​(April 25, 2013) The California Chamber of Commerce has identified a new “job killer” bill that will impose a number of significant new penalties on private employers with 500 or more employees in California and would dramatically increase the amount of frivolous litigation.

AB 880 (Gomez; D-Los Angeles) increases health care costs and discrimination litigation by assessing large employers a penalty if any of their employees who work as little as 8 hours per week enroll in California’s Medi-Cal program and by expanding the Labor Code to include a protected classification for any person who is enrolled in California’s Medi-Cal program or in the California Health Benefit Exchange.

AB 880 proposed penalty on employers is based on 110% of the average cost of health care coverage, including both the employer’s and employee’s share of the premium.

Health Care Penalty and Part-Time Workers

AB 880 goes well beyond the requirements of the federal Patient Protection and Affordable Care Act (PPACA) in two ways:

Under the PPACA, the formula for assessing a penalty on employers who do not offer affordable health care coverage when their employee receives subsidized care is $2,000 annually times the number of full-time employees minus 30. In contrast, the formula for assessing a penalty under AB 880 is based on the cost of health insurance premiums for the employee and the employer,which far exceeds $2,000. Indeed, according to the Kaiser Family foundation, the national average cost for individual health care coverage in 2012 was $5,615 and family coverage was $15,745. It is unclear whether AB 880 sets the penalty level at the individual or family level of health care coverage.

AB 880 applies its provisions to part-time as well as full-time employees. The CalChamber understands the goals of supporting employer coverage for full-time employees, since this has been a common and expected practice for decades; the “employer responsibility” provisions of the PPACA reflected that. This bill, however, goes far beyond common practice and the PPACA by applying the penalty to employers whose part-time employees receive Medi-Cal benefits.

Protected Classification

Creating such a broad protected classification as proposed under AB 880 will encompass a large portion of employees and will significantly hamper an employer’s ability to manage its workforce.

Specifically, under AB 880, an employer will potentially be subject to costly litigation for alleged discrimination or retaliation each time it makes an adverse employment decision that has an impact on an employee who has enrolled in a public health benefit program.

California employers are already overwhelmed with employment litigation. There were approximately 19,500 discrimination claims filed in 2010 with the Department of Fair Employment and Housing(DFEH) under the Fair Employment and Housing Act (FEHA), which was 1,000 complaints more than in 2009. Notably, more than 4,000 of these complaints were dismissed due to lack of evidence of any violation. Adding this new expansive classification will only cause such cases to dramatically increase and burden California employers with costly litigation.

Equally concerning is AB 880’s extension of the Labor Code Private Attorney General Act (PAGA) to include retaliation/discrimination claims that generally are pursued through FEHA and subject to the exhaustion of administrative remedies. Specifically, instead of filing a retaliation claim through FEHA based upon race or national origin, AB 880 would allow an employee to side step the FEHA requirement that administrative remedies be exhausted and pursue a PAGA claim for retaliation that allows the employee to obtain statutory penalties, as referenced above, as well as attorney fees for the employee only. The CalChamber believes discrimination and retaliation claims that are based on a protected class should be mandated to comply with the administrative process of first submitting such claims to the DFEH for review.

Finally, determining the status of a person as an independent contractor versus an employee is a daunting task for many businesses because of the subjective nature of the factors utilized in the analysis. Even state agencies admittedly do not agree on who qualifies as an independent contractor. Without clarification, AB 880 would expose employers to additional litigation. The bill should apply only to employers who purposefully and/or specifically intend to misclassify an individual as an independent contractor in order to avoid the law.

Most large California employers provide health care coverage to their employees and do their best to make it affordable, although health care costs are beyond employer control. Although the CalChamber understands the concern that some employers may attempt to avoid the rising costs of health care coverage, AB 880 goes far beyond any reasonable response to that concern.