Tag: Gavin Newsom

Recently Effective & Pending State Housing Laws: 2024 Land Use, Environmental & Natural Resources Update

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

The recently effective state housing laws are also summarized below.

PART I: RECENTLY EFFECTIVE STATE HOUSING LAWS

Governor Newsom approved multiple state housing bills passed by the State Assembly and Senate during the last legislative session. The following is an abbreviated summary of a few of the key bills that are expected to benefit mixed-income multifamily housing developers, with a more detailed summary available in our prior legal alert.

SENATE BILL 423 — EXPANSION AND EXTENSION OF SENATE BILL 35

SB 423 (Wiener) extends the sunset provision for and makes other substantive changes to SB 35. As explained in our prior legal alert, SB 35 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects in local jurisdictions that have not made sufficient progress towards their state-mandated Regional Housing Needs Allocation (RHNA), as determined by the California Department of Housing and Community Development (HCD).

SB 423 made the following key amendments to SB 35:

  • Extended SB 35 to January 1, 2036
  • Expanded SB 35 to apply when a local jurisdiction fails to adopt a housing element in substantial compliance with state housing element law (regardless of RHNA progress), as specified and as determined by HCD
  • Revised the coastal zone development prohibition to allow for projects in specified urban coastal locations (e.g., property not vulnerable to five feet of sea level rise or within close proximity to a wetland) where the property is zoned for multifamily housing and is subject to a certified local coastal program or a certified land use plan
  • Removed skilled and trained workforce requirements for projects below 85 feet in height and imposes modified skilled and trained workforce requirements, as specified, for projects at least 85 feet in height. In exchange, projects with 50 or more dwelling units and using construction craft employees to meet apprenticeship program requirements and provide health care expenditures for each employee, as specified

Please see our prior legal alert for information about other SB 35 amendments made by SB 423, including San Francisco-specific amendments.

ASSEMBLY BILL 1287 — ADDITIONAL DENSITY BONUS UNDER STATE DENSITY BONUS LAW

AB 1287 (Alvarez) amended the State Density Bonus Law (Government Code § 65915) by incentivizing the construction of housing units for both the “missing middle” and very-low-income households by providing for an additional density bonus, and incentive/ concession for projects providing moderate-income units or very-low-income units.

The project must provide the requisite percentage of on-site affordable units to obtain the maximum density bonus (50%) under prior law: 15% very-low-income units, or 24% low-income units, or 44% moderate-income (ownership only) units (the Base Bonus). To qualify for an additional density bonus (up to 100%) and an additional incentive/concession under AB 1287, the project must provide additional on-site affordable units, as specified (the Added Bonus). The Added Bonus may be obtained by adding moderate-income units to either a rental or ownership project, but that is capped at a total maximum of 50% moderate-income units.

ASSEMBLY BILL 1633 — EXPANSION OF HOUSING ACCOUNTABILITY ACT PROTECTIONS: CEQA

AB 1633 (Ting) closed a loophole in the Housing Accountability Act (HAA) (Government Code section 65589.5 et seq.) by establishing when a local agency’s failure to exercise its discretion under CEQA, or abuse of its discretion under CEQA, constitutes a violation of the HAA.

To qualify under AB 1633, the project must be a “housing development project” under the HAA and meet other specified requirements, as summarized in our prior legal alert. Under AB 1633, the following circumstances constitute “disapproval” of the project, in which case the local agency could be subject to enforcement under the HAA:

  • CEQA Exemptions. If (i) the project qualifies for a CEQA exemption based on substantial evidence in the record (and is not subject to an exception to that exemption) and (ii) the local agency does not make a lawful determination, as defined, on the exemption within 90 days (with a possible extension, as specified) of timely written notice from the applicant, as specified.
  • Other CEQA Determinations. If (i) the project qualifies for a negative declaration, addendum, EIR, or comparable environmental review document under CEQA; (ii) the local agency commits an abuse of discretion, as defined, by failing to approve the applicable CEQA document in bad faith or without substantial evidence in the record to support the legal need for further environmental study; (iii) the local agency requires further environmental study; and (iv) the local agency does not make a lawful determination, as defined, on the applicable CEQA document within 90 days of timely written notice from the applicant, as specified.

AB 1633 includes a limited exception to enforcement where a court finds that the local agency acted in good faith and had reasonable cause to disapprove the project due to the existence of a controlling question of law about the application of CEQA or the CEQA Guidelines as to which there was a substantial ground for difference of opinion at the time of the disapproval.

ASSEMBLY BILL 1485 — STATE ENFORCEMENT OF HOUSING LAWS

AB 1485 (Haney) granted the California Attorney General the “unconditional right to intervene” in lawsuits enforcing state housing laws, whether intervening in an independent capacity or pursuant to a notice of referral from HCD. Under prior law, the Attorney General and HCD were required to petition the court to be granted intervenor status and join a lawsuit, which can be a “lengthy and onerous process.”

PART II: PENDING STATE HOUSING LAWS

Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. AB 2243 (Wicks) would amend AB 2011 (the Affordable Housing and High Road Jobs Act of 2022). AB 1893 (Wicks) and AB 1886 (Wicks and Alvarez) would amend Builder’s Remedy provisions under the HAA. AB 2560 (Alvarez) and SB 951 (Wiener) would help facilitate housing development in the coastal zone. AB 3068 (Haney) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses. SB 1227 (Wiener) would help facilitate middle-income housing and other projects in the San Francisco Downtown Revitalization Zone.

The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.

ASSEMBLY BILL 2243 — AB 2011 AMENDMENTS

AB 2243 (Wicks) would amend AB 2011 (operative as of July 1, 2023). As explained in our prior legal alert, AB 2011 provides for “by right” streamlined ministerial (i.e., no CEQA, no discretion) approval of qualifying mixed-income and affordable housing development projects along commercial corridors in zoning districts where office, retail, and/or parking uses are principally permitted.

As currently proposed, AB 2243 would:

Project Review and Approval
  • Require the local government to approve the AB 2011 project within a specified timeframe. Once the project is deemed to be consistent with applicable objective planning standards, the local government would be required to approve the project within 180 days (for projects with more than 150 housing units) or 90 days (for projects with 150 or fewer housing units).
  • Require the local government to determine project consistency or inconsistency with applicable objective planning standards within 30 days when a project is resubmitted to address written feedback. The otherwise applicable timeframe is within 60 or 90 days, with the longer timeframe applying to projects with more than 150 housing units.
  • Provide that a density bonus under the State Density Bonus Law, including related incentives, concessions and/or waivers, “shall not cause the project to be subject to a local discretionary government review process” even if the requested incentives, concessions and/or waivers are not specified in a local ordinance. This is important because some local governments purport to require discretionary approval for specified “off menu” incentives, concessions and waivers despite the fact that AB 2011 provides for a ministerial (i.e., no CEQA) project approval process and specifically contemplates utilization of the State Density Bonus Law in conjunction with AB 2011.
  • Provide that the Phase I Environmental Assessment (ESA) requirement would be imposed as a condition of project approval versus prior to project approval. If any remedial action is required due to the presence of hazardous substances on the project site, that would need to occur prior to issuance of a certificate of occupancy (as specified).
Residential Density
  • Provide that the AB 2011 (base) residential density, which varies depending on the location and size of the project site, is now the “allowable” density (prior to any density bonus) instead of a minimum (“meet or exceed”) density requirement.
  • Impose a new minimum residential density requirement, which would be 75% of the greater of the applicable “allowable” residential density.
  • Specify that the imposition of applicable objective planning standards shall not preclude the “required” (minimum) AB 2011 residential density (prior to any density bonus) or require a reduction in unit sizes. It appears that this new provision is instead intended to apply to the “allowable” AB 2011 residential density pursuant to the cross-referenced subsections.
Commercial Corridor Frontage Requirements
  • Revise the definition for “commercial corridor” based on the applicable height limit. Where local zoning sets a height limit for the project site of less than 65 feet, the right-of-way would need to be at least 70 feet, which is the current AB 2011 requirement. For all other project sites, the right-of-way would now only need to be at least 50 feet.
  • Clarifies that the width of the right-of-way includes sidewalks for purposes of determining whether it is a “commercial corridor.”
  • Expand eligible sites to include conversions of “existing office buildings” that meet all other AB 2011 requirements, even if they are not on a commercial corridor.
Project Site Size Requirements
  • Waive the current 20-acre project site size limitation for “regional malls” that are up to 100 Regional malls is defined to include malls where (i) the permitted uses on the site include at least 250,000 square feet of retail, (ii) at least two-thirds of the permitted uses on the site are retail, and (iii) at least two of the permitted retail uses on the site are at least 10,000 square feet. Additional criteria for the redevelopment of regional mall sites is expected to be added to the bill.
Setback Requirements
  • Provide that density bonus incentives, concessions, and waivers permitted under the State Density Bonus Law may be utilized to deviate from specified AB 2011 setback requirements related to existing adjacent residential uses. The HCD previously opined that under existing AB 2011, only the AB 2011 height and density maximums can be modified via the density bonus approval process.
Freeway, Industrial Use, & Oil/Natural Gas Facility Proximity
  • Eliminate the freeway proximity and active oil/natural gas facility proximity prohibitions and replace those with specified air filtration media requirements.
  • Revise the AB 2011 limitation on project sites dedicated to industrial uses. Currently, project sites are disqualified where more than one-third of the square footage is dedicated to industrial use or the project site adjoins a site exceeding that threshold. “Dedicated to industrial use” would no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • Revise the definition of “freeway” to specify that freeway on-ramps and off-ramps are not included.
Coastal Zone Projects
  • Newly prohibit AB 2011 projects in the coastal zone that do not meet SB 35 coastal zone siting requirements (as recently amended by SB 423) under Government Code section 4(a)(6), exclusive of the requirement for the project site to be zoned for multifamily housing (since AB 2011 allows for multifamily housing on commercially zoned properties), including (but not limited to) where the applicable area of the coastal zone is not subject to a certified local coastal program or a certified land use plan.
  • Provide that the public agency with coastal development permitting authority, as applicable, shall approve the permit if it determines that the project is consistent with all objective standards of the local government’s certified local coastal program or certified land use plan, as applicable.
  • Provide that any density bonus, concession, incentive, waiver, and/or (reduced) parking ratios granted pursuant to the State Density Bonus Law “shall not constitute a basis to find the project inconsistent with the local coastal program.”
Residential Conversion Projects
  • Eliminate the residential density limit for the conversion of existing buildings to residential use, except where the project would include net new square footage exceeding 20% of the “overall square footage of the project.”
  • Prohibit the local government from requiring common open space beyond “what is required for the existing project site” versus required pursuant to the objective standards that would otherwise apply pursuant to the closest zoning district that allows for the AB 2011 residential (base) density, where applicable.
  • Exempt the conversion of “existing office buildings” from the commercial corridor frontage requirement.
Clarifications
  • Clarify that the AB 2011 on-site affordable housing requirement only applies to new housing units created by the project.
  • Clarify that the number of on-site affordable housing units required under AB 2011 is based on number of housing units in the project prior to any density bonus (i.e., the “base” project), which is consistent with the State Density Bonus Law.
  • Clarify the process for calculating the on-site affordable housing requirement under AB 2011 where the local jurisdiction requires a higher percentage of affordable units and/or a deeper level of affordability.
  • Clarify that the “allowable” density under AB 2011 is calculated prior to any density bonus under the State Density Bonus Law.
  • Clarify that “urban uses” includes a public park that is surrounded by other urban uses.
Implications

AB 2243 would make important clarifications in advance of the to-be-provided HCD guidance document on the implementation of AB 2011. The bill would make important amendments to the prior freeway and oil/natural gas facility proximity prohibitions by instead requiring installation of air filtration media, consistent with Senate Bill 4 (Affordable Housing on Faith and Higher Education Lands Act of 2023). The bill would also help facilitate AB 2011 projects in specified coastal zone areas. Under existing law, a qualifying AB 2011 project would be subject to streamlined ministerial approval at the local level, but not by the Coastal Commission, which could separately trigger a discretionary (i.e., CEQA) review and approval process. AB 2243 partially addresses that, but only in qualifying coastal zone areas (pursuant to SB 423, as modified) that are subject to a certified local coastal program or certified land use plan, which excludes various coastal zone areas.

ASSEMBLY BILL 2560 & SENATE BILL 951 — COASTAL ZONE PROJECTS

Assembly Bill 2560

AB 2560 (Alvarez) would amend the State Density Bonus Law to partially address coastal zone projects. Currently, the State Density Bonus Law explicitly provides that it “does not supersede or in any way alter or lessen the effect or application of the California Coastal Act of 1976” (Public Resources Code § 30000 et seq.). As currently proposed, AB 2560 would revise that provision to instead provide that any density bonus, concessions, incentives, waivers, or reductions of development standards, and (reduced) parking ratios to which an applicant is entitled under the State Density Bonus Law “shall be permitted notwithstanding the California Coastal Act of 1976” but only if the development is not located on a site that is any of the following:

  • An area of the coastal zone that is not subject to a certified local coastal program
  • An area of the coastal zone subject to paragraph (1), (2), or (3) of subdivision (a) of Section 30603 of the Public Resources Code (i.e., within a specified distance of the sea, estuary, stream, coastal bluff, tidelands, submerged lands, public trust lands, or sensitive coastal resources area)
  • An area of the coastal zone that is vulnerable to five feet of sea level rise, as determined by the National Oceanic and Atmospheric Administration, the Ocean Protection Council, the United States Geological Survey, the University of California, or a local government’s coastal hazards vulnerability assessment
  • A parcel within the coastal zone that is not zoned for multifamily housing
  • A parcel in the coastal zone and located on either of the following: (i) on, or within a 100-foot radius of, a wetland, as defined in Section 30121 of the Public Resources Code or (ii) on prime agricultural land, as defined in Sections 30113 and 30241 of the Public Resources Code
Implications

AB 2560 should help facilitate density bonus projects in coastal zone areas, but the coastal zone area would need to be subject to a certified local coastal program (versus either that or a certified land use plan pursuant to SB 423). Again, that excludes various coastal zone areas.

Senate Bill 951

SB 951 (Wiener) would amend the State Housing Element Law (Government Code § 65580 et seq.). Existing law requires rezoning by a local government, including adoption of minimum density and development standards (as specified), when the local government’s Housing Element site inventory does not identify adequate sites to accommodate the applicable state mandated RHNA. As currently proposed, SB 951 would require local governments in the coastal zone to make “any necessary local coastal program updates” to meet the applicable RHNA.

SB 951 would also amend the California Coastal Act to target the City and County of San Francisco. Existing law provides that approval of a coastal development permit by a “coastal county” with a certified local coastal program may be appealed to the California Coastal Commission under specified circumstances, including where the approved use is not “the principal permitted use” under the local zoning ordinance or zoning map. As currently proposed, SB 351 would provide that for purposes of that provision, “coastal county” does not include a local government that is both a city and county.

Implications

SB 951 would effectively require consistency between local coastal programs and any upzoning or rezoning required under State Housing Element Law. The appealability of coastal zone permits approved by the City and County of San Francisco would also be limited by the bill, which could help facilitate new housing development projects.

ASSEMBLY BILL 1893 & ASSEMBLY BILL 1886 — BUILDER’S REMEDY AMENDMENTS

As explained in our prior legal alert, the Builder’s Remedy applies when a local jurisdiction has not adopted an updated Housing Element in compliance with State Housing Element Law (Gov. Code § 65580, et seq.), in which case the local jurisdiction cannot deny a qualifying housing development project even if it is inconsistent with the local general plan and zoning ordinance (subject to limited exceptions).

To qualify for the Builder’s Remedy, the project must currently (i) fall under the definition of a “housing development project” under the HAA (i.e., a project consisting of residential units only, mixed-use developments consisting of residential and non-residential uses with at least two-thirds of the square footage designated for residential use, or transitional or supportive housing) and (ii) dedicate at least 20% of the dwelling units in the project as lower income (or 100% of the units as moderate income), as defined in the HAA.

Assembly Bill 1893

As currently proposed, AB 1893 would (i) reduce the required percentage of affordable units for mixed-income Builder’s Remedy projects from 20% lower income to 10% very low-income; (ii) impose new size and location guardrails on Builder’s Remedy projects; and (iii) authorize local jurisdictions to require compliance with other specified objective development standards so long as they do not reduce the “allowed” residential density or result in an increase in “actual costs.” AB 1893 would also eliminate the affordability requirement for Builder’s Remedy projects consisting of 10 units or fewer, so long as the project site is smaller than one acre with a minimum density of 10 units per acre.

New Basis for Denial & New Project Requirements

AB 1893 would significantly amend the most controversial component of the Builder’s Remedy, which is that a local jurisdiction without a substantially compliant Housing Element (“Non-Compliant Jurisdiction”) cannot deny a qualifying Builder’s Remedy project unless specified findings are made, which are intended to create a high threshold for denial by local jurisdictions.

As currently proposed, AB 1893 would newly authorize a Non-Compliant Jurisdiction to deny a qualifying Builder’s Remedy project if the project fails to meet any of the following “objective” standards. In other words, Builder’s Remedy projects would need to meet all the following new requirements (unless the project is “grandfathered” as explained below):

  • The project site must be designated by the general plan or located in a zone where housing, retail, office, or parking are “permissible” uses. Alternatively, if the project site is designated or zoned for agricultural use, at least 75% of the perimeter of the project site must adjoin parcels that are developed with urban uses, as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “urban use” to clarify that urban use includes a public park that is surrounded by other urban uses.
  • The project site must not be on a site or adjoined to any site where more than one-third of the square footage on the site is “dedicated to industrial use,” as defined under AB 2011. Recall that AB 2243 would amend the AB 2011 definition of “dedicated to industrial use” to no longer include sites (i) where the most recently permitted use was industrial, but that use has not existed on the site for over three years; or (ii) where the site is designated industrial by the general plan, but residential uses are a principally permitted use on the site or the site adjoins an existing residential use.
  • The residential density for the project must not exceed the “greatest” of the following density calculations, as applicable, prior to any density bonus under the State Density Bonus Law (there is no codified limit under existing law):
    • For project sites within “high or highest resource census tracts” (as defined): (i) 50% greater than the “maximum” density deemed appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (e.g., for a local jurisdiction in a metropolitan county, “at least” 30 dwelling units per acre); or (ii) three times the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For other project sites, (i) the “maximum” density appropriate to accommodate (lower income) housing for the local jurisdiction as specified in Government Code section 65583.2(c)(3)(B) (see above); or (ii) twice the density allowed by the general plan, zoning ordinance, or state law (prior to any density bonus under the State Density Bonus Law), whichever is greater.
    • For project sites located within one-half mile of a major transit stop, up to 35 dwelling units per acre more than the “amount allowable” specified above, as applicable.
    • The project must comply with “other” objective development standards (as defined) imposed by the local jurisdiction that apply in closest zone in the local jurisdiction for multi-family residential use at the “allowed” residential density If no such zone exists, the applicable objective standards shall be those for the zone that allows the greatest density within the city, county, or city and county, as applicable.

AB 1893 would provide that in no case may the local agency apply any objective development standards that will (i) have the effect of physically precluding the construction of the project at the “allowed” residential density (see above) or (ii) result in an increase in “actual costs.” The local agency would bear the burden of proof under these circumstances.

Project “Grandfathering”

As currently proposed, the foregoing new requirements would not apply to Builder’s Remedy applications that are “deemed complete” on or before April 1, 2024. Under existing law, “deemed complete” is defined to mean that the applicant has submitted a SB 330 preliminary application or, if that has not been submitted, a complete development application (as defined) has been submitted. AB 1893 would add that the local agency shall bear the burden of proof in establishing that the applicable application is not complete.

Implications

AB 1893 is an attempt to “modernize” the Builder’s Remedy by providing clarity to developers, local jurisdictions, and courts to avoid the “legal limbo” described by Attorney General Rob Bonta. As part of that compromise, significant new requirements would be imposed on Builder’s Remedy projects, including a new “cap” on residential density where no codified limit currently exists. In return, the clarifications made by AB 1893 and the reduced affordability requirement for mixed-income projects could help facilitate Builder’s Remedy projects in Non-Compliant Jurisdictions.

Assembly Bill 1886

A recent Builder’s Remedy lawsuit exposed some ambiguity regarding when a Housing Element is deemed “substantially compliant“ with State Housing Element Law. Opposing sides of the litigation disputed where (retroactive) self-certification by the local jurisdiction was sufficient. The court ruled that it was not. See our prior legal alert for our coverage of this ruling, which appears to be the impetus for the amendments proposed under AB 1886 (Alvarez and Wicks).

As currently proposed, AB 1886 would:

  • Clarify the point at which a Housing Element is deemed substantially compliant with State Housing Element Law: (i) the Housing Element has been adopted by the local jurisdiction and (ii) the local jurisdiction has received an affirmative determination of substantial compliance from HCD or a court of competent jurisdiction.
  • Clarify that the Housing Element shall continue to be considered in substantial compliance with State Housing Element Law until either: (i) HCD or a court of competent jurisdiction determines that the adopted Housing Element is no longer in substantial compliance (e.g., where any required rezoning is not approved in a timely manner) or (ii) the end of the applicable Housing Element cycle.
  • Specify that Housing Element compliance status is determined at the time the SB 330 Preliminary Application is submitted for the qualifying Builder’s Remedy project, which is consistent with HCD’s prior determination that the Builder’s Remedy is vested on that filing date. If a SB 330 Preliminary Application is not submitted, then the compliance status would be determined when a complete development application (as defined) is filed for the Builder’s Remedy project.
    • Require a local jurisdiction that adopted its Housing Element despite HCD’s non-compliance determination to submit the required findings, as specified, to HCD. In any legal proceeding initiated to enforce the HAA, HCD’s determination on the required findings would create a rebuttable presumption of substantial compliance or lack thereof.
Implications

AB 1886 would make it clear that a local jurisdiction cannot “self-certify” its Housing Element. Rather, an affirmative determination must be granted by HCD or, if a local jurisdiction adopts its Housing Element notwithstanding HCD’s determination to the contrary, a court of competent jurisdiction would need to agree with the local jurisdiction, notwithstanding the “rebuttable presumption” in favor of HCD’s non-compliance determination, where applicable.

ASSEMBLY BILL 3068 — ADAPTIVE REUSE PROJECTS

AB 3068 (Haney, Quirk-Silva, and Wicks) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses, as specified. Qualifying adaptive reuse projects would be deemed “a use by right” regardless of the applicable zoning district, with the exception of any proposed non-residential uses.

As currently proposed, the following requirements would need to be met:

Threshold Requirements
  • The project must retrofit and repurpose an existing building to create new residential or mixed-uses (Adaptive Reuse). The Adaptive Reuse of light industrial buildings is prohibited unless the local planning director (or equivalent) determines that the “specific light industrial use is no longer useful for industrial purposes.”
  • At least 50% of the Adaptive Reuse project must be designated for residential use, which is defined to include housing units, dormitories, boarding houses, and group housing. For purposes of calculating total project square footage, underground spaces, including basements or underground parking garages, are excluded.
  • Any nonresidential uses must be “consistent with the land uses allowed by the zoning or a continuation of an existing zoning nonconforming use.”
  • If the existing building is a listed historic resource or is over 50 years old, specified requirements must be met.
Affordability Requirements
  • For rental projects, either (i) 15% of the units must be lower income (as defined) or (ii) 8% of the units must be very low income and 5% of the units must be extremely low income (as defined), unless different local requirements apply.
  • For ownership projects, either (i) 15% of the units must be lower income (as defined) or (ii) 30% of the units must be moderate income (as defined), unless different local requirements apply.
  • Where different local requirements apply, the project must include the higher percentage requirement and the lowest income target, unless local requirements require greater than 15% lower income units (only), in which case other specified requirements apply.
  • For rental projects, the affordable units must be restricted for 55 years and for ownership projects, the affordable units must be restricted for 45 years.
  • Affordable units in the project must have the same bedroom and bathroom count ratio as the market rate units, be equitably distributed within the project, and have the same type or quality of appliances, fixtures, and finishes.
Project Site Requirements
  • The Adaptive Reuse project site must be in an urbanized area or urban cluster (as defined and specified) and at least 75% of the perimeter must adjoin (as defined) parcels that are developed with urban uses (not defined in AB 3068 but separately defined in AB 2011).
  • Required Phase I ESA and if a recognized environmental condition is found, specified requirements must be met.
Labor Requirements
  • All construction workers must be paid at least the general prevailing wage of per diem wages for the type of work in the geographic area (as specified), except that apprentices registered in approved programs (as specified) may be paid at least the applicable apprentice prevailing rate.
  • The prevailing wage requirement must be included in all construction contracts, and all contractors and subcontractors must comply with specified requirements.
  • If the Adaptive Reuse project would include 50 or more dwelling units, additional requirements would apply (as specified), including but not limited to participation in an approved apprenticeship program and health care expenditures for any construction craft employees.
Project Approval Process
  • If the Adaptive Reuse project is determined by the local planning director (or equivalent) to be consistent with the foregoing requirements (referred to collectively as “objective planning standards”), the local agency must approve the project. That consistency determination must be based on whether there is “substantial evidence that would allow a reasonable person to conclude that the project is consistent with the objective planning standards.”
  • If the project is deemed to conflict with any applicable objective planning standards, the local agency must notify the project sponsor within 60 to 90 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units. If the local agency fails to provide the required documentation (as specified), the project shall be deemed to satisfy applicable objective planning
  • Design review may be conducted by the local agency but must be objective (as specified) and must be concluded within 90 to 180 days of submittal of the development proposal, depending on whether the project contains more than 150 dwelling units.
Development Impact Fees

Adaptive Reuse projects would be exempt from all development impact fees “that are not directly related to the impacts resulting from the change of use of the site from nonresidential to residential or mixed-use” and any development impact fees charged must be “proportional to the difference in impacts caused by the change of use.” The project sponsor may also request that payment of development impact fees be deferred to the date that the certificate of occupancy is issued, subject to a written agreement to pay the development impact fees at that time.

Adjacent Projects

A qualifying Adaptive Reuse project “may include the development of new residential or mixed-use structures on undeveloped areas and parking areas on the parcels adjacent to the proposed adaptive reuse project site” if specified requirements are met.

Implications

AB 3068 would be another tool in the growing toolbox available to real estate developers to encourage the adaptive reuse of underutilized commercial buildings, including office buildings. Financial feasibility is likely to remain an issue due to high interest rates and construction costs. There are well-documented design challenges associated with the conversion of existing buildings to residential use due to required compliance with the strict provisions of the California Building Code, the California Residential Code, and local amendments to those codes. Even if alternate buildings standards are available for adaptive reuse projects (see the directive under AB 529), it not clear yet whether alternative standards would be available for required seismic upgrades, which are often cost-prohibitive.

Financial feasibility would be partially addressed by AB 3068, which would authorize local agencies to establish an Adaptive Reuse Investment Program funded by ad valorem property tax revenues (as specified), which could be transferred to the owners of qualifying Adaptive Reuse projects for the purpose of subsidizing the on-site affordable housing units required by AB 3068. The bill would also “align program requirements to encourage the utilization of existing programs such as the Federal Historic Tax Credit, the newly adopted California Historic Tax Credit, the Mills Act, and the California Historical Building Code.”

SB 1227 — SAN FRANCISCO DOWNTOWN REVITALIZATION ZONE PROJECTS

SB 1227 (Wiener) aims to speed the recovery of downtown San Francisco by creating a new CEQA exemption for qualifying student housing and mixed-use residential projects (along with commercial and institutional projects) in the Downtown Revitalization Zone, which includes the Financial District, Union Square, Eastern SOMA, Mid-Market, and Civic Center neighborhoods. Projects that do not meet all the requirements for the new CEQA exemption could qualify for the new CEQA streamlining process proposed under the bill. SB 1227 would also create a new property tax exemption for moderate-income housing in the Downtown Revitalization Zone.

Qualifying Downtown Revitalization Zone Projects

As currently proposed, the following threshold requirements would need to be met:

  • The project site must be in the San Francisco Downtown Revitalization Zone.
  • The general plan land use and zoning designations for the project site must allow for commercial, institutional, student housing, or mixed-uses (as specified below), as applicable to the project.
  • The project must not include any hotel uses, and if residential uses are proposed, the residential square footage must be less than two-thirds the total project square footage (i.e., the project cannot be a “housing development project” already protected under the HAA). The foregoing square footage limitation (see specified calculation requirements) would not apply to student housing.
  • To the extent that residential uses are proposed, the project must comply with applicable San Francisco inclusionary affordable housing requirements.
  • The project must not require the demolition of restricted affordable units, rent-controlled units, or a hotel (as specified). See also the specific requirements that apply to other existing and prior tenant-occupied housing.
  • The project must comply with 24 enumerated San Francisco ordinances related to development impact fees and environmental protection (including but not limited to the reduction of greenhouse gas emissions and water and energy consumption) and specified provisions of the California Green Building Standards Code.
  • The project site must not be environmentally sensitive, e.g., a delineated earthquake fault zone, habitat for protected species, or a hazardous waste site (as defined and specified).
  • The project must not result in net additional emissions of greenhouse gases from demolition or construction.
New CEQA Exemption

As currently proposed, the following additional requirements would need to be met to qualify for the new CEQA exemption:

  • Prevailing wage, skilled and trained workforce, and/or health care expenditure and apprenticeship requirements must be met (as specified), depending on the size of the project.
  • The project must not include any warehouse uses.
  • The project must not require the demolition of a building that is over 75 years old (regardless of its historic status) or result in “substantial harm” to a building on a federal, state, or local historic registry.
  • The project must be LEED Platinum certified (if over 1,000 square feet).
  • The project must be in an area with a per capita vehicle miles traveled (VMT) level 15% lower than the city or regional VMT.
New CEQA Streamlining Pathway

As currently proposed, San Francisco Downtown Revitalization Zone projects that meet the threshold requirements above, but not all of the additional requirements for the new CEQA exemption, could instead pursue CEQA streamlining whereby the project could be certified by the Governor prior to certification of an EIR for the project pursuant to the Jobs and Economic Improvement Through Environmental Leadership Act of 2021 (Leadership Act), which authorizes the Governor to certify qualifying projects (before January 1, 2032) for CEQA streamlining. One of the benefits of CEQA streamlining under the Leadership Act is that any CEQA litigation must be resolved (to the extent feasible) within 270 days, as specified.

As currently proposed, the following additional requirements would need to be met to qualify for CEQA streamlining:

  • Prevailing wage, skilled, and trained workforce requirements must be met (as specified).
  • The project must be at least LEED Gold certified (versus Platinum) if the project contains residential, retail, commercial, sports, cultural, entertainment, or recreational uses.
  • The project must not demolish a historic structure that is placed on a national, state, or local historic register (versus a building that is over 75 years old, regardless of its historic status).
  • The project must avoid a substantial adverse change to the significance of a historical or cultural resource.
  • The project must avoid or minimize significant environmental impacts in a disadvantaged community (as defined) and any required mitigation measures must be undertaken in, and directly benefit, the affected community.
  • The project must not result in any significant and unavoidable impacts under CEQA that would require adoption of a statement of overriding considerations by the lead agency.
  • The lead agency must approve a project certified by the Governor before January 1, 2031.

Please see the text of SB 1227 for more information about the proposed CEQA streamlining provisions for qualifying San Francisco Downtown Revitalization Zone projects.

New Property Tax Exemption for Moderate-Income Housing

This new (welfare) property tax exemption would allow for a partial exemption equal to the percentage of the value of the property that is equal to the percentage of the number of units serving moderate-income households. As currently proposed, the following requirements would need to be met to qualify:

  • The project must be in the San Francisco Downtown Revitalization Zone.
  • The project must include moderate-income rental units, as defined and specified.
  • The project must be owned and operated by a charitable organization (as defined), which includes (but is not limited to) limited partnerships in which the managing partner is an eligible nonprofit corporation or eligible limited liability company meeting specified requirements.
  • A building permit or site permit for the residential units on the property must be filed before January 1, 2035, and the property owner must claim the exemption within five years following the issuance of the first building permit. The new property tax exemption would also apply with respect to lien dates occurring on or after January 1, 2025.
Implications

SB 1227 should help facilitate the development of new housing for the “missing in the middle” in the San Francisco Downtown Revitalization Zone by providing for a new property tax exemption for projects that include moderate-income rental units. That could in turn help increase the financial feasibility of converting underutilized commercial buildings to mixed-uses, including residential uses.

SB 1227 would impose robust labor requirements for both the new CEQA exemption and CEQA streamlining pathway for qualifying projects in the San Francisco Downtown Revitalization Zone, which could inhibit the utilization of those benefits.

© 2010-2024 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more news on California State Housing Laws, visit the NLR Environmental, Energy & Resources section.

Governor Signs Bill to Exempt Certain Businesses from Fast Food Minimum Wage

On March 26, 2024, Governor Newsom signed Assembly Bill (AB) 610, which amends the definition of “fast food restaurant” to exempt restaurants in airports, hotels, event centers, theme parks, museums, and certain other locations from the requirements set forth under the Fast Food Council requirements.

Last year, Newsom signed AB 1228, which repeals the FAST Recovery Act but establishes a modified version of the Fast Food Council (Council) until January 1, 2029. The bill also sets forth the minimum wage increases for fast food workers, with an increase to $20.00 effective April 1, 2024.

The bill includes an urgency clause which means it takes effect immediately. As such the exempted businesses will not need to comply with the minimum wage requirements past in 2023.

Jackson Lewis P.C. © 2024
For more news on Fast Food Minimum Wage Laws, visit the NLR Labor & Employment section.

California’s Housing Overhaul Brings Significant Changes for Landlords and Tenants in 2024

California Senate Bill 567, i.e., the Homelessness Prevention Act, which goes into effect on April 1, 2024, seeks to cap rent hikes at 10% and prevents landlords from evicting tenants without a legal cause. California Assembly Bill 12, i.e., the new residential security deposit law, which goes into effect on July 1, 2024, limits the amount landlords can charge for security deposits. Both bills were signed into law in 2023 by Governor Newsom, and while they signal new protections and legal benefits for tenants, the potential financial exposure for landlords is elevated.

Senate Bill 567

SB 567 changes the rules by which California property owners may remove tenants in certain instances. Effectively, this new law directly impacts two sets of property owners:

  1. Property owners and their close family members (i.e. spouse, domestic partner, children, grandchildren, parents, or grandparents) who plan to move into an occupied/leased property before the expiration of the lease term with the tenant.
  2. “Fix and flip” investors planning on substantially remodeling or rebuilding an occupied/leased property for resale.

Under the current law (California Civil Code § 1946.2), after a tenant has continuously and lawfully occupied a residential property for 12-months, the landlord is prohibited from terminating the tenancy without “just cause.” In fact, the “just cause” must be stated in the written notice to the tenant for the termination of the tenancy to be effectuated. Of note, existing law distinguishes between “at-fault just cause” and “no-fault just cause,” wherein “no-fault just cause” has nothing to do with the nonpayment of rent and/or criminal activity on premises, but rather is defined as:

  1. the intent to occupy the premises by the owner and/or the owner’s spouse, domestic partner, children, grandchildren, parents, and/or grandparents;
  2. the withdrawal of the residential real property from the rental market;
  3. the owner complying with specific government orders that necessitate vacating the real property; or
  4. the intent to demolish or to substantially remodel the residential real property.

Regarding an eviction based on an intent to occupy, the new law now requires the owner and/or the owner’s family member(s) under such a scenario to occupy (i.e., move into) the residential real property within 90-days for a minimum of 12 continuous months, and to use the property as the person’s primary residence. Historically, it was quite simple for property owners to use the “move in” provision under the law as an excuse to evict a tenant that they did not like or as a means to increase the rent by evicting the old tenant and moving in a new tenant who was willing to pay a higher rent. There were no specific guidelines and/or restrictions in this regard. But now, a strict timeline regarding personal occupancy has been codified into law, the violations of which could result in financial exposure for the property owner including, but not limited to, a civil monetary award to the tenant with potential for treble damages (3-times the actual damages amount) and punitive damages.

This new law also requires an owner who displaces a tenant in order to substantially remodel or demolish a unit to provide the tenant with written notice that includes a description of the substantial remodel to be completed and the expected duration of the repairs or the expected date by which the property will be demolished, as well as a copy of the permits required to undertake the substantial remodel or demolition. This means that the property owner must do more than just advise the existing tenant that they are being evicted due to the substantial remodeling of the property or because of the intent to demolish it. Under the new law, the property owner must provide the tenant with written notice and documents setting forth a construction timeline and copies of the permitting for said work.

Importantly, the new law prescribes new enforcement mechanisms, including making an owner who attempts to recover possession of a rental unit in material violation of this new law liable to the tenant in a civil action for damages up to three times the actual damages amount, as well as punitive damages and attorney’s fees/costs. Furthermore, the new law also authorizes the California’s Attorney General, and/or the City Attorney, and/or County Counsel within whose jurisdiction the rental unit is located, to bring actions for injunctive relief against the owner who is in violation of this new law. Also, many cities and counties throughout California have different (and often more restrictive) requirements when removing tenants. As such, it is always recommended for landlords to check the rules, regulations, and laws related to the jurisdiction where the property is located for any additional guidelines and requirements.

When using any of the “no fault” grounds for removing a tenant, the tenant is entitled to relocation costs equal to one month’s rent. However, landlords should be mindful that many cities and counties throughout California have even more stringent and/or more substantial relocations costs and requirements. As such, landlords should always check to see if there are any additional jurisdictional costs and/or requirements for removing a tenant.

Further, until January 1, 2030, the current existing law prohibits an owner of residential real property from, over the course of any 12-month period, increasing the gross rental rate for a dwelling or a unit more than 5% plus the percentage change in the cost of living, or 10%, whichever is lower, of the lowest gross rental rate charged for that dwelling or unit at any time during the 12-months before the effective date of the increase, subject to specified conditions. This new law, however, makes an owner who demands, accepts, receives, or retains any payment of rent in excess of the maximum increase allowed liable in a civil action to the tenant from whom those payments are or were demanded, accepted, received, or retained for certain relief including, upon a showing that the owner acted willfully or with oppression, fraud, or malice, damages up to three times the amount by which any payment demanded, accepted, received, or retained exceeds the maximum allowable rent. This new law also authorizes the California attorney general and/or the city attorney or county counsel within whose jurisdiction the residential property is located to enforce the new law’s provisions and to bring action for injunctive relief.

Assembly Bill 12

Under AB 12, landlords are permitted to ask for security deposits equivalent to one month’s rent for both furnished and unfurnished dwellings. This is a notable shift given that under the current existing law, landlords can charge up to two months’ rent for an unfurnished dwelling and three months’ rent for a furnished one. This law does not take effect until July 1, 2024, allowing landlords time to make any necessary adjustments to their practices given this new approach on the security deposit amount.

Also, please note that this new law has an exception for “small landlords” (as defined), if they own no more than two residential rental properties that collectively include no more than four dwelling units that are offered for rent. Additionally, to qualify as a “small landlord,” the owner must hold the real estate as a natural person, as a limited liability company where all members are natural persons, or as a family trust. If all these conditions are met, then the “small landlord” is permitted to collect up to two months’ rent as a security deposit. Again, AB 12 does not take effect until July 1, 2024, which gives California landlords who do not qualify as “small landlords” to make necessary adjustments. In enacting this new law, the California state legislators are hoping to make housing more accessible and affordable, especially for those residents who are struggling financially. Ironically, the law also is effectuating at a time when landlords are facing multiple hardships including limited rent increases, financial risk in the form of potential damage to their property and/or unpaid rent for which there will be no compensation, increasing maintenance and operational costs, having to navigate the complexities of local and state-level regulations, and stalled and/or slowed evictions of tenants who owe back-rent since the COVID-19 pandemic. These factors, amongst others, could hamstring landlords financially and potentially lead to significant portions of the housing market to fall into disrepair, as well as to cause a slow-down of development projects and community engagement. It also may cause landlords to become stricter with the screening processes of their tenants, including adopting higher income requirements and/or charging higher application fees, which can result in an even more challenging housing landscape for high-risk and/or low-income tenants. At this juncture, only time will tell.

Now What?

If you are a landlord, these new laws may seem onerous and riddled with potentially damaging financial exposure. We recommend consulting with a trusted attorney before entering into a landlord-tenant relationship, and also before terminating an existing lease in both the “at-fault just cause” or “no-fault just cause” scenarios.

© 2024 Much Shelist, P.C.
For more news on California’s New Housing Laws, visit the NLR Real Estate section.

New Year, New Changes for California Employers in 2024

As 2024 quickly approaches, so, too, do many new obligations and restrictions for employers with California employees.

Below, we summarize significant changes to hiring and workforce management, litigation, wage and hour, and other California employment laws taking effect in the new year.

Unless otherwise noted, all new laws discussed below will be effective as of January 1, 2024.

HIRING & WORKFORCE MANAGEMENT

Restrictive Covenants

California has long been the nation’s leader in limiting employers’ use of restrictive covenants. SB 699 and AB 1076 make the California Business and Professions Code (the “B&P Code”), which generally voids restrictive covenants in California, even stricter.

As we previously reported, SB 699 broadens the B&P Code by adding a new Section 16600.5 that:

  • provides that any agreement void thereunder is also unenforceable in California regardless of where and when the agreement was signed;
  • makes it explicitly unlawful for employers to attempt to enforce or enter into a noncompete agreement (rather than simply voiding such agreements); and
  • grants current, former, and prospective employees a private right of action against employers that attempt to enforce or enter into a noncompete agreement.

AB 1076 further builds on these prohibitions by creating a new Section 16600.1, which makes it unlawful for employers to include noncompete clauses in employment agreements or to require an employee to enter into a noncompete. In addition, as we detailed here. As noted above, prior to these amendments, the B&P Code only voided such restrictive covenants.

AB 1076 also establishes a new notice obligation with which employers must comply by February 14, 2024. Specifically, employers must notify current and former employees who were employed after January 1, 2022, and are subject to an unlawful noncompete, that such agreement or clause is void. This notice requirement also extends to remote employees (current or former) who reside in California, even if the employer has no physical presence in California, as well as former employees who did not work in California during their employment but have since moved there.

Discrimination Protections for Off-Duty Cannabis Use

For the second year in a row, California enacted new employment protections for cannabis users under the state’s Fair Employment and Housing Act (FEHA). As we outlined here, last year’s AB 2188 amended FEHA to prohibit discrimination on the basis of off-duty, off-site use of cannabis, as well as on the basis of testing positive for the presence of non-psychoactive cannabis metabolites in an employee’s or applicant’s hair, blood, or bodily fluids.

SB 700 builds on these protections by further amending FEHA to prohibit employers from inquiring about applicants’ past cannabis use. Importantly, the law exempts from coverage situations in which an employer is permitted under state or federal law to obtain information about an applicant’s prior cannabis use from the person’s criminal history. Moreover, the law does not preempt state or federal laws requiring employers to test applicants or employees for controlled substances. Both SB 700 and AB 2188 will take effect at the start of the new year.

Anti-Retaliation Protections

California law provides applicants and employees who engage in certain protected activities with a variety of anti-retaliation protections. SB 497 further expands these protections by creating a rebuttable presumption of retaliation if an employer disciplines or takes adverse action against an employee or applicant within 90 days of the employee or applicant engaging in conduct protected by California Labor Code §§ 98.6, 1102.5, and 1197.5. This protected conduct includes, but is not limited to:

  • complaining about unpaid wages;
  • complaining about unequal pay violations, including being paid at wage rates less than the rates paid to an employee of the “opposite sex”;
  • disclosing the employee’s own wages;
  • discussing the wages of others;
  • inquiring about another employee’s wages;
  • aiding and encouraging another employee to exercise their rights under the law; and
  • whistleblowing.

Employers may rebut this presumption by establishing that there was a legitimate, non-retaliatory reason for the adverse action.

Paid Sick Leave

As we previously reported, this fall, the California Legislature amended and expanded employers’ paid sick time obligations under the Healthy Workplaces, Healthy Families Act (HWHFA). The overall structure of the HWHFA remains the same, but as of January 1, 2024, SB 616 increases the amount of paid sick time that employers must provide— from three days or 24 hours to five days or 40 hours. Importantly, employers may still choose either to front-load and offer a block grant of paid sick time at the beginning of each year or to use an accrual-based method. As before, with an accrual-based policy, all unused time carries over from year to year.

For accrual-based policies, SB 616 also does the following:

  • increases the cap of paid sick leave that employees can use each year from three days or 24 hours to five days or 40 hours;
  • increases the cap of the total amount of paid leave an employee may accrue from six days or 48 hours to 10 days or 80 hours; and
  • requires that employees accrue paid sick leave at either (1) no less than one hour for every 30 hours worked or (2) an alternative rate under which employees accrue (and are allowed to use) no less than three days or 24 hours of paid sick leave by the employee’s 120th calendar day of employment and no less than the greater of five days or 40 hours of paid sick leave by the employee’s 200th calendar day of employment.

To help employers comply with their new obligations under SB 616, the California Labor Commissioner’s office recently updated its “California Paid Sick Leave: Frequently Asked Questions” guidance and published an updated Paid Sick Leave poster and employee notice.

Leave for a Reproductive Loss

SB 848 creates protected leave for eligible employees who experience a “reproductive loss.” The new law applies to employers with five or more employees, and eligible employees are those who have been employed for at least 30 days prior to the leave. Employers must grant eligible employees up to five days of leave following a reproductive loss. The law broadly defines “reproductive loss” and includes failed adoption, failed surrogacy, miscarriage, stillbirth, and unsuccessful assisted reproduction. Similar to bereavement leave, which the California Legislature enacted in 2023, reproductive leave days must be taken within three months of the loss but do not have to be taken consecutively. Reproductive loss leave is not required to be paid, but it can be paid under the employer’s existing applicable paid time off policies, such as vacation, personal leave, or sick leave.

Workplace Violence Prevention Plans

Current California Division of Occupational Safety and Health (“Cal/OSHA”) regulations require employers to adopt an Injury and Illness Prevention Program (IIPP). SB 553 requires virtually all California employers to have in place by July 1, 2024, a written Workplace Violence Prevention Plan as a stand-alone section in their IIPP or as a separate document. Importantly, employers already covered by Cal/OSHA’s Violence Prevention in Health Care standard (the “Cal/OSHA Health Care Standard”) are excepted from SB 553’s scope, given that the Cal/OSHA Health Care Standard already requires such employers to establish, implement, and maintain workplace violence prevention plans.

SB 553 outlines several specific requirements for the Workplace Violence Prevention Plan, including detailing how the employer responds to any threat or act of violence that occurs in the workplace, procedures to identify and evaluate workplace hazards, and procedures for employees to report violent incidents or threats of violence. Employers must also provide specific training on the Workplace Violence Prevention Plan to employees, including an initial training when the Workplace Violence Prevention Plan is first established and then annually thereafter. Moreover, employers are also required under SB 553 to maintain training records and a violent incident log, which identifies, among other things, where and when a violent incident occurs, the type of violence that occurred, and a description of the incident.

Along with SB 428, beginning January 1, 2025, SB 553 also adds several new protections to the process through which employers may seek temporary restraining orders (TROs) and injunctions on behalf of an employee, including:

  • allowing TROs and injunctions to be sought not only when an employee is subjected to violence or threats of violence but harassment as well, and
  • authorizing collective bargaining representatives to seek TROs and injunctions on behalf of employees.

LITIGATION

No More Automatic Stay During Appeal of Motion to Compel Arbitration

SB 365 amends the California Code of Civil Procedure to state that trial court proceedings will no longer be automatically stayed when a party appeals an order denying a petition to compel arbitration. Under SB 365, beginning in the new year, courts are permitted to exercise discretion as to whether to stay trial court proceedings while an appeal is heard. This is significant because should a court determine that a stay is not warranted, an employer may be forced to continue defending itself in court from claims that may yet ultimately be subject to arbitration if the employer’s appeal is successful.

Privileged Communications Regarding Sexual Assault, Harassment, or Discrimination

Current California law makes certain publications and communications privileged, meaning that individuals who make the communications may be protected from liability for libel and slander. Included among these privileged communications are those related to sexual harassment. As such, if an employee makes a complaint of sexual harassment, without malice, to an employer, California law provides that the employee may not be liable for making such complaints.

AB 933 expands the types of communications that are privileged from liability to include communications regarding:

  • sexual assault;
  • sexual harassment;
  • an act of workplace harassment or discrimination, failure to prevent an act of workplace harassment or discrimination or an act of retaliation against a person for reporting workplace harassment or discrimination; and
  • an act of cybersexual bullying.

Individuals who have made such a communication may assert the privilege to bar liability if they are sued for making defamatory statements based on their own experience as victims of such incidents. In addition, such individuals may recover attorneys’ fees and costs, treble damages, and punitive damages if they prevail in a suit for defamation.

WAGE & HOUR

Wage Theft & Misclassification

AB 594 temporarily authorizes prosecutors through January 1, 2029, to pursue civil or criminal actions against employers that violate California Labor Code provisions related to wage theft and misclassification. Courts can grant prosecutors, including city, county, and state prosecutors, the Attorney General, and district attorneys, money damages (which must first be applied to employee payments), injunctive relief, and reasonable attorneys’ fees and costs that the Labor Commissioner would be entitled to seek. In addition, AB 594 clarifies that with respect to prosecutorial actions, any agreement between an employee and employer that purports to limit representative actions or to mandate private arbitration will not apply.

Minimum Wage

California’s minimum wage rate will increase to $16.00 per hour for all employers, regardless of size. This increase from $15.50 per hour is a result of an inflation adjustment made pursuant to Labor Code § 1182.12, which requires the California Director of Finance to calculate and increase the minimum wage depending upon the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers.

This increase also affects wage and hour exemptions that are based upon a salary floor that is two times the state minimum wage, such as the administrative, professional, and executive exemptions. As such, beginning January 1, 2024, the minimum salary threshold for these exemptions will increase to $66,560 per year.

Additionally, the minimum compensation threshold for the computer software exemption, which is not tied to the minimum wage rate like the administrative, professional, and executive exemptions, will also increase in 2024. For salaried employees, this threshold will be $115,763.35 per year. For hourly employees, this threshold will be $55.58 per hour. Employees must also continue to meet the applicable duties test to qualify for an exemption.

As a reminder, municipalities also continue to set local minimum wages that are higher than the state requirement.

Wage Notices

AB 636 amends the notice requirements for the Wage Theft Prevention Notices that employers must provide to nonexempt employees in California. In addition to the previously required information, such as rate of pay, regular payday, and right to paid sick leave, AB 636 requires that wage notices also contain information about the existence of a federal or state-declared emergency in the county where the employee is to be employed if it was issued within 30 days before the employee’s first day of work and may affect the employee’s health and safety during employment. The California Department of Industrial Relations has published a template that reflects this newly required information, as well as the amended paid sick leave requirements under SB 616.

In addition, AB 636 adds information required in notices for employees in California under an H-2A agricultural visa. This includes information describing employees’ rights and protections, including the right to meal and rest periods, transportation travel time, and employee housing rights. This new information for agricultural visa workers must be included in the wage notice starting March 15, 2024.

INDUSTRY-SPECIFIC AND OTHER BILLS

Health Care

SB 525 establishes new minimum wage rates for covered health care employees at covered health care facilities as of June 1, 2024. The law defines these terms as follows:

  • “Covered health care facilities” include, but are not limited to, facilities part of an integrated health care delivery system, acute care hospitals, acute psychiatric hospitals, special hospitals, licensed skilled nursing facilities (if owned, operated, or controlled by a hospital, integrated health care delivery system, or health care system), licensed home health agencies, outpatient clinics of hospitals, community clinics, urgent care clinics, physician groups, county correctional facilities that provide health care services, and ambulatory surgical centers certified to participate in Medicare.
  • “Covered health care employees” are those who provide patient care, health care services, or services supporting the provision of health care. They include contracted or subcontracted employees under certain circumstances.

The relevant minimum wage rate varies under the law depending on which of four tiers the covered health care facility falls within. For example, covered health care facilities with at least 10,000 full-time employees fall within the first tier of SB 525, so the minimum wage for these facilities’ covered health care employees is as follows:

  • From June 1, 2024, to May 31, 2025, inclusive, $23 per hour;
  • From June 1, 2025, to May 31, 2026, inclusive, $24 per hour; and
  • From June 1, 2026, and until adjusted below, $25 per hour.

Additional information regarding the four tiers, including which covered health care facilities are included therein and the minimum wage schedule applicable thereto, is available here.

Fast Food

Last year, California revolutionized the fast food industry when it adopted AB 257, also known as the Fast Food Accountability and Standards Recovery Act (the “FAST Recovery Act”). As of January 1, 2023, the FAST Recovery Act was supposed to create, among other things, a Fast Food Council responsible for establishing and implementing binding minimum standards for wages, hours, training, and working conditions. However, a court order stayed the law from taking effect late last year pending the outcome of a voter referendum scheduled for November 2024 (the “Referendum”).

This year, legislators worked with fast food industry and labor union representatives to reach a compromise in the form of AB 1228, which raises the minimum wage for fast food workers and significantly modifies the FAST Recovery Act. Provided that its supporters withdraw the Referendum by January 1, 2024, AB 1288, until January 1, 2029, repeals the FAST Recovery Act and establishes a Fast Food Council with more limited authority to recommend employment regulations. AB 1228 also eliminates provisions in the prior law regarding joint liability for fast food franchisors for their franchisees’ civil liability for employment law violations.

In addition, beginning April 1, 2024, AB 1228 raises the minimum wage rate for fast food workers in the state to $20 per hour. Beginning January 1, 2025, AB 1228 authorizes the Fast Food Council to establish annual minimum wage increases through January 1, 2029, up to 3.5 percent or the rate of change in the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers, whichever is lower. The law also preempts local municipalities from establishing higher minimum wage rates for fast food restaurant employees specifically; however, local municipalities are still permitted under the law to establish a higher minimum wage that is generally applicable to all industries.

Importantly, AB 1228 applies to “national fast food chains,” which the law defines as limited-service restaurants that share a common brand or are characterized by standard options for décor, marketing, packaging, products, etc., and are primarily engaged in providing food and beverages for immediate or off-premises consumption.

Hospitality and Business Service Providers

In the spring of 2021, California enacted legislation (SB 93) requiring covered employers in the hospitality and business services industry to notify and offer to rehire qualified former employees who were laid off during the COVID-19 pandemic. “Covered employers” include hotels or private clubs with 50 or more guest rooms, airports, airport service providers, event centers, and, in certain situations, retail and commercial buildings. Under SB 93, eligible employees are only entitled to these recall rights through December 31, 2024.

SB 723 broadens the scope of employees’ recall rights under SB 93 in three important ways. First, SB 723 expands the definition of “laid-off employees” who are entitled to recall rights. Under SB 93, “laid-off employees” are those workers: (1) who were employed by their employer for at least six months during the 12-month period before January 1, 2020, and (2) whose most recent separation from active service was due to the pandemic. Under SB 723, “laid-off employees” are those workers: (1) who were employed by their employer for at least six months; (2) whose most recent separation from active employment occurred on or after March 4, 2020; and (3) whose most recent separation from active employment was due to the pandemic.

Second, SB 723 establishes a presumption for determining whether a separation from active employment is “due to the pandemic.” Under the new law, separations due to a lack of business, a reduction in force, or other economic/non-disciplinary reasons will be presumed to be a result of the pandemic.

Finally, SB 723 extends the law’s sunset from December 31, 2024, to December 31, 2025.

WHAT EMPLOYERS SHOULD DO NOW

  • Consult with counsel regarding agreements with current and former employees to determine whether any contain any unlawful restrictive covenants. Revise any such agreements, as necessary, to comply with SB 699 and AB 1076.
  • Identify any current employees or former employees who were employed after January 1, 2022, who may be subject to an unlawful noncompete provision, and send them a compliant notice under AB 1076 by February 14, 2024.
  • Seek advice from counsel before attempting to enforce restrictive covenants against current, former, or prospective employees in California.
  • Review drug-screening policies and practices to ensure that you do not screen for non-psychoactive cannabis metabolites except as explicitly permitted under AB 2188.
  • Review interview, onboarding, and hiring policies and practices to ensure that you do not inquire about an applicant’s past cannabis use unless specifically permitted under SB 700.
  • If not already in place, adopt a compliant Workplace Violence Prevention Plan or update your IIPP to include the same.
  • Train employees regarding the Workplace Violence Prevention Plan and implement a process for maintaining relevant training and compliance records and a violent incident log.
  • Ensure there is a robust system for documenting any disciplinary or other adverse action taken against employees in light of the rebuttable presumption established under SB 497.
  • Review and revise leave of absence policies and practices to add protected time off for reproductive loss, and train managers and human resources personnel to appropriately respond to and track this leave.
  • Update paid sick leave policies to comply with SB 616, post the Labor Commissioner’s updated paid sick leave poster, and distribute the Labor Commissioner’s updated employee notice.
  • Review hourly wage rates for nonexempt employees and salary levels for employees who are exempt under the professional, administrative, and executive exemptions to ensure they continue to meet new wage requirements.
  • Prepare to use the updated Wage Theft Prevention Notice template (or revise your current notice if not using the template) for nonexempt employees hired on or after January 1, 2024.
  • If you are an employer in the health care sector, fast food, or hospitality/business services, review your policies and practices to ensure that they comply with the new industry-specific laws.
©2023 Epstein Becker & Green, P.C. All rights reserved.
For more news on 2024 California Employment Laws, visit the NLR Labor & Employment section.

Looking Ahead: New California Employment Laws for 2024

In the past few months, California Governor Newsom has signed numerous new employment laws affecting California employers of all sizes. Below is a summary of some of the laws going into effect in 2024.

Workplace Violence Prevention Safety Plan

California will become the first state to demand employers to create an “effective” workplace violence prevention plan, train employees, and prepare/maintain records regarding workplace violence, starting July 1, 2024. SB 553 covers virtually all employers. “Workplace violence” is defined as “any act of violence or threat of violence that occurs in a place of employment that results in, or has a high likelihood of resulting in, injury, psychological trauma, or stress, regardless of whether the employee sustains an injury.”

Not only must employers prepare a written prevention plan that is accessible to employees, they are also required to keep a “log” of every “workplace violence incident” and implement requisite training when the plan is first established. Moving forward, employers will need to provide training on an annual basis. Additionally, certain training records must be maintained for one to five years, depending on the type of record. For more information on the new law, please review Sheppard’s recent blog post on this topic here.

Paid Sick Leave Expansion

SB 616 amends California’s Healthy Workplaces, Healthy Families Act of 2014 to raise the amount of paid sick time employees can obtain each year from three to five days (or 40 hours) for full-time employees. The law also expands the annual accrual limit from six days (or 48 hours) to 10 days (or 80 hours).

Employers using the “front-loading” method of allowing paid sick leave must now supply five days (40 hours) at the beginning of the year. Employers using a different accrual process must now guarantee an employee has at least 40 hours of accrued sick leave by the 200th calendar day of employment, in addition to the requirement that employees have at least three days (24 hours) by the 120th day of employment. Employees must be allowed to use at least five days (40 hours) each year. For additional information, please review Sheppard’s recent blog post on this topic here.

Minimum Wage Increases

On January 1, 2024, the statewide minimum wage will increase to $16 per hour. The minimum exempt salary for California employees will rise from $64,480 to $66,560. In addition to the increase in the state minimum wage, many localities have their own minimum wage requirements that are higher than the state’s minimum wage.

Notably, the minimum wage increase for specific industry employers, such as healthcare facilities, begins June 1, 2024. The new minimum wage for healthcare facilities will range from $18 to $23 per hour, depending on the size and location of the facility. Fast food workers will also see a similar increase, to $20 per hour, beginning April 1, 2024.

No Automatic Stay During Appeals of Motions to Compel Arbitration Decisions

SB 365 amends the California Code of Civil Procedure with the intention of not automatically staying trial court proceedings when a party appeals an order denying a motion to compel arbitration. This law allows courts to use their discretion as to whether to stay proceedings while an appeal is heard. The law will likely be contested in court, on the basis that it is preempted by the Federal Arbitration Act (“FAA”). For additional information, please review Sheppard’s recent blog post on this topic here.

Prosecution for California Labor Code Violations

AB 594 empowers local prosecutors to pursue a civil or criminal action for violations of the California labor code that arise within their jurisdiction. The law also states that any agreement between the employer and employee that attempts to “limit representative actions or to mandate private arbitration” will not be enforceable.

Rebuttable Presumption of Retaliation

SB 497, known colloquially as the “Equal Pay and Anti-Retaliation Act, amends the California Labor Code to create a rebuttable presumption of retaliation if an employee is disciplined or terminated within 90 days of engaging in certain protected activity. Employers also are responsible for a civil penalty of up to $10,000 per employee for each violation, to be awarded to the employee who faced retaliation. For more information on the new law, please review Sheppard’s recent blog post on this topic here.

Reproductive Loss Leave

SB 848 requires employers to offer a leave of up to five days following a “reproductive loss event,” which is “the day or, for a multiple-day event, the final day of a failed adoption, failed surrogacy, miscarriage, stillbirth, or an unsuccessful assisted reproduction.” The leave is restricted to 20 days within a 12-month period, and employees must be allowed to take their leave non-consecutively. Leave may be unpaid, but employees must be permitted use sick leave or other paid time off if they so choose. Information provided to the employer by the employee relating to the leave must remain confidential and cannot be disclosed, unless required by law. SB 848 also forbids retaliation for an employee’s use of this leave.

Noncompete Agreements

SB 699, which becomes operative January 1, 2024, clarifies that existing law prohibits noncompetition covenants regardless of where or when the agreement was signed, even if the covenant was signed outside of the state. An employer will now commit a civil violation for entering into or enforcing a void noncompete. Employees will also now have a private cause of action against their employer.

In a similar vein, AB 1076 requires employers to contact all current or former employees who were employed after January 1, 2022, and had (or have) contracts containing a noncompete clause, informing them that the noncompete clause is void. The notice must be completed by February 14, 2024, and is required to be in writing and delivered to both the last known physical address and email address of the employee. If an employer fails to send this notice, it constitutes a violation of California’s Unfair Competition Law. For additional information, please review Sheppard’s recent blog post here.

Emergency or Disaster Declaration Information

Effective January 1, 2024, AB 636 expands the information required in employers’ wage theft notices. This new law requires these notices include information regarding “[t]he existence of a federal or state emergency or disaster declaration applicable to the county or counties where the employee is to be employed” that affect employees’ health and safety during their employment. While the California Labor Commissioner’s office is preparing a notice template by March 1, 2024, employers should bring their notices up-to-date in the interim.

Cannabis Use

AB 2188 amends the California Fair Employment and Housing Act (“FEHA”) to prohibit an employer from discriminating against an employee or applicant because of the employee’s or applicant’s cannabis use off the job and away from work. Notably, this new law does not permit an employee to possess, be impaired by, or use cannabis while working, meaning employers may continue to enforce any policies they have prohibiting employees from possessing, being impaired by, or using cannabis while on the job. For additional information on the protections around employees’ cannabis use, please review Sheppard’s blog post here.

Takeaways

These new employment laws are extensive. Employers should evaluate and revise relevant policies and practices, including employee handbooks and employment agreements containing restrictive covenants, to ensure compliance. Employers should also start preparing workplace violence prevention plans to be in compliance by July 1, 2024.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.
For more news on 2024 California Employment Laws, visit the NLR Labor & Employment section.

California Governor Signs a Handful of Tax-Related Bills into Law

This fall, California Governor Gavin Newsom signed several tax-related bills into law on a diverse array of topics ranging from the use tax to the gun tax.

Use tax: On October 7, 2023, Governor Newsom signed a bill into law changing the threshold for a California business to register to pay use tax. Prior to enactment of the new law, a qualified purchaser that had more than $100,000 in annual gross receipts was required to register with the California Department of Tax and Fee Administration (“CDTFA”) to pay use tax on purchases from out-of-state sellers. Under the new law, a qualified purchaser must make more than $10,000 in purchases per year from an out-of-state seller on which use tax has not been paid and remitted by the remote seller in order to be required to register with CDTFA. The bill’s sponsor described the purpose of the bill as to update the “outdated and burdensome” old system which was in effect before the Supreme Court decision in South Dakota v. Wayfair, Inc. generally allowed states to collect use tax from out-of-state sellers. As California adopted a law post-Wayfair that requires out-of-state sellers that sell more than $500,000 in property in California to register to collect and remit use tax, the legislature determined that the old use tax registration requirements should be updated and streamlined.

Gun tax: While the change to the use tax registration did not garner much attention from the press, one bill that did was one signed by Governor Newsom on September 26, 2023, that doubled the taxes on sales of guns and ammunition in California. While federal law already taxes gun and ammunition sales at either 10 or 11 percent depending on the type of gun, the new law adds an additional 11 percent California tax on top of that, making California the only state to impose its own tax on guns and ammunition. The Governor’s office described the legislation as a “first-in-the-nation effort to generate $160 million annually on the sale of bullets to improve school safety and fund a gun violence intervention program.”

Settlement authority of the CDTFA: On October 8, 2023, Governor Newsom signed into law a bill that makes changes to certain tax administration provisions, including a provision giving the CDTFA sole authority to approve settlement agreements reducing a taxpayer’s liability for tax or penalties by up to $11,500, with periodic adjustments to be made to that threshold for inflation. Prior to the enactment of the new law, settlements involving a reduction of tax or penalties of up to $5,000 required joint approval from the executive director of CDTFA and the chief counsel’s office.

Extension of disaster relief deduction: On September 30, 2023, Governor Newsom signed a bill extending the State’s disaster relief loss deduction through December 31, 2028, for both individual and corporate taxpayers. The disaster relief loss deduction allows a taxpayer to declare a loss related to a California disaster declared by the President of the United States or the Governor of California. Prior to the enactment of the new law, the disaster relief loss deduction was scheduled to sunset on December 31, 2023.

© 2023 Blank Rome LLP
For more news on California Tax Bills, visit the NLR Tax section.

California Law Prohibits Cooperation with Out-of-State Entities Regarding Lawful Abortion

In response to Dobbs v. Jackson Women’s Health Organization, California Governor Gavin Newsom recently signed AB 1242 into law, which “prohibits law enforcement and California corporations from cooperating with out-of-state entities regarding a lawful abortion in California.”

In particular, AB 1242 prohibits California companies that provide electronic communication services from complying with out-of-state requests from law enforcement regarding an investigation into, or enforcement of, laws restricting abortion.

Sponsored by California Assembly member Rebecca Bauer-Kahan and California Attorney General Rob Bonta, AB 1242:

takes an innovative legal approach to protect user data. The bill prohibits California law enforcement agencies from assisting or cooperating with the investigation or enforcement of a violation related to abortion that is lawful in California. This law thereby blocks out-of-state law enforcement officers from executing search warrants on California corporations in furtherance of enforcing or investigating an anti-abortion crime. For example, if another state wants to track the movement of a woman traveling to California seeking reproductive health care, the state would be blocked from accessing cell phone site tower location data of the woman by serving a warrant to the tech company in California. In addition, if another state wants Google search history from a particular IP address, it could not serve an out-of-state search warrant at Google headquarters in CA without an attestation that the evidence is not related to investigation into abortion services. Although the first state to enact such a law, as California often is when it comes to privacy rights, we anticipate that other states will follow suit and that these laws will be hotly contested in litigation.

Article By Linn F. Freedman of Robinson & Cole LLP

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