. 701.

What qualifying employers can do now

With only a few months to go before A.B. 701 takes effect, there are steps that qualifying employers can take now to ensure compliance with California’s new law by Jan. 1, 2022:

1. If an employer utilizes quotas, it should ensure that any quotas do not prevent employees from taking compliant meal and rest periods, using the bathroom, or complying with health and safety laws. An employer should assess whether it has existing industrial engineering models or assessments in place that demonstrate such compliance and/or whether new or additional industrial engineering of any quota system is needed.
2. If an employer utilizes quotas, it should create a written description for each quota to which employees are subject and determine to which employees such quotas apply. Current employees must receive a compliant written description of each quota to which they are subject by Jan. 31, 2022. Beginning on Jan. 1, 2022, new employees must receive at the time of hire a compliant written description of each quota to which they will be subject.
3. Employers should ensure that they have a process in place for employees to request their quotas and personal work speed data in writing or orally – and should communicate those processes to employees at all levels. Additionally, employers should ensure that personal work speed data is maintained for each employee for at least 90 days. (Nothing in A.B. 701 requires an employer to use quotas or monitor work speed data. An employer that does not monitor this data has no obligation to provide it under the new law.)

Additionally, employers will want to ensure that supervisory and other employees involved in employee discipline are aware of A.B. 701’s unlawful retaliation presumption. While California law cautions employers to ensure that their reasons for taking an adverse action are proper and well documented, A.B. 701’s unlawful retaliation presumption creates significant risks for employers that want to discipline, terminate or take any other adverse action against their nonexempt warehouse employees.