Sacramento Sausage Or Drafting Error?

The California legislative season ended last month and Governor Jerry Brown recently finished signing and vetoing a batch of bills.

For example, there'll be new penalties for misclassifying workers as "independent contractors" rather than employees (SB 459). Besides a $5000 to $25,000 fine, violators will also have to post a notice on their website that they've been found guilty along with information for employees on how to file claims.

Perhaps more troubling for employers is the new law limiting credit checks (AB 22). Although it prohibits the use of credit checks for employment purposes in many circumstances — for example, workers applying for jobs as retail clerks — it does permit credit checks for "managerial positions." Unfortunately, the law goes on to define "managerial positions" as follows:

"'Managerial position' means an employee covered by the executive exemption set forth in subparagraph (1) of paragraph (A) of Section 1 of Wage Order 4 of the Industrial Welfare Commission (8 Cal. Code Regs. 11040)."

So, credit checks are permitted only for exempt managers "covered by...Wage Order 4...." If your business is covered by any other Wage Order — for example, your company is a manufacturer, retail or wholesale outlet, hotel, hospital, shipper or warehouse, movie theater or studio, or covered by any of the 17 Wage Orders other than Wage Order 4 — then the new law doesn't permit you to run credit checks on your managers.

An earlier versions of the bill (here) defined "managerial positions" similar to the way "supervisors" are defined under the federal National Labor Relations Act and the California Fair Employment and Housing Act (Government Code section 12926(r)). However, according to a conversation with a legislative aide, it was suggested that the bill's exception for "managerial employees" be defined using language from the Wage Orders instead.

Unfortunately, it appears a lack of familiarity with the "coverage" of the Wage Orders led to unnecessarily restrictive language limiting the exception only to exempt managers "covered by...Wage Order 4." Although the other 16 Wage Orders have similar definitions for exempt executives, the new law's exception permitting credit check on managers doesn't "cover" businesses covered by other Wage Orders.