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Labor & Employment Alert >> San Francisco Passes Ordinance Requiring Employers to Provide Fully Paid Parental Leave

December 1, 2016

On April 4, 2016, San Francisco passed the Paid Parental Leave Ordinance (the "Ordinance"), which requires employers to provide employees with six weeks of fully paid parental leave, making it the first city in the United States to do so. The Ordinance supplements California's Paid Family Leave (PFL) program, which allows employees who contribute to California's State Disability Insurance fund to take up to six weeks of leave during a one-year period to bond with a newborn baby or newly placed adopted or foster child, with 55-percent partial wage replacement. Under the new law, San Francisco employers will be required to pay covered employees who take PFL for baby bonding purposes the remaining 45 percent of their regular wages during the covered leave period.

The Ordinance will be implemented in a staggered format beginning on January 1, 2017. Employers with 50 or more employees (regardless of location) must comply with the Ordinance beginning on January 1, 2017. For employers with 35 or more employees (regardless of location), the effective date of the ordinance is July 1, 2017, while employers with 20 or more employees (regardless of location) have until January 1, 2018 to comply. Employers with fewer than 20 employees and public employers are not subject to the Ordinance.

Covered Employees
The Ordinance applies to all employees, including part-time and temporary employees, of a covered employer, who: (1) have worked for the employer for at least 180 days; (2) perform at least eight hours of work per week for the employer within San Francisco city limits; (3) work at least 40 percent of their total weekly hours within San Francisco city limits; and (4) are eligible to receive PFL for baby bonding purposes. The Ordinance also applies to employees covered by a collective bargaining agreement, unless such agreement expressly waives the Ordinance in clear and unambiguous terms or the agreement was entered into before the Ordinance’s effective date.

Employer Obligations
The Ordinance makes clear that the total amount of benefits the employee receives during covered parental leave (i.e., from both PFL and under the Ordinance) is not to exceed 100 percent of the employee's current normal gross weekly wage. Given the 55-percent wage replacement currently available under California's PFL program, employers will generally be required to pay covered employees who take baby bonding PFL the remaining 45 percent of their regular wages during the covered leave period, as stated above.

Employers should note, however, that California recently passed legislation providing for an increase in the wage replacement rate available under the PFL program beginning on January 1, 2018, to 70 percent for employees making less than one-third of the California average weekly wage and 60 percent for all other employees. Therefore, when the increased PFL rates go into effect at the beginning of 2018, the supplemental payment obligation of San Francisco employers under the Ordinance will drop accordingly.

Additionally, for highly-compensated employees covered by the Ordinance and receiving the "maximum weekly benefit amount" under the PFL program (currently $1,129 per week), the supplemental benefits required to be paid by employers will not be calculated to reach 100 percent of the employee's total normal gross weekly wage. Rather, Ordinance benefits for these workers will be capped by treating the "maximum weekly benefit amount" of $1,129 as if it was 55 percent of that employee’s salary.

Recent amendments to the Ordinance clarify that the employer's obligation to provide the supplemental benefits is not triggered until the employee provides the employer with either a copy of his or her Notice of Computation of California Paid Family Leave Benefits from the state (or other legally authorized statement), or provides the state with written authorization to disclose the weekly benefit amount to the employer. As such, the Ordinance allows for the possibility that the employee may not receive supplemental benefits at the same time he or she is actually taking the parental leave if the employer does not know the amount of PFL benefits being paid to the employee at the time the leave is occurring – e.g., if the employee submits an incomplete application or there is a delay in the state’s processing of the PFL claim. As another condition of receiving supplemental benefits under the Ordinance, the employee also must agree, by signing a form issued by San Francisco's Office of Labor Standards Enforcement (OLSE), to reimburse the full amount of the benefits received from the employer if the employee voluntarily separates from employment with that employer within 90 days of the end of the covered leave period, provided the employer requests such reimbursement in writing.

Employers may require employees to use up to two weeks of accrued but unused vacation time to satisfy or help to satisfy the employer’s supplemental pay obligations under the Ordinance. If the employee does not agree to such use of his or her accrued but unused vacation, the employer is relieved of its obligation to pay the supplemental compensation during the covered leave period; however, this lack of agreement will not impact the employee’s eligibility for benefits under the PFL program.

Covered employers who already have in place existing policies providing for at least six weeks of fully paid parental leave within any 12-month period for baby bonding (whether or not such paid leave accounts for PFL benefits) are not required to provide any additional benefits under the Ordinance.

Notice and Recordkeeping Requirements
Employers must clearly display a poster – to be created and issued by OLSE – in a conspicuous area of the workplace in English, Spanish, Chinese and any other language spoken by at least 5 percent of the employees at the employer’s workplace or job site. Additionally, employers must retain records documenting supplemental compensation paid to employees pursuant to the Ordinance for at least three years.

Enforcement of the Ordinance
OLSE is responsible for enforcing the Ordinance. If OLSE determines that a violation of the Ordinance has occurred, it may order payment of the supplemental compensation unlawfully withheld. An administrative penalty of three times the amount of the unlawfully withheld supplemental compensation, or $250 – whichever is greater – may also be assessed. Furthermore, if the violation resulted in harm to or violated the rights of other individuals (for example, a violation of the posting requirement or an act of retaliation), the administrative penalty may also include a $50 fine for each person affected, for each day of the violation. OLSE has the authority to file a civil action against an employer to secure compliance with the Ordinance. In certain circumstances, an aggrieved individual may also file a civil action to address an alleged violation of the Ordinance.

Bottom Line

Employers with workers in San Francisco should review any existing paid parental leave policies to ensure compliance with the Ordinance and begin preparing to comply with the Ordinance’s payment, notice and recordkeeping obligations by the applicable effective date if no such existing policies are in place. Furthermore, employers with operations across multiple states should be aware that certain other jurisdictions have also passed paid family leave laws, including New Jersey, Rhode Island and, most recently, New York. (The New York statute provides for up to 12 weeks of paid family leave per year for baby bonding, to care for a family member with a serious medical condition, or when a family member is called to active military service. Additional information on the provisions of the New York paid family leave law can be found in our previous Alert, "What Employers Need to Know About New York State's New Paid Family Leave Law").