By Fred Alvarez

On September 30, 2020, the California legislature passed SB 973, California’s pay equity data law. The law, codified under Government Code section 12999, requires certain employers with California employees to file an annual Employer Information Report that includes employee data on pay, hours, and demographics (“pay data”). Pay data is due to the DFEH (California Department of Fair Employment and Housing) on March 31, 2021.

Who Must Report?

All private employers with “100 or more U.S. employees and who [are] required to file an annual Employer Information Report (EEO-1) pursuant to federal law,” and at least one California employee must file an annual Employer Information Report.

An employer has the requisite number of employees if the employer either employed 100 or more employees in the Snapshot Period chosen by the employer or regularly employed 100 or more employees during the Reporting Year. The Snapshot Period is a single pay period between October 1 and December 31 of the Reporting Year, which is “the prior calendar year.” For this year, then, the Reporting Year is January to December 2020, while the Snapshot Period is any pay period between October 1 and December 31, 2020.

What Must Employers Report?

Employers must report data similar to what was required in the federal EEO-1, Component 2 form. The EEOC has since discontinued the use of the Component 2 form, but is studying the data it has collected from employers so far. In enacting SB 973, the California legislature has decided to pick up where the EEOC left off.

DFEH has now provided a data report template for both Excel and CSV files here.

As seen in the template reports, employers must provide the following data:

• For each establishment, during the Snapshot Period, the number of employees by race, ethnicity, and sex in ten different job categories.
• The number of employees—by race, ethnicity, and sex—whose annual earnings fall within each of twelve pay bands ranging from $19,239 and under to $208,000 and over.
• The total number of hours each employee worked during the entire Reporting Year, plus any paid time off hours.
• The Reporting Year and the Snapshot Period the employer selected.
• Additional employer information, including contact information, NAICS codes, total number of employees, and total number of establishments.
• Any clarifying remarks.
• A certification that the information contained in the pay data report is accurate and prepared in accordance with the law.

Employers must submit their pay data reports to DFEH’s pay data submission portal here. DFEH has also provided answers to common questions here.

How Will The Pay Data Be Used?

The California Legislature enacted this bill to encourage employers to self-assess potential pay disparities among their employees across race, gender, or ethnicity lines, and to promote compliance with equal pay and anti-discrimination laws.

It is important to note that the law now empowers DFEH to “receive, investigate, conciliate, mediate, and prosecute” complaints alleging unlawful practices in violation of the Equal Pay Act. The law also provides the Division of Labor Standards Enforcement access to this data, an authority already empowered to enforce labor laws.

These pay data reports are supposed to be a tool for self-compliance by employers and a tool for California agencies to enforce equal pay and anti-discrimination laws. As explored further below, however, challenges may arise when analyzing the pay data. For example, the reported job categories easily encompass employees with a variety of educational and professional backgrounds, roles, and responsibilities. In fact, the EEOC recently announced a contract with the National Academies of Sciences, Engineering, and Medicine’s Committee on National Statistics to independently assess the “quality and utility” of the equivalent federal pay data. The analysis is expected to conclude in 2021, but may shed significant light on employer concerns about the usefulness and validity of combining so many different jobs into the broad EEO-1 categories.

The California pay data is confidential under the law, and not subject to the California Public Records Act. It will not, however, be kept confidential for “administrative enforcement or through the normal rules of the discovery in a civil action.” DFEH is also empowered to publish aggregated data from multiple employers.

What Issues Should I Be Aware of When Gathering and Submitting Pay Data?

Identifying Employees

The definition of employee under Government Code section 12999(m)(1) is, “an individual on an employer’s payroll, including a part-time individual, whom the employer is required to include in an EEO-1 Report and for whom the employer is required to withhold federal social security taxes from that individual’s wages.” This definition raises a number of considerations when categorizing and counting employees.

Some issues to watch out for when identifying employees and tallying up your total number of employees include:

• Making sure that you count both full-time and part-time workers;
• Determining whether any temporary workers provided by a staffing agency or independent contractors still meet this definition of “employee;” and
• Identifying employees located both inside and outside of California, and correctly categorizing teleworking employees (for example, all employees assigned to California establishments must be reported whether or not they are teleworking).

Multiple Establishment Companies & Multiple Entities

Both single-establishment and multiple-establishment employers should submit single pay data reports. Multiple-establishment employers should report on all of their establishments.

Additionally, if your company is a parent company or a subsidiary, you should consider how to collectively submit pay data. Parent companies may submit a pay data report for themselves and their subsidiaries if the companies constitute a single legal entity. Alternatively, parent companies and their subsidiaries may each submit their own pay data reports.

Gathering and Submitting Pay Data

There are a number of challenges embedded in the pay data reporting framework.

Employee Demographic Data

First, employers must report on employees race, ethnicity, and sex. While employee self-identification is the preferred method of identifying an employee’s race, ethnicity, and/or sex, employers must still report the demographic data of employees who decline to provide this information. That means employers should use current employment records, other reliable records or information, or, as a last resort, observer perception. Employers should be particularly sensitive regarding the use of observer perception to categorize and report on an employee’s demographic data. In fact, the DFEH has indicated that observer perception should not be used to identify employees’ sex, but rather information such as the employees’ preferred pronouns.

Moreover, the available demographic categories are themselves limited. Employers should report employees’ sex by the three genders recognized in California: female, male, and non-binary. Employers should report race and ethnicity according to the following seven categories:

• Hispanic/Latino
• Non-Hispanic/Latino White
• Non-Hispanic/Latino Black or African American
• Non-Hispanic/Latino Native Hawaiian or Other Pacific Islander
• Non-Hispanic/Latino Asian
• Non-Hispanic/Latino American Indian or Alaskan Native
• Non-Hispanic/Latino Two or More Races

But not all employees will easily fit into one of these categories. For example, a male trans employee may self-identify as either male or non-binary. Similarly, an employee with both Hispanic/Latino heritage and Non-Hispanic/Latino heritage may not self-identify with any of the race/ethnicity categories above.

Employee Job Category Data

Second, employers must categorize employees as fitting into one of ten broad EEO-1 job categories used by the EEOC:

• Executive or senior level officials and managers;
• First or mid-level officials and managers;
• Professionals;
• Technicians;
• Sales workers;
• Administrative support workers;
• Craft workers;
• Operatives;
• Laborers and helpers; and
• Service workers.

Each of these categories is extremely broad both in terms of the types of job it encompasses, and the educational or experiential backgrounds of individual employees in that category. For example, the “Professionals” category includes both architects and dentists—and it includes architects and dentists with both thirty years’ experience and with five years’ experience. Further guidance on these categories is available on the EEOC.gov website.

Employee Salary Data

Employers must provide employee salary data into one of 12 pay bands increasing from $19,239 and under to $208,000 and over. These pay bands are thus particularly limited for highly-paid employees. For example, if all of a company’s employees in the job category “executive or senior level officials and managers” are paid $250,000 or more, the pay bands would not track differences in that high level of compensation among employees of different races, ethnicities, or sexes.

Putting It All Together

Given the analytical limitations of combining numerous, distinctive jobs into one of ten broad job categories, and then inserting them into 12 arbitrary pay bands, and the likelihood that the data will be (1) used in an enforcement action by a California state agency, or (2) uncovered via civil discovery methods, employers should consider providing “clarifying remarks” when submitting pay data. Clarifying remarks provide employers the opportunity to note the problems inherent in the pay data categories, and to preemptively note that any apparent pay disparities do not reflect comparisons of comparable jobs, employee roles, educational backgrounds, or seniority associated with jobs included and aggregated for reporting purposes only.

What Should I Do If I Have Additional Questions?

If you have specific questions or want to discuss how the Pay Equity Data Law may affect your business, please contact Fred Alvarez at falvarez@coblentzlaw.com or any attorneys from the Labor and Employment team here at Coblentz Patch Duffy & Bass LLP.

By Skye Langs

Last year brought the legal profession many things that we never expected, like trials conducted by Zoom and virtual happy hours, just to name a few. But it also brought a handful of new CEQA and land use decisions that, like many of the events of 2020, reminded legal practitioners to focus on the fundamentals. In litigation, that includes document preservation, evidence, and remedies. These details, though often overlooked in writ proceedings, can make or break your case.

Document Preservation

Civil litigants who know or reasonably anticipate that litigation is on the horizon have a duty to preserve relevant documents or risk sanctions (including, in extreme cases, terminating sanctions). In Golden Door Properties, LLC v. Superior Court of San Diego County (2020) 53 Cal.App.5th 733, we were reminded that this rule applies with equal force to a public agency conducting CEQA review.

In 2014, San Diego County began considering an approximately 600-acre residential and commercial development adjacent to the upscale Golden Door spa and resort. Almost immediately, Golden Door raised concerns about the project’s environmental impacts, and informed the County it would oppose the development. Nonetheless, the County took no special precautions to preserve documents or suspend its automatic deletion of emails.

Four years later, after the publication of the project’s Draft Environmental Impact Report, Golden Door served the County with a Public Records Act request, seeking documents related to the project. In response, the County produced 42 emails. When questioned about the limited production, the County explained that it had a policy of automatically deleting emails after 60 days.

The Fourth District Court of Appeal held that the County’s automatic deletion policy is unlawful because it destroys official records that the County is required to maintain. Specifically, CEQA provides that a broad range of documents “shall” be part of the record, including all correspondence and written materials relevant to the public agency’s compliance with CEQA or its decision on the project. (Pub. Res. Code § 21167.6.) By automatically deleting emails, the County made it impossible to create the required record.

Without an adequate record, the County may not be able to demonstrate its compliance with CEQA, adequately inform the public about the project, or demonstrate to the Court that its decisions are supported by substantial evidence. In other words, like any civil litigant, the County risked being penalized in future litigation due to poor document retention policies. But this risk can be avoided. Public agencies (as well as developers who partner with them) can take steps to ensure that all documents relevant to a project’s approval are maintained, and available in the event of future litigation.

Evidence

Just as civil litigators know that documents need to be preserved, we also know that at trial, we need to present the evidence that proves our case. This means putting on reliable witnesses who can provide testimony that satisfies the legal standards we are trying to meet. And in Tiburon/Belvedere Residents United to Support the Trails v. Martha Company (2020) 56 Cal.App.5th 461, we learned that it doesn’t matter how many witnesses you put on if they don’t check these boxes.

Petitioners Tiburon/Belvedere Residents United to Support the Trails (TRUST) sought quiet title to privately owned property north of San Francisco based on an alleged implied dedication that occurred prior to 1972, when a change in law essentially abolished implied dedications. To prove its case, TRUST needed to show that the property at issue was used by the general public, openly and continuously, for a period of more than five years preceding 1972, with full knowledge of the owner, without asking or receiving permission, and without objection.

TRUST put on 28 witnesses who testified that from 1967 to 1972, they used the property for recreation, without permission from the owner, and without any objections. Despite the overwhelming number of TRUST witnesses, there were two fatal flaws in the evidence presented.

First, and perhaps as an unavoidable consequence of the passage of time, almost half of its witnesses were minors in 1972. As the court noted, children are “‘born trespassers’ who cannot establish a reasonable belief by the public of its right to use the property.”

Second, all of TRUST’s witnesses lived in the area at the time. In other words, their testimony did not demonstrate widespread use by the general public, but rather showed limited local use that the property owner may have consented to as a neighborly accommodation, or failed to notice due the low visibility associated with local, as opposed to widespread, use.

In contrast, the property owner, who had diligently saved photographs showing fences, gates, and no trespassing signs on the property during the relevant time period, presented testimony demonstrating that it attempted to prevent public use. This, combined with the TRUST’s failure of proof, secured judgment in the property owner’s favor.

The lesson here? Even if – or perhaps especially if – your case relies on events that occurred well in the past, the quality of your evidence matters. As you prepare for trial, make sure you have the witnesses, and the testimony, to prove each element of your claim.

Remedies

While we must focus on proving our case, we also can’t overlook the most important part – what we get if we win, and how to minimize our losses if we don’t. But in CEQA cases, it is common for petitioners to simply request that the project approvals be vacated, with little analysis or argument about how to craft that relief. Last year, Sierra Club v. County of Fresno (2020) 57 Cal. App. 5th 979, reminded us that we should take as much care with remedies in writ proceedings as we do with damages, declaratory relief, or other civil remedies.

Sierra Club is the most recent installment of the Friant Ranch saga, which first began in 2007, when the County of Fresno issued its notice of preparation of a draft Environmental Impact Report (EIR) for a 942-acre master planned community. After the project was approved in 2011, litigation ensued, and the case has been working its way through the courts ever since. In 2018, the California Supreme Court concluded that the EIR’s discussion of the project’s air pollution impacts was inadequate, and remanded the case for further proceedings. (See Sierra Club v. County of Fresno (2018) 6 Cal.5th 502.) On remand, the trial court issued the requested writ of mandate, ordering the County to vacate the Friant Ranch project approvals and prepare a revised EIR.

The developer argued that this remedy was improper, and that instead of vacating the project approvals in their entirety, the court should have ordered a partial decertification of the EIR. The Court of Appeal for the Fifth District disagreed, holding that the relevant statutory language does not allow for partial certification. CEQA requires that lead agencies “certify the completion” of an EIR, and its compliance with CEQA, in its entirety. (See Pub. Res. Code § 21100; 14 Cal. Code Regs. § 15090.) There is no half measure.

One provision does, however, opens the door for partial decertification. Public Resources Code section 21168.9 contemplates that a court may issue a writ of mandate voiding a “determination, finding, or decision” of a public agency “in whole or in part.” While that language could support partial decertification of an EIR, the Court of Appeal concluded it was not proper in Sierra Club because the EIR’s air quality analysis was not severable from the other aspects of the project approvals.

Setting aside the statutory language, and the question of severability, it is apparent that the trial court decertified the EIR in its entirety because this was the remedy sought by the petitioners. At no point prior to the issuance of the writ of mandate did the County or the developer argue that this relief was improper, or present an argument for partial, rather than full, decertification. If they had addressed the remedies before it was too late, and presented a full-throated argument for partial decertification, it is possible that they could have minimized the impacts of this loss.

2021 and Beyond

This year will likely bring the legal profession even more surprises. But taking care of the basics such as document preservation, evidence, and remedies can often make the biggest difference in disputes, no matter how large or complex.

On January 1, 2021, Congress passed the Corporate Transparency Act (CTA) as part of the 2021 National Defense Authorization Act. The CTA requires most private companies formed in the U.S. or registered to do business in the U.S. to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) bureau of the U.S. Department of the Treasury. Although the CTA is intended to eliminate the anonymity of individuals that use shell companies for illegal activities, the reporting requirements will affect legitimate private companies. Companies should be aware of and prepare for the new reporting requirements to avoid civil and criminal penalties for failure to file the information when required.

Types of Companies Required to Report Beneficial Owners Under the CTA

Companies that are required to report their beneficial owners and applicants to FinCEN under the CTA are any corporation, limited liability company, or other similar entity that is either formed in the U.S. or formed under the law of a foreign country and registered to do business in the US. Certain companies are exempt from the reporting requirements, including:

• publicly-traded companies;
• banks, insurance companies, investment companies registered with the Securities Exchange Commission, and credit unions;
• public accounting firms;
• companies that employ more than twenty people, filed a tax return reporting gross receipts of more than $5 million, and have a physical presence in the US;
• nonprofit organizations; and
• any entity that is designated by Secretary of the Treasury to be exempt.

It is unclear whether the scope of “other similar entity” under the CTA will include partnerships (general or limited) or trusts until the regulations under the CTA have been adopted. The CTA regulations would be consistent with existing FinCEN’s customer due diligence rules if it includes limited partnerships and business trusts but excludes general partnerships and most estate planning trusts.

CTA Reporting Requirements

Reporting will not begin until the Secretary of the Treasury has adopted regulations detailing how the CTA will be implemented, which adoption is mandated by January 1, 2022.

FinCEN must also establish a registry to collect the identifying information on a reporting company’s beneficial owners and applicants. Reporting companies must file a report with FinCEN upon formation or registration, containing the following information regarding its beneficial owners and applicants:

• full legal name;
• date of birth;
• current residential or business address; and
• unique identifying number from an acceptable identification document, such as a driver’s license or passport.

Companies formed before the regulations are adopted will have a two-year period after adoption of the regulations to file their initial reports.

Companies will also be required to submit annual reports to reflect any changes to the identifying information.

Definitions of Beneficial Owner and Applicants

A “beneficial owner” is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise owns or controls 25% or more of the ownership interest of an entity, or exercises “substantial control” over an entity.

The CTA does not define “substantial control.” The regulations will likely contain complex rules for measuring ownership and determining who is in control, as well as how to treat multi-tiered companies and related parties.

The five exclusions from the definition of a beneficial owner include:

1. minor children, if the child’s parent’s or guardian’s information is reported properly;
2. individuals acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
3. an individual acting solely as an employee;
4. an individual whose interest in an entity is only through a right of inheritance; or
5. a creditor of a reporting person, if the creditor is itself not a “beneficial owner” based on substantial control or ownership or control of 25% or more of the ownership interests in the reporting company.

An “applicant” means any individual who files an application to form a reporting company or registers or files an application to register a reporting company to do business in the United States. This requirement is noteworthy because a reporting company would need to file identifying information for the individual who files the application to form the company even if that individual is not a beneficial owner. This could conceivably include individuals at law firms that act as agents to create the company.

Confidentiality of Identifying Information

FinCEN will hold the information that is gathered on beneficial owners and applicants in a confidential and secure database. Information will only be released in response to a request from law enforcement agencies engaged in national security, intelligence, or law enforcement activity, and if the reporting company consents, financial institutions subject to and in order to comply with customer due diligence requirements.

Penalties

Companies or individuals who violate the CTA will be subject to civil penalties of not more than $500 per day, capped at $10,000, and imprisonment of up to two years if an individual willfully provides false information or fails to report.

Interim Planning Recommendations

Until the Secretary of the Treasury has adopted regulations, companies should assume that not only corporations and LLCs, but partnerships, trusts, and other entities, will be covered by the CTA.

Management of reporting companies should assess the requirements of the CTA, and determine whether their company’s operative documents should include:

• a representation by each shareholder, member or partner, as applicable, that it will be in compliance with or exempt from the CTA;
• a covenant by each shareholder, member or partner, as applicable, requiring continued compliance with and disclosure under the CTA or to provide evidence of exemption from its requirements;
• an indemnification by each shareholder, member or partner, as applicable, to the company and its other shareholders, members or partners, as applicable, for its failure to comply with the CTA or for providing false information; and
• a consent by each disclosing party for the company to disclose identifying information to FinCEN, to the extent required by law.

Investment funds should consider adding similar representations and covenants by their investors to their subscription and management agreements. Lenders should also consider adding similar representations and covenants by their borrowers to their loan documents.

For questions, or to further discuss how to prepare your business to comply with the Corporate Transparency Act, please contact Sara Finigan at sfinigan@coblentzlaw.com, or any member of the Coblentz Corporate team.