New Leave Laws a Hit to California Companies Struggling to Hire

California is expanding private-sector leave benefits, requiring companies to give their employees more time off in a tight labor market where they’re already strapped for workers and paying their hires more.

Gov. Gavin Newsom (D) last week signed into law a slate of last-minute labor and employment bills that guarantee job-protected bereavement leave and expand family leave to cover “designated persons” such as close friends. The governor also OK’d a measure extending the state’s supplemental Covid-19 paid sick leave policy until the end of the year.

Together, the laws represent what employer compliance advisers view as a torrent of new workplace staffing challenges compounded by the pandemic-fueled competitive labor market. What’s good for workers in a post-pandemic economy, however, could signal more changes to come in blue states that look to California’s shifts in benefits policy as a model.

“What happens in California doesn’t stay in California,” said Benjamin Ebbink, a partner at Fisher & Phillips LLP in Sacramento. “It’s very true with respect to employment law—particularly leave benefits.”

Bevy of Leave Programs

California is one of eleven states that provides paid family and medical leave to most private-sector workers. It enacted the nation’s first state-run paid family leave program 20 years ago.

The bereavement and “designated persons” accents Newsom signed Thursday, however, don’t guarantee that workers will get paid for the time they take off. Both new measures modify the California Family Rights Act, which prevents employers from firing workers who take off for protected reasons.

Workers with at least a month of experience on the job will have up to five days of unpaid bereavement leave completed within three months of the death of a family member under the new law. The “designated persons” extension gives workers the right to appoint at least one “chosen” family member or friend whom they can take time off to assist.

The two new policies take effect in 2023.

Supplemental pandemic-related paid sick leave was scheduled to expire Sept. 30, but Newsom extended the program through Dec. 31. Workers are guaranteed 80 hours of paid time off to recover from illness related to Covid-19. The extension provides for small employers and some nonprofit businesses to qualify for grants of up to $50,000 to cover the costs of the program.

More Headaches

California employers already have to comply with 10 different categories of employee leave laws, and these expansions add further headache and expense to an already complex area of workplace policy, said John Kabateck, California state director for the National Federation of Independent Business.

“Workers should have an opportunity to care for themselves and their families, but once again this is a classic example of big labor and progressive leaders going over the top and leveraging Covid to fatten that leave basket,” he said.

On Sept. 30, Newsom signed into law a bill boosting the state’s paid family and disability leave program to cover up to 90% of a worker’s regular wages while taking leave, starting in 2025. The current maximum is 70%, but it was due to revert to 55% on Jan. 1 if state lawmakers didn’t take action—which would have given California the lowest wage replacement rate of any state-run paid family leave program.

Employment attorneys say the program isn’t expected to add any additional financial burdens on employers, because it is paid for through the elimination of an income tax cap on high wage earners. Newsom vetoed a similar measure last year because it didn’t include a tax shift, meaning employees would bear the additional costs.

Paid leave advocates contend the state’s expansion efforts—particularly the measure to increase the amount of weekly benefits—are crucial for making the program more equitable and available for low-income workers, who are disproportionately workers of color and women.

“It’s simply not possible for most families with low or middle incomes to take a 40% pay cut,” so many of them don’t use the paid leave program even though they contribute through payroll deductions, said Sharon Terman, director of the work and family program and senior staff attorney at Legal Aid at Work. The state’s low benefits level “causes them to miss out on critical life moments like welcoming a new child or saying goodbye to a dying loved one.”

Indirect Costs

Expanded job-protected benefits cost employers money. Long-term leave often requires companies to pay a premium for temp work. Shorter-term leaves of absence stress an existing workforce, which may mean overtime bills.

“While there isn’t a compensation or wage replacement component, there’s still a cost because the work still needs to be done,” said Erika Frank, a California workplace law adviser at Shaw Law Group PC.

Even when the leave goes unpaid, Frank said, it’s ultimately up to employers or their service providers to track their workers’ time-off balances and ensure that requested time off is in compliance with state laws and regulation. Time is money, which can put additional burdens on small employers especially, she said.

Leave costs are getting more expensive, too. Newsom announced in May that the state’s $15 minimum wage would be hiked another 50 cents on Jan. 1.

The deluge of benefits-related employment laws at the tail end of the 2022 legislative session is triggering flashbacks for California employers who just finished implementing a series of CFRA modifications last year. The law was extended to cover businesses with five or more workers and broadened to include a longer list of uses.

“California’s legislature seems to not consider the additive nature of every separate compliance obligation that’s put on individual employers,” said Rob Moutrie, a policy advocate and attorney at the California Chamber of Commerce. “The cumulative burden on the state’s employers to keep up and comply surpasses almost every other state.”