Mind the Gap: The Increasing Divide Between California and Federal Employment Laws Under the Trump Administration

Under the Trump administration, many businesses are likely looking forward to contracted regulations and more employer-friendly policies from the federal government. However, employers in the Golden State should not get their hopes up just yet.

Historically, California requires more from its employers than the federal government does. The state has different and heightened rules, including some protecting employees from discrimination, governing the payment of compensation, and restricting employers’ ability to regulate employee conduct. Recently, even California localities have jumped on the regulatory train, passing often-experimental ordinances governing paid parental leave, predictive scheduling, and minimum wage requirements. As a result, California employers must remain cognizant of federal, state, and local standards.

California’s outspoken response to the new administration indicates that the gap between state and federal employment laws will only increase. As the Trump administration scales back Obama-era regulations governing overtime, protected employee classifications, equal pay, and health care, we expect California and its localities to counter by expanding progressive regulations.

Here are four key areas where we expect the divide to deepen for employers when complying with state and federal requirements:

Overtime Exemptions

Unless exempt, employees at the federal and state level must receive overtime pay beyond a certain number of hours worked per day or per week. Overtime exempt employees generally: (1) perform managerial or professional tasks and (2) receive a predetermined salary. To be overtime exempt, federal law requires that an employee’s minimum salary be $455 per week, or $23,660 annually, a level that has not changed since 2004. To qualify as overtime exempt in California, salaried employees must earn twice the minimum wage (currently $10.50 per hour for employers with at least 26 employees), $43,680 per year.

In November 2016, a Texas federal judge blocked the Obama administration’s attempt to increase the federal annual salary requirement to $47,474, exceeding even California’s standard. Under the Trump administration, the proposed increase has stalled. However, Trump’s Labor Secretary, Alexander Acosta, indicated a willingness to amend and reinstate the regulation.

During his confirmation hearings, Acosta said it was “unfortunate” the overtime regulations had not been updated since 2004, and noted that a straight inflation adjustment to the overtime threshold would be approximately $33,000 per year.

In response to the federal stagnation, California introduced legislation on February 17, 2017. If California’s Assembly Bill 1565 passes, an employee will have to earn a minimum of $47,476 to qualify as overtime exempt. As a result, California employers may have to pay employees more than double the amount they would need to earn nationally in order to classify them as overtime exempt.

Protected Classifications

In May 2017, President Trump took steps to fulfill campaign promises by signing the Promoting Free Speech and Religious Liberty executive order. The order protects an individual’s ability to engage in religious and political speech without fear of discrimination or retaliation by the federal government. It directs Cabinet members to consider amending regulations to address conscience-based objections to the Affordable Care Act’s (ACA) preventative-care mandate. The executive order, however, did not explicitly provide protections to religious entities when making employment decisions based on characteristics like sexual orientation or marital status.

Historically, California has led the way in creating new protected classifications on which employers may not base employment decisions. For example, while federal courts are only now evaluating whether sexual orientation is a protected classification under Title VII, California’s Fair Employment and Housing Act (FEHA) has included LGBTQ protections since 2000. Although California exempts religious entities from FEHA’s employment nondiscrimination mandate, other California legislation, like the Unruh Civil Rights Act, does not include an explicit exemption for religiously-affiliated businesses. As a result, religious entities in California ought to be wary of relying on federal protections when making employment decisions. Additionally, all Golden State employers should take steps to ensure that they keep up with California’s expansive list of protected classifications.

Equal Pay

Under the Obama administration, the Equal Employment Opportunity Commission (EEOC) strengthened its position on equal pay. For more than 50 years, the EEOC has surveyed workforce data along race and gender lines. In 2016, the EEOC expanded the survey’s scope, requiring employers to report total compensation for all employees by gender, race, and ethnicity across 12 pay bands and for ten job categories. When the EEOC likely becomes Republican-controlled in July 2017, some expect the agency will dial back its requirement that employers submit their pay practices information.

California, on the other hand, continues to ramp up on equal pay. California employers may not use an employee’s prior salary to justify any disparity in compensation between genders. Additionally, California employers must permit employees to disclose their own wages and discuss the wages of others. On May 22, 2017, California’s legislature initiated Assembly Bill 168, which prohibits employers from asking applicants about prior salary history. Therefore, while employers may be spared from reporting their pay practices to the federal agency charged with investigating those practices, they ought to still ensure compliance with California’s stricter standards.

Affordable Care Act (ACA) Reform

Despite the dramatic headlines reflecting repeal attempts, the ACA remains the law with which employers must comply. Nevertheless, the Trump administration has made clear that it will continue efforts to dismantle the ACA.

Even as the federal requirements appear in flux, California employers face state and local healthcare-related ordinances. San Francisco employers, in particular, must comply with the locality’s Health Care Security Ordinance (HCSO). The HCSO requires private businesses with at least 20 employees and nonprofits with at least 50 employees to make defined health care expenditures on behalf of their employees. In 2017, the expenditure rate for San Francisco employers with 100+ employees is $2.64 per employee, per “payable hour.” This results in a mandated health care expenditure of more than $1,000 per employee per quarter for some employers.

California employers face a myriad of overlapping – and sometimes conflicting – federal, state, and local employment laws and regulations. With the Trump administration’s signal that it intends to scale back federal regulation in the employment sector and California’s expected response, the gap between these will likely continue to widen.