Potential Mileage Tax and Employer Reimbursements
Question: I heard that California is considering passing a mileage tax. Is that true? If it did, would I have to reimburse my employees for the tax?
Answer: No, the Legislature isn’t currently considering a mileage tax—although there is a proposal to study whether one should be enacted. If such a tax is enacted, however, employers would likely need to reimburse their employees for the tax.
For starters, a proposed mileage tax is not currently pending in the state Legislature. However, the Legislature is actively considering whether one should be enacted in the near future. Assembly Bill 1424 (AB 1421) proposes to direct the California Transportation Commission (CTC) to evaluate whether a mileage tax system can serve as an alternative to California’s current gas tax. The CTC would be required to evaluate whether a mileage tax could replace California’s gas tax and, by January 1, 2027, would make a recommendation regarding whether the state should pass a mileage tax. So, while a mileage tax isn’t imminent, it could be on the horizon for California taxpayers, and employers, in the next several years.
If enacted, one chief impact for employers would be reimbursements. Labor Code section 2802 requires employers to indemnify employees for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” Put another way, employers must reimburse any reasonable costs employees incur while performing their job. The Legislature enacted section 2802 to ensure that employers do not shift the costs of doing business onto their employees.
California courts have adopted a very broad interpretation of section 2802. The most common example is that employers must reimburse employees for the business-related use of their personal cars. Employers do this by either paying the employee’s actual expenses—which requires detailed tracking—or paying a reasonable per-mile rate. Similarly, employers must reimburse employees for the business-related use of an employee’s personal cellphone, even if the employee has an unlimited data plan and incurs no out-of-pocket cost.
If a mileage tax were passed, employers would potentially be required to reimburse employees for the entirety of that cost, at least for business-related driving. The mileage tax would be a direct, government-imposed cost that is incurred during the performance of a specific task: driving. As long as the driving were work-related, the mileage tax paid by an employee would likely count as a “necessary expenditure” that was incurred “in direct consequence” of performing the employee’s job duties. So, an employer would potentially be liable for the entirety of the mileage tax.
This could represent a significant, and complex, new cost for employers. Given California’s size, long commutes are common. And the rule between reimbursable and non-reimbursable travel can be complicated. For example, an employee’s primary home-to-work commute is not reimbursable. But travel to an alternate location (e.g., temporary worksite or client meeting) is potentially reimbursable. Similarly, for workers with no fixed office, travel from their home to their first worksite is typically reimbursable.
Employers should keep a close eye on AB 1421 as it moves through the Legislature. Even a modest mileage tax could mean substantial new costs for employers—and potential liability for misclassifying reimbursable travel. Employers with questions about AB 1421 or general questions about employee reimbursements should contact their labor counsel.
New Employer Layoff Notice Obligations in 2026
Question: I heard that California implemented a new law that changes the information employers must provide when they lay off or transfer employees. Is that true?
Answer: Yes, there are new notice requirements for certain employers that engage in layoffs or transfers of employees. These new requirements are the result of recent amendments to the California Worker Adjustment and Retraining Notification Act (“CalWARN”).
The CalWARN Act generally requires certain employers to provide notice to employees when they are planning to engage in a “mass layoff,” termination, or relocation. The CalWARN Act itself is limited—it only applies to businesses that have employed over 75 people at “industrial or commercial” facilities within the last 12 months. A “mass layoff” is the layoff of more than 50 people during a 30-day period. Similarly, “termination” means the substantial cessation of operations are a covered industrial or commercial facility, and “relocation” is the removal of substantially all industrial or commercial operations to a location over 100 miles away. These definitions help determine if an employer is covered by the CalWARN Act requirements.
If covered, the CalWARN Act requires employers to give 60 days’ notice of the effective date of a mass layoff, termination, or relocation. Employers must notify their employees as well as the state Employment Development Department, the local workforce investment board, and certain local elected officials—e.g., the chief elected county and city officials. These requirements mirror the federal WARN Act’s requirements.
Beginning on January 1, 2026, however, the Legislature expanded the CalWARN Act’s notice requirements. Now, an employer’s CalWARN notice must include the following:
- “whether the employer plans to coordinate services, such as a rapid response orientation, through the local workforce development board, the employer plans to coordinate services through a different entity, or the employer does not plan to coordinate services with any entity;”
- “a functioning email and telephone number of the [local workforce development] board and the following description of the rapid response activities offered by the local workforce development board . . . : ‘Local Workforce Development Boards and their partners help laid off workers find new jobs. Visit an America’s Job Center of California location near you. You can get help with your resume, practice interviewing, search for jobs, and more. You can also learn about training programs to help start a new career;’”
- “a description of the statewide food assistance program known as CalFresh . . ., the CalFresh benefits helpline, and a link to the CalFresh internet website;” and
- “a functioning email and telephone number of the employer for contact.”
Additionally, if an employer plans on coordinating services with the local workforce development board or other entity, the employer must arrange these services within 30 days of issuing the original CalWARN notice.
In effect, these new CalWARN notice requirements impose extra planning requirements on employers considering to engage in a layoff or termination or relocation of operations. For example, employers may be required to contact local workforce development boards to coordinate the availability of services to employees. This may require that employers provide notice of their planned employment action before they ordinarily would. Employers considering a triggering employment action should plan ahead and contact their labor counsel to ensure they comply with the new CalWARN notice requirements.
New Employer Notice and Record Keeping Requirements in 2026
Question: As a small business owner, I get overwhelmed by all the different notice and recordkeeping requirements that California law requires employers to follow. Are there any new requirements in 2026?
Answer: Yes, there are several new employer notice and record keeping requirements that become effective in 2026.
First, the Legislature passed the Workplace Know Your Rights Act, known as Senate Bill (“SB”) 294. Beginning on February 1, 2026, employers must provide each employee with a written notice that contains certain workers’ rights. Specifically, the notice must include information about workers’ compensation benefits, notice requirements related to workplace inspections by immigration agencies, protections against unfair immigration-related practices, the right to organize a union, and constitutional rights about interacting with law enforcement at the workplace. The California Labor Commissioner will post a template notice on its website by January 1, 2026.
Employers must provide this notice to employees in the manner that the employer normally uses to communicate employment-related information. Also, employers must provide a copy of notice to new employees upon hire and to the employee’s authorized representative, if any, electronically or by regular mail. Employers are also required to provide this notice to all current employees annually.
SB 294 also requires employers to provide employees with the opportunity to name an emergency contact at the time of hiring. Under SB 294, this emergency contact would be notified in the event the employee is arrested or detained by law enforcement at the worksite, during work hours or during the performance of job duties, but not on the worksite, if the employer had actual knowledge of the employee’s arrest or detention. The employer would then be required to notify the emergency contact of the employee’s arrest or detention. SB 294 also includes anti-retaliation provisions designed to protect employees who seek to exercise their rights under this law.
Regarding enforcement: The Labor Commissioner and public prosecutors are authorized to enforce SB 294 and seek injunctive relief and reasonable attorneys’ fees. Employers are also subject to a five hundred dollar fine per violation per day, up to a maximum of $10,000. However, SB 294’s requirements may be waived through a collective bargaining agreement.
Another bill, SB 513, has expanded the definition of what constitutes a “personnel record” that the employer is required to keep for current and former employees. Currently, Labor Code section 1198.5 requires employees to keep “personnel records” that the employer maintains which relate to the “employee’s performance or to any grievance concerning the employee.” The employer must keep these records and make them available for inspection and copying at the employee’s request.
Under SB 513, the “personnel records” of an employee now includes “education and training records.” The employer must make sure these records include (1) the employee’s name, (2) the name of the training provider, (3) the duration and date of the training, (4) the core competencies of the training, including required skills in equipment or software, and (5) the resulting certification or qualification. So, like other personnel records, employers must make these educational or training records available within 30 days of an employee’s written request.
California’s notice and record keeping requirements are increasingly complex and, if not followed, can lead to financial penalties and legal exposure. Employers with questions about these laws should consult with the labor counsel.
Updates regarding Domestic Service Worker Protections
Question: I heard that a new law passed recently which expanded the rules and regulations that apply to domestic workers, like housecleaners and gardeners. Is this true? What does this new law mean?
Answer: Yes, there is a new law effective July 1. In 2024, the Governor signed Senate Bill 1350 (“SB 1350”) into law, which became effective this month on July 1, 2025. SB 1350 expands the protections of the California Occupational Safety and Health Act (“Cal/OSHA”) to certain household domestic workers, including those employed by private households. Household domestic workers include landscapers and housecleaners.
Cal/OSHA is the state agency responsible for enforcing worker safety and health standards. The agency’s responsibilities include conducting workplace inspections to ensure compliance with health and safety regulations. Cal/OSHA’s jurisdiction applies only to a “place of employment.” Historically, household domestic services were excluded from this term, which meant that those services were exempt from Cal/OSHA’s jurisdiction. SB 1350 now eliminates this exemption.
This means that if a business employs household domestic service workers—whether on a temporary or permanent basis—it must comply with Cal/OSHA regulations and provide these employees with a safe workplace. Businesses that are covered by SB 1350 include homecare agencies, residential landscaping and gardening companies, and housecleaning companies. SB 1350 also applies to third-party agencies.
Notably, SB 1350 also applies to private households that directly employ workers to perform work other than “ordinary household domestic tasks.” “Ordinary household domestic tasks” include housecleaning, cooking, caregiving, and routine gardening services. Examples of covered tasks under SB 1350 include painting, roofing, home construction, and pool maintenance work. SB 1350 does not, however, apply to independent contractors, certain publicly funded in-home support services, or work in a licensed family day care home.
In practice, SB 1350 creates several new obligations for employers of household domestic workers to comply with Cal/OSHA regulations. For example, employers must inspect their workplaces to identify and correct potential hazards, which can include the placement of hazard signs and labels. Employers must also provide their employees with safe tools and personal protective equipment, at the employer’s expense. Additionally, employers must establish, implement, and maintain an effective injury and illness prevention program (“IIPP”).
SB 1350 also grants household domestic workers additional rights under Cal/OSHA regulations. Employees have a right to receive training on workplace hazards and to ask their employers to correct existing workplace hazards or unsafe conditions. Employees may also file a complaint directly with Cal/OSHA regarding potential workplace safety violations, which can result in Cal/OSHA workplace inspections or an investigation by the Department of Industrial Relations (“DIR”). Lastly, household domestic workers are now entitled to protections against retaliation for reporting unsafe working conditions, filing a complaint with Cal/OSHA or participating in a Cal/OSHA investigation, or simply refusing to work under unsafe working conditions.
Overall, SB 1350 creates significant new legal obligations for employers of household domestic workers. Given the large number of businesses in our community that employ workers who are potentially covered by SB 1350, local employers should consult with their employment counsel to ensure compliance with this new law.
Regulating Employers’ Use of Artificial Intelligence
Question: I heard that California is going to adopt new laws that limit an employer’s ability to use AI when making decisions regarding employees. Is that true?
Answer: The California Civil Rights Department (“CRD”) has long been considering adopting regulations which regulate the ability of California employers to use artificial intelligence (“AI”), automated decision-making systems, or “Automated Decision Systems” to make, or facilitate, employment decisions, like recruitment, hiring, and promotion.
On March 21, 2025, the Civil Rights Council, a branch of the CRD, approved the final version of its proposed “Employment Regulations regarding Automated Decision Systems.” If adopted, these regulations (the “AI Regulations” or “Regulations”) would regulate an employer’s use of AI and other automated decision-making systems in the employment context. Broadly speaking, the AI Regulations would clarify that California employers may not use AI or Automated Decision Systems in a manner which violates existing anti-discrimination laws, like the Fair Employment and Housing Act (“FEHA”).
The definitions in the Regulations provide guidance to understand how broadly they will apply. First, the Regulations define AI as any machine-based system which “infers, from the input it received, how to generate outputs,” like “predictions, content, recommendations, or decisions.” This includes machine learning systems, which can “use and learn from its own analysis of data or experience and apply [that] learning automatically in future calculations or tasks.” This is not limited to ChatGPT and could be built into various HR programs.
Second, “Automated Decision Systems” are any “computational processes” that makes a decision or facilitates human decision making regarding an employment benefit”—think hiring or promotion decisions. Automated Decision Systems include systems derived from AI and machine learning, like puzzles, tests, or games which employers use to evaluate job applicants or employees, target job advertisements, screen resumes, or processes that similar data “acquired from third parties.” However, more traditional systems like word processing or spreadsheet systems are generally not covered AI systems. For example, an employer’s use of ChatGPT to make employment decisions would be subject to the AI Regulations, but an employer’s use of Microsoft Word would not.
Third, the term “agent” would be defined to include any person who relies—in whole or in part—on an Automated Decision System to perform employment functions, like applicant recruitment or screening, hiring, promotion, or decisions regarding pay or benefits. And because agents are considered “employers” under the FEHA, they could be subject to liability for the discriminatory use of Automated Decision Systems.
The AI Regulations will confirm that AI cannot be used circumvent California’s anti-discrimination laws. In the hiring context, the Regulations will prohibit employers from using an Automated Decision System or “selection criteria”—which includes a “qualification standard, employment test, or proxy”—that discriminates against an applicant, or class of applicants, on any basis protected by the FEHA. For example, an employer may not screen job applicants using tests, questions, games, or puzzles that are “likely to elicit information about a disability.” Similarly, employers generally can’t use AI to screen for an applicant’s prior criminal history.
The AI Regulations are currently pending final adoption by the California Office of Administrative Law. If approved, California would become one of the first jurisdictions to issue comprehensive regulations for the use of AI in the employment context. Employers who use AI to make, or facilitate, employment decisions should keep in touch with their labor counsel regarding the status of the final adoption of the AI Regulations.
DEI Executive Orders and the Impact on Private Employers
Question: I saw on the news that President Trump issued executive orders banning DEI programs. What do these orders mean? Do they impact private sector employers?
Answer: During his first week in office, President Trump issued several executive orders aimed at ending the use of Diversity, Equity, and Inclusion (DEI) initiatives in hiring. Most of these orders are aimed at federal hiring practices or other public employers and do not have a direct impact on private sector employers. However, on January 21, President Trump also issued Executive Order 11473, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “DEI Order”), which impacts private sector employers who are federal government contractors or federal grant recipients.
The DEI Order is largely aimed at ending the use of affirmative action in hiring programs—often referred to as DEI initiatives—by federal contractors. Section 3 of the DEI Order directs the federal government to cease DEI initiatives in federal contracting. It also requires future federal government contractors or federal grant recipients to certify they will not use any programs or policies that violate any of President Trump’s DEI orders.
The DEI Order also attempts to directly shape the DEI policies of all other private sector employers. Section 4 of the DEI Order specifically encourages private sector employers to cease their DEI initiatives. Though it falls short of any particular mandates, it directs the federal government to develop a plan for “advanc[ing] in the private sector” the policies of the DEI Order—i.e., to end the use of DEI and other affirmative action initiatives. Section 4 directs the Attorney General to prepare a report for the White House outlining their concerns regarding the use of DEI initiatives in the private sector and to develop a “plan of specific steps or measures to deter DEI programs or principles[.]” The DEI Order identifies “litigation,” “civil compliance investigations,” and “regulatory action” as potential strategies for encouraging private sector compliance with the DEI Order.
As written, nothing in the DEI Order requires private employers to pause or discontinue their policies aimed at promoting diversity in hiring—at least to the extent an employer is not a federal contractor or grant recipient. But the DEI Order’s potential implications are broad and far reaching. For example, the definition and scope of “DEI” initiatives which could be subject to the DEI Order is unclear and is already the subject of debate. The DEI Order also characterizes DEI initiatives as “illegal” and identifies private sector corporations as entities that have wrongly implemented such programs.
Given its breadth and potential implications, the DEI Order has (like many other Trump Administration executive orders) been challenged in federal court. On February 3, the City of Baltimore and several other organizations sued the federal government in Maryland federal court, arguing that the DEI Order is unconstitutional. This case remains pending and employers should stay tuned for further developments in the case, particularly any future court orders halting enforcement of the DEI Order.
Overall, while the DEI Order does not currently require any action by private sector employers, it is likely a prelude to future executive orders that will attempt to prohibit or curb the use of DEI initiatives in the private sector. In this time of uncertainty, employers—particularly federal contractors or grant recipients—should consider contacting their labor counsel to review their existing hiring, training, and promotion practices in light of the Administration’s executive orders.
Freelance Worker Protection Act
Question: I heard that there is a new law that provides additional rights to freelance workers. Is this true? What does it mean, and what kinds of workers do this law apply to?
Answer: Starting on January 1, California’s Freelance Worker Protection Act—SB 988—will take effect. Under this new law, certain workers who are considered independent contractors will be granted new rights under state law.
In general, the new law applies to contracts between a “hiring party” and a “freelance worker” entered into or renewed on or after January 1. A “hiring party” is broadly defined to include nearly all private persons or organizations unless the individual is hiring services for the personal benefit of themselves, their family members, or their homestead. A “freelance worker” is also broadly defined to mean any person or organization that is hired by a hiring party to provide professional services valued at $250 or more in the past 120 days. A person can be a “freelance worker” even if they are a sole proprietor who is not incorporated or using a trade name. whether or not they are incorporated or even using a trade name.
In addition to the above limitations, SB 988 only applies to “freelance workers” who provided “professional services,” as that term is defined by the Labor Code. The Labor Code defines “professional services” as people who provide the following services: Marketing, human resources administration, travel agent services, graphic design, fine art, grant writing, tax preparation, payment processing, writing/copy editing, photography or photo/video editing, barbers or cosmetology-related services, appraisers, and professional foresters. A worker who does not provide these types of services is not entitled to the new protections under SB 988.
If applicable, the new rights provided to freelance workers under SB 988 focus on the written contract and its terms. The law will now require that all contracts with freelance workers be in writing and must include certain elements, such as mailing address, the rate of compensation, and the services to be provided. Workers must be paid on the date specified in the contract or no later than 30 days from the date services are rendered. Hiring parties must also keep records of freelance worker contracts for four years, and they cannot contract around these requirements. For example, the hiring party cannot require that workers accept less compensation or provide additional services in exchange for receiving timely payment. Nor can freelance worker contracts include SB 988 waivers: “A waiver of any provision of” SB 988 “is void and unenforceable.”
SB 988 creates new potential sources of legal liability. For example, hiring parties cannot retaliate or discriminate against workers who attempt to assert their rights. Also, refusal to provide a written contract to a worker carries a $1,000 penalty. Failure to timely pay a worker will result in double damages—i.e., the hiring party will be required twice the amount owed under the contract. For any other violations, hiring parties will be required to pay “the value of the contract or the work performed, whichever is greater.”
SB 988 will apply to any new contracts or contracts that are renewed after January 1, 2025. Hiring parties and other employers who work with potential freelance workers should consult with their employment counsel to ensure they are following SB 988.
Updated Victim of Violence Leave
Question: I heard that California expanded the leave available for victims of domestic violence. Is that true? What are the new requirements?
Answer: Starting on January 1, 2025, California’s amendment to the “victims of violence” leave law—AB 2499—will become effective. Under this new law, employees who are victims of crime or abuse and who work for employers with 25 or more employees will have expanded workplace protections. Broadly speaking, AB 2499 expands victim-of-violence leave in three main ways.
First, AB 2499 expands the qualifying acts that give an employee a right to protected leave. Current law states that employees are generally able to take time off if they are victims of “crime or abuse” or “domestic violence, sexual assault, or stalking.” Under AB 2499, an employee may take time off for any “qualifying act of violence,” which is defined as “any act, conduct, or pattern of conduct” that includes (1) bodily injury to another, (2) the brandishing or drawing of a weapon, or (3) the perceived or actual threat to use force against another to cause physical injury. Further, an employee will be entitled to leave regardless of whether anyone is actually arrested, prosecuted, or convicted of committing a “qualifying act of violence.”
Second, AB 2499 extends the leave protections to employees whose family members are victims of crime or abuse. This is a major change. Previously, employees were generally only entitled to victim-of-violence leave if they were themselves victims of crime or abuse. Starting in 2025, employees will also be entitled to take leave if they have a family member who is a victim of a qualifying act of violence. Family members include children, parents, grandchildren, siblings, spouses, or “a designated person.” In this sense, victim of violence leave will now mirror other protected forms of leave, like California Family Rights Act leave.
Third, employees will now be able to take time off for additional purposes. For example, employees will now be able to take time off to obtain counseling or mental health services, relocating or securing a new residence, providing care to family members who are victims of violence, and seeking legal services or participating in legal proceeding—civil or criminal.
Though AB 2499 greatly expands who can take leave and for what reasons, the right to leave is not unlimited. AB 2499 permits employers to limit the total leave an employee can take. If the employee is the victim, the employer can limit their total leave allotment to 12 weeks. If the employee’s family member is the victim, the employer may general limit the total leave taken to 5 days for relocation, and 10 days total. And employers may still require certification as a condition for providing leave, such as a police report, court order, or other documentation verifying the employee’s (or family member’s) status as a victim.
Finally, it is worth noting that AB 2499 will now make it unlawful for employers to discriminate or retaliate against employees who take time off under this law or because of their status as (or association with) a victim of violence.
Covered employers must provide employees with notice of these new protections by July 1, 2025. The California Civil Rights Division is expected to publish its AB2499 form notice on or before that date. Business owners with over 25 employees should consult with their legal counsel prior to the January 1, 2025 effective date to ensure their handbooks and employment policies are compliant with AB 2499.
PAGA Reform – A Sigh of Relief for Employers?
Question: I heard that a law called the “PAGA” was reformed to make it more employer friendly. What is the PAGA and what are the major changes to the law?
Answer: On July 1, 2024, Governor Newsom signed SB 92 and AB 2288 into law. Together, these statutes significantly reformed California’s Private Attorneys General Act (“PAGA”). The reformed law will apply to any actions in which the initial PAGA notice was submitted on or after June 19, 2024. Under the reformed law, employers will benefit from stricter standing requirements, reduced penalties, and increased opportunities to avoid penalties altogether.
For background, the Legislature enacted the PAGA in 2004 to create a more effective way to help workers resolve labor disputes. The PAGA authorized individual employees to “stand in the shoes of” the Attorney General to file lawsuits and recover civil penalties for violations of the California Labor Code. Significantly, the PAGA was broad enough to allow an employee to seek penalties for labor code violations suffered by other employees. An employee only needed to personally suffer one labor code violation before that employee could pursue penalties for other labor code violations suffered by other employees. In addition, the PAGA gave employee the potential to recover reasonable attorneys’ fees.
Predictably, the PAGA gave plaintiffs’ attorneys a strong incentive to sue employers. The California Chamber of Commerce recently reported that plaintiffs’ attorneys leveraged over eight billion dollars from employers in PAGA settlements in the last six years. These settlements often result in windfalls for plaintiffs’ attorneys, with little benefit to employees or the State of California. Statistics like this over the years have resulted in widespread concerns and criticisms over excessive penalties and frivolous litigation. In response to these concerns, a ballot measure was set to be on the November 2024 ballot to repeal the PAGA altogether. But in June of this year, Governor Newsom, along with other interest groups, reached a deal to reform the PAGA and avoid the ballot measure.
While the PAGA reforms are complex, the core changes to the PAGA are as follows:
First, absent some limited exceptions, an employee is now limited to seeking penalties for Labor Code violations that employee personally suffered.
Second, the civil penalties for Labor Code violations have been significantly reduced, from $100 per violation to as little as $25 per violation.
Third, employer’s now have more opportunities to “cure” violations and avoid (or significantly limit) their exposure to civil penalties. For example, the potential civil penalties may be capped at 30 percent for employers who take “reasonable steps” to comply with the Labor Code. The PAGA defines “reasonable steps” to include wage-hour training for supervisors, payroll audits, and disciplining supervisors who violate the Labor Code.
Similarly, if a PAGA lawsuit is filed, employers may now request to participate in an “early evaluation conference” with a neutral evaluator to see if the case can be settled early. Significantly, requesting this conference pauses proceedings in court—limiting potential legal fees and expenses.
Overall, the recently enacted PAGA reforms are a significant change for employers. It remains to be seen how the Courts will interpret and apply these new rules. However, what’s clear is that the PAGA reforms will likely reduce the large amount of PAGA litigation and, when brought, give employers opportunities to reduce their exposure.
SB 478 – The End of Service Charges and Other Hidden Fees?
Question: I own a restaurant, and we include a service charge or automatic gratuity on serving large parties. I heard that restaurants will not be able to charge service charges anymore. Is that true?
Answer: Starting on July 1, 2024, California’s “Hidden Fees Law,” SB 478, will become effective. Under this new law, service charges are not banned, but the price listed for goods or services must include all amounts the customer is required to pay (excluding government taxes or fees and certain delivery fees.)
Initially, it was unclear whether SB 478 would apply to the hospitality industry, where it is common to include a 15-20% service charge or automatic gratuity. Such charges are usually listed on the menu or event contract as a 15-20% service charge, and these funds are often distributed to servers and back of the house staff, and/or used to offset the operational costs of serving large parties.
Recently, California Attorney General Rob Bonta made it clear that SB 478 applies to the hospitality industry, telling the San Francisco Chronicle: “SB 478 applies to restaurants, just like it applies to businesses across California … The law is about making sure consumers know what they are going to pay and requires that the posted price include the full amount that a consumer must pay for that good or service.” On May 8, 2024, the Attorney General’s Office published FAQs stating SB 478 applies broadly throughout the service industry, including hotels and restaurants. The FAQs state, “a business is generally free to charge whatever amount it wants for a good or service, to provide a subsequent breakdown of the various fees or charges that are included in its listed or advertised price, and to tell the consumer about those fees and charges.” See https://oag.ca.gov/system/files/attachments/press-docs/SB%20478%20FAQ%20%28B%29.pdf
Restaurants and other hospitality businesses will therefore need to eliminate service charges, include them in the price of the goods or services being sold, or itemize the amount of the service charge in dollars and cents that will be added to the base price of the goods or services. For example, a restaurant owner who wishes to charge a service charge could comply with the law by listing the price of a menu item ($28.00) plus the service charge ($5.60) and show the total cost of the item on the menu as $33.60. The customer is then informed of the total price of the menu item. Or, the restaurant could simply eliminate the itemized service charge and charge $33.60 for the item. The Attorney General has clarified that SB 478 does not apply to tips, which are not mandatory fees, or discounts.
SB 478 does not place a cap on prices. As the Attorney General has repeatedly said, “SB 478 is a price transparency bill. The statute does not change what price a business can charge or what may be included in that cost.”
There is confusion about the meaning and application of this new law, and it is anticipated the hospitality industry will lobby for changes and/or clarification of how it applies. Violations of this new law carry mandatory fees of $1,000 per violation, and successful plaintiffs may recover attorneys’ fees if they win.
Business owners should consult with their legal counsel prior to the July 1 effective date to ensure they are compliant with SB 478.
Prior Marijuana Use – No Questions Asked?
Question: I’ve heard that, as a business owner, I can no longer ask employees or potential employees about prior marijuana use. Is that true? Does this impact my ability to do criminal background checks?
Answer: Generally, yes. As a general rule, employers cannot ask a job applicant about his or her criminal convictions before the employer has made a conditional job offer. Once a conditional offer has been made, the employer may ask about prior criminal convictions. However, effective January 1, 2024, employers can no longer ask prospective employees about prior marijuana usage.
Since California has legalized the recreational use of marijuana, the Legislature has enacted several new laws intended to protect employees’ ability to use marijuana off-duty without adverse employment consequences. For example, in 2022, California enacted AB 2188, which generally prohibits employers from taking adverse actions against an employee based on the employee’s marijuana use off-duty and away from work. California has also generally banned employers from using the results of certain hair and urine tests for marijuana in making employment decisions.
In October of 2023, Governor Newsom also signed SB 700 into law. SB 700 prohibits most employers from asking current and prospective employees about prior marijuana use. And because the Legislature made SB 700 part of the California Fair Employment and Housing Act, violations of this provision come with the typical risks associated with discrimination claims, including attorneys’ fees.
Notably, SB 700 also applies to “information” an employer obtains “about a person’s prior cannabis use” from a criminal background check. The scope of this provision—and its impact on criminal background checks—remains to be seen. For example, under SB 700 an employer most likely cannot rely on information in a person’s criminal history related to mere marijuana possession when making a hiring decision or taking disciplinary action. But SB 700 does not appear to apply to other information unrelated to simple marijuana use, such as convictions for distribution, manufacture, or sale of marijuana. So, an employer may be able to rely on criminal history information that goes beyond mere marijuana use when, for example, making a hiring decision.
SB 700 does have other limitations. For example, employees in the “building and construction trades” are exempt from SB 700’s protections. So, employers in those trades can still ask about prior marijuana use. This provision also does not apply to jobs that require federal background checks. SB 700 also does not displace state or federal laws that otherwise require testing employees for controlled substances as a condition of receiving federal funds or entering into federal contracts.
And, most importantly, employers are not prohibited from restricting the on-the-job impairment by, or possession and use of, marijuana. In other words, employers still have the right to maintain a drug- and alcohol-free workplace.
Overall, SB 700 is part of California’s increasing trend in favor of protecting employees’ rights to engage in lawful, off-duty marijuana use. While this new law contains important exceptions, employers are encouraged to carefully review their hiring and discipline practices and background check procedures to ensure compliance with this new law.