Insights

May 2023

Federal law has long required employers to verify a new employee’s identity and right to work in the United States using the Employment Eligibility Verification form, commonly known as Form I-9. Employees must complete, sign, and date section 1 of Form I-9, and employers must complete, sign, and date section 2 of the form no later than the employee’s third day of employment. Employers must complete section 3 of the form only when they re-hire an employee or re-verify an employee’s right to work after a previous authorization has expired. Employers should generally accept documents offered by a new employee to demonstrate his or her identity and right to work unless they have a specific and substantial reason to believe the documents are invalid.

During the COVID-19 pandemic, the government excused employers from conducting inspections of I-9 documents in person, as the law generally requires, due to public health concerns. Earlier this month, however, the Immigration and Customs Enforcement (ICE) announced that employers must resume in-person physical inspection of I-9 documents this summer.

As of July 31, 2023, employers may no longer examine the I-9 documents of new employees remotely or virtually. Instead, employers must resume in-person physical inspections of I-9 documents within three days of hire. Notably, employers must also physically examine the I-9 documents of employees who were hired since March of 2020 and did not submit their I-9 documents for in-person examination previously. ICE has established a deadline of August 30, 2023 for employers to complete the in-person review of documents for employees who have not submitted their documents in person previously.

ICE has published an FAQ page that addresses several common questions about I-9 protocols, and the FAQ is available here.

What Should Employers Do Now?

• Require new employees to present I-9 documents in person. Employers should resume requiring new employees to present their I-9 documents in person. Although the requirement becomes effective on July 30, employers are wise to implement it immediately and avoid a need to re-verify employees later in the summer. If an employer does not have an employee available to examine I-9 documents for a new hire, the employer may designate a representative, such as a notary, to perform the task.
   
• Complete in-person review of I-9 documents by August 30, 2023 for employees who previously submitted their documents virtually. Employers should identify all employees who have not yet submitted their I-9 documents for in-person review and conduct the necessary examinations by the deadline.

If you have questions regarding I-9 compliance or any other issue related to employment law, please contact one of our attorneys:

May 2023

As most employers in California know, employees must be reimbursed for any necessary expenses they incur in carrying out their job duties. More specifically, Labor Code section 2802 states:

An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.

The COVID pandemic forced many organizations to allow their employees to work remotely, and many companies continue to allow portions of their workforce to work remotely on a part-time or full-time basis. Employees who work remotely often use personal cell phones and home Internet connections in the course of performing their work. So, do employers have to pay for some or all of an employee’s cell phone and/or internet plan(s)?

In California, even when employees do not incur additional expenses associated with working remotely (i.e., when the employee pays a flat rate for internet and/or cell phone usage and business use does not increase the employee’s costs), employers still must reimburse their employees for a reasonable percentage of the employee’s cell phone and/or internet plan(s). The duty to reimburse employees for a portion of their personal cell phone and Internet charges exists when the employees have no practical alternative to using their personal resources for business purposes, even if the employer does not maintain a policy specifically mandating the use of the personal resources or devices.

Although California Courts have not defined “reasonable percentage,” employers must reimburse employees for all expenses actually incurred for business purposes. Where the employee is paying a fixed amount for their cell phone and/or internet use, the employer must reimburse its employees for the percentage of the cell phone and/or internet expense(s) that can be attributed to the employee’s mandatory use of the internet and/or their cell phone for work-related purposes. Alternatively, employers may elect to provide their employees with a company cell phone, and/or a device that also has unlimited internet access.

In order to fulfill their duty to reimburse employees for cell phone and/or Internet expenses they incur in the course of performing their duties, employers can either pay the employee’s actual costs as reflected on an invoice, or pay a flat amount that is sufficient to cover the portion of the employee’s costs that is attributable to business use. If employers elect to pay a flat reimbursement amount, they should confirm in writing that employees who believe that their business use exceeds the default reimbursement amount may contact Human Resources and request payment in a higher amount to correspond to their actual business use.

If an employer fails to reimburse its employees for the necessary business expenses that employees incur in connection with the discharge of their job duties, the employer can face a wage and hour lawsuit, and, if successful, the plaintiff can recover all reasonable costs, including attorney’s fees, incurred by the employee enforcing their rights, which can be significant. Additionally, if a company fails to pay its employees for necessary business expenses on a company-wide basis, the company may face a class action, or a claim pursuant to the Private Attorneys General Act, or both.

What Should Employers Do Now?

• Review your expense reimbursement practices and update as necessary. In light of the reality that many employees must use their personal cell phones and/or home Internet connections to perform their jobs, employers in California should review their expense reimbursement practices to ensure they are reimbursing employees for all expenses that employees incur in connection with the discharge of their duties, including personal cell phone charges and home Internet charges.

• Review the job functions of remote employees. In addition to cell phone and internet usage, employers should review the job duties of all remote employees to ensure that there are not any additional necessary business expenses that are being incurred which are not being reimbursement. These expenses may include, an at-home printer and printer paper and ink, computers, computer monitors, and ergonomic chairs.

If you have questions regarding expense reimbursements or any other issue related to employment law, please contact one of our attorneys:

April 2023

In California, the state’s Wage Orders generally define an employee’s hours of work as the “time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” Although this basic rule appears relatively straightforward on its face, disputes regarding whether employees are entitled to be paid for time spent engaged in certain activities are increasingly common, and claims alleging that employees should be paid for time spent “on call” or “on standby” are prime examples.

Yes, Employees May Be Entitled to Pay Even When Not Actually Working

According to California’s Division of Labor Standards Enforcement, “an employee who has the choice of being available or not available to respond to a request by the employer to return to work for an emergency may be on uncontrolled standby if the employee is completely unrestricted to use his or her time for their own purposes.” Such “free” standby time is not controlled by the employer and, thus, it does not count as hours worked for payroll purposes. In contrast, when an employee is “controlled” by the employer during on-call time, the time counts as hours worked and is compensable.

Employers may pay “controlled” standby time at a rate different than the employee’s usual base hourly rate as long as the employee is paid at least the minimum wage. Employers must also consider all compensation paid to employees when they are on-call, whether controlled or not, when determining the so-called “regular rate” used to calculate overtime wages.

What does “control” mean in the context of on-call time?

In a 2015 case, Mendiola v. CPS Security Solutions, Inc., the California Supreme Court set forth various factors that courts should consider to determine whether an employer exerts sufficient control over an employee during “on call” or “standby” time to make the time compensable:

• whether the employee is required to live on the premises or work site,
• whether there are excessive geographical restrictions on the employee’s movements while on call,
• whether the frequency of calls back to work are unduly restrictive,
• whether the employee’s required time for responding to calls is unduly restrictive,
• whether the employee could easily trade on-call responsibilities with a coworker,
• whether using a pager would ease the restrictions,
• whether the employee actually engaged in personal activities during the time spent on-call, and
• whether the employee’s time on call is primarily spent for the employer and its business.

The California Supreme Court stated that none of these factors are dispositive, but greater restrictions to employee movement or time generally signal a greater degree of control.

Requiring employees to confirm “on-call” shifts may trigger reporting time pay

In addition to assessing whether on-call time is “controlled” or “uncontrolled,” employers must also be cautious about requiring employees to call in prior to the start of a shift to learn if work is available. In 2019, a California Court of Appeal decided that, under certain circumstances, an employee may be considered as having “reported to work,” and therefore entitled to reporting time pay, if the employer requires the employee to call in before their shift to see if they are needed.

Calculation of hours worked is a seemingly basic step in the payroll process. Many mistakes result from misunderstanding the rules relating to “on call” time, however. Whether “on call” or “standby” time should be treated as compensable hours worked can be a complex question that must be answered on a case-by-case basis rather than by mechanically applying a set of rigid rules.

What should employers do now?

• Review the extent to which employees on call are restricted – Employers should carefully, and realistically, evaluate whether employees are able to enjoy the normal freedoms of an off-duty employee while on call. In most cases, employers should confer with counsel in the analysis. To the extent that employees are subject to meaningful restrictions while on call, employers should consider whether to loosen those restrictions (thereby strengthening the argument that on-call time should not be compensable), pay employees for time spent on call, pay employees for their time on call, or accept some degree of risk.

• Pay employees properly if they are called to perform any actual work when on call – If a non-exempt employee is actually required to report to work when “on call” during a day he or she was not otherwise regularly scheduled to work, the employer’s payment obligation varies depending on the number of hours worked. If the employee works more than half of his or her usually-scheduled day of work, the employer must pay the employee for all hours worked. If the employee works less than half of his or her usually-scheduled day of work, the employee is entitled to be paid half of the wages earned on a usual day, provided that the amount paid shall be equivalent to no less than two hours of pay and no more than four hours of pay. If an employee is required to report to work for the second time in a single day (regardless of whether the employee was regularly scheduled to work on that day or not) and works less than two hours after reporting for the second time in the day, the company must pay the employee for a minimum of two hours of work.

• Include pay for on-call/standby time when computing the regular rate for overtime – Compensation paid to employees when they are on-call, whether controlled or not, must be accounted for when calculating overtime wages.

If you have questions about employees compensable hours, or any other issue relating to employment law, please contact one of our attorneys:

April 2023

With campaigns for next year’s presidential election already starting and a former President facing indictment, discussion of political issues is certain to intensify in the coming months both inside and outside the workplace. While every election cycle prompts the expression of political opinions, the current political climate seems to be more polarized than ever before, energized by opinions concerning the Dobbs v. Jackson Women’s Healthcare decision, racial justice, and law enforcement, among other issues. Discussions about politics will undoubtedly occur among employees with increasing frequency as elections approach, with firm opinions expressed by persons of all political persuasions.

Most employers are generally familiar with the laws that prohibit discrimination based on race, sex, age, religion, disability, and certain other protected characteristics, but many are not aware that the law also protects employees in their exercise of political rights. Specifically, California Labor Code Sections 1101 and 1102 prohibit employers from attempting to control or direct the political activities or affiliations of their employees, and prohibit employers from discharging or taking other adverse action against employees for their political activities.

The laws protecting the right to political activity and expression can be particularly problematic for employers because they impose liability for violations committed by managers and employees, and violations of the law constitute a criminal offense in addition to subjecting the employer to civil liability. Prudent employers should assure that their managers understand the laws that protect employees in their exercise of political rights.

While employers are forbidden from attempting to control the political opinions and affiliations of their employees, a critical distinction exists between interfering with the political rights of employees and insisting that employees focus on their jobs (and permit their colleagues to do the same) during work hours. All employers have a legitimate interest in preventing any non-work activity (be it political discussion or conversation about a less controversial topic) from interfering with the efficient operation of their businesses.

Employers may not be able to control the political opinions or affiliations of their employees, but they can generally insist that employees focus on their jobs during work hours. If political discussion impairs productivity (either of the speaker or of the person(s) to whom the political speech is addressed), management can intervene. An added layer of complexity may exist if the political speech relates to a union issue; employers should proceed with particular caution (and should generally confer with counsel) whenever considering action in response to speech or activities related to collective bargaining.

Employers are also entitled in most instances to prevent employees from posting any written or printed materials in the workplace, including materials of a political nature. Employers should be consistent in their enforcement of any policy they may adopt against postings in the workplace, however. If an organization refuses to permit a posting concerning a particular issue or point of view, it should similarly refuse to allow other political postings.

Employers encountering issues related to political expression or affiliation should confer with counsel before taking any action against an employee. If you have questions about the laws protecting employees in their exercise of political rights, or any other issue relating to employment law, please contact one of our attorneys:

March 2023

The “interactive process” – the procedure through which an employer determines whether and to what extent it must accommodate an employee’s disability or medical condition – is one of the most challenging parts of complying with California’s Fair Employment and Housing Act and the federal Americans with Disabilities Act. Unfortunately, there is no one-size-fits-all approach for satisfying this legal requirement, but employers can minimize their risk by following these best practices:  

1. Educate managers and supervisors: An employer’s managers and supervisors are often the first (and sometimes the only) company representatives to learn of an employee’s need for accommodation.  Accordingly, even if managers and supervisors are not primarily responsible for representing the company through the interactive process, employers should ensure that their managers and supervisors understand not only the importance of the interactive process, but how the obligation to engage in the process arises as well as their role in it.
    
2. Initiate the interactive process promptly: An employer should begin the interactive process as soon as an employee requests an accommodation or the employer becomes aware (such as through a manager, supervisor, or Human Resources) of the employee’s need for accommodation.  Once aware of the need for accommodation, employers should initiate communication to confirm the scope of the employee’s limitations and identify potential accommodations that would enable the employee to perform the essential functions of the job.
    
3. Communicate clearly and effectively: Many disability claims under FEHA and the ADA arise from poor communication between the employer and employee.  Communications during the interactive process should be clear and direct, telling the employee precisely what is needed, directly responding to requests and concerns, asking questions to clarify the employee’s needs, and responding to the employee in a timely and respectful manner.
    
4. Identify reasonable accommodations: Employers must attempt to identify reasonable accommodations that would enable the employee to perform the essential functions of their job.  Employers should consider a wide range of accommodations, including modifications to the work environment, job duties, and work schedule.  Only after identifying a potential accommodation should an employer consider whether the accommodation would cause an undue hardship on the company.  Employers should recognize that mere inconvenience or added cost does not automatically mean that a potential accommodation creates undue hardship and be wary about relying on that potential defense, as courts frequently reject the argument, leading to significant liability.
    
5. Follow up and monitor accommodations: Once a reasonable accommodation is identified and provided, the employer should not consider the process done; it should follow up with the employee to ensure that the accommodation is actually effective.  If the accommodation does not accomplish its intended purpose, the interactive process should continue with the employee to identify potential alternative accommodations.
    
6. Accurately document the process: The interactive process is rarely completed in a single back-and-forth interaction.  Instead, it is usually an ongoing dialogue spanning several communications occurring over several days or longer.  Because claims alleging failure to engage in the interactive process and/or provide reasonable accommodation often involve disputes about the communication between the parties, employers are wise to document those communications thoughtfully.  When an employer follows the recommendations above and documents its participation in the interactive process properly, the record of those communications becomes an incredibly useful tool in proving that the employer engaged in the interactive process reasonably and in good faith.
    
7. Maintain confidentiality: Employers should maintain the confidentiality of the employee’s disability or medical condition, all related medical information, and the details of the interactive process.  Only those individuals who have a need to know should be involved in the interactive process.

Engaging in the interactive process in good faith is a difficult but crucial component of complying with the ADA and California’s FEHA and avoiding claims of disability discrimination.  Employers without extensive experience in the interactive process should confer with counsel when the duty to engage in the process arises. 

If you have questions regarding the interactive process or any other issue related to employment law, please contact one of our attorneys:

March 2023

Many employers know that employees generally must be paid on a “salary basis” to be properly classified as exempt from overtime pay. However, what does it mean to pay an employee on a “salary basis”? Last month, the U.S. Supreme Court clarified the answer to that question in Helix Energy Solutions Group, Inc. v. Hewitt (“Helix”), holding that a supervisor’s “daily rate” of pay, under which he earned over $200,0000 annually, did not qualify as a “salary” under the Fair Labor Standards Act (“FLSA”).

The FLSA requires covered employers to pay overtime to non-exempt employees who work more than 40 hours in a workweek. Employees who qualify for the so-called “white-collar” exemptions (applicable to executive, administrative and professional positions) are exempt from overtime, however, if they are paid on a “salary basis” and satisfy additional requirements. Employees are paid on a “salary basis” if they are paid a predetermined and fixed weekly (or longer) amount that is not subject to reduction because of variations in the quality or quantity of work performed. Thus, absent certain exceptions, an exempt white-collar employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.

In the Helix case, Michael Hewitt, an offshore oil rig supervisor, typically worked 12 hours a day, seven days a week, for a total of 84 hours in a workweek. He worked this schedule for 28 days on the oil rig and then he had 28 days off work before reporting back. Hewitt earned a daily rate ranging from $963 to $1,341 per day over the course of his employment, with no overtime compensation. He received a paycheck every two weeks that amounted to his daily rate multiplied by the number of days he worked during the pay period.

The U.S. Supreme Court held that the daily rate pay structure did not compensate Hewitt on a “salary basis” under the FLSA because Hewitt received “a certain amount if he work[ed] one day in a week, twice as much for two days, three times as much for three, and so on.” A “true salary,” however, is “a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.” Thus, to satisfy the “salary basis” test, the amount of Hewitt’s weekly pay could not fluctuate depending on the number of days he worked.

The Helix decision demonstrates that employees are not exempt from the overtime premium requirement merely because they are highly paid. A highly compensated employee whose pay is (or may be) reduced for time not worked during the workweek is not paid a salary. Thus, when an exempt employee works at all during the workweek, generally they must be paid their entire weekly compensation; to do otherwise jeopardizes the exempt classification all together.

What Should Employers Do Now?

• Review your exempt employee classifications for compliance. As the Helix decision demonstrates, employers who classify employees as exempt pursuant to any of the “white collar” exemptions should ensure that they are paying those employees on a bona fide salary basis, remembering that the minimum salary cannot be pro-rated based on the employee’s days or hours of work, and that non-salary compensation does not count toward satisfying the “salary basis” test. 
• Beware of California’s higher minimum salary level. The current minimum salary level for the white-collar exemptions under the FLSA is $684 per week, or $35,568 annually. California has a higher minimum salary level, however. Currently, state law requires employees to earn an annual salary of no less than $64,480 to meet this threshold for the exemption. 
• Remember the “duties” test. The “salary basis” and minimum salary level requirements are only two of the three requirements for the white-collar exemptions. Employees must also perform certain duties specific to the executive, administrative, or professional exemption to qualify for the exempt status. Simply providing a job title as “manager” or “executive” is not sufficient.

If you have questions regarding exempt versus non-exempt classifications or any other issue related to employment law, please contact one of our attorneys:

In September 2021, in Chamber of Commerce of the United States of America v. Bonta (“Bonta I”), the Ninth Circuit upheld, in a divided panel, parts of California Assembly Bill (“AB”) 51—which prohibits employers from entering into mandatory arbitration agreements and includes criminal and civil penalties for violations—holding that portions of AB 51 are not preempted by the Federal Arbitration Act (“FAA”). Specifically, the court in Bonta I held that the FAA does not preempt the portion of AB 51 that precludes employers from mandating arbitration agreements as a condition of employment (with respect to California Labor Code and Fair Employment and Housing Act claims) or from retaliating against employees or job applicants who refuse to sign such an agreement. For more details regarding the decision, please review our previous advisory, available here.

Revisiting its September 2021 decision, the Ninth Circuit decided earlier this month in Bonta II—again in a divided decision—that employers in California can require workers to sign arbitration agreements as a condition of employment. Reversing course, the Bonta II court ruled that the FAA entirely preempts AB 51 and that arbitration agreements should be treated on equal footing (as other contracts are treated under the FAA).

Implications and Action Items for California Employers

• For now, California employers can use mandatory arbitration agreements for employees and new hires, recognizing that Bonta II may be subject to further appeals.
• Employers who adopted voluntary arbitration agreements or other hybrid approaches since September 2021 should contact legal counsel to discuss the pros and cons of revising their arbitration agreements.
• Employers implementing mandatory arbitration agreements must work with counsel to ensure that such agreements are drafted correctly and comply with other prevailing requirements and considerations

If you have questions regarding arbitration agreements or any other issue related to employment law, please contact one of our attorneys:

Background

On January 27, 2023 (just ahead of Data Privacy Day), California Attorney General Rob Bonta (“AG”) announced an investigative sweep focused on mobile application providers in the retail, travel, and food service industries. The AG sent out noncompliance letters targeting (a) mobile applications that either do not honor consumer opt-out requests or do not provide the appropriate mechanisms for consumers to stop the sale or sharing of their data, and (b) businesses that fail to process consumer requests submitted via an authorized agent.

Opt-Out Rights

As you may already know, the California Consumer Privacy Rights Act, as amended by the California Rights Act (collectively, “CCPA”) provides California consumers with the right to opt-out of the selling and sharing of their personal information, unless an exception applies (e.g., the service provider exception, as described in our most recent Client Alert). Another opt-out right under the CCPA includes the right to limit the use of sensitive personal information in certain contexts.

Remember that the CCPA has a much broader definition of “sale” than what is typically understood to be a “sale.” For example, a business is required to provide an opt-out mechanism for certain cookies that are used on its website or mobile application. As such, businesses that do sell or share personal information are required to provide an opt-out mechanism and honor opt-out preference signals (colloquially, the Global Privacy Control (“GPC”)). The opt-out mechanism must either be a “Do Not Sell or Share My Personal Information” link, “Limit the Use of My Sensitive Personal Information,” or an alternative option if the business is required to post both links. The links must be on the business’s homepage or mobile application.

An opt-out preference signal is a signal sent by a platform or technology on behalf of a consumer that communicates the consumer’s choice to opt-out of the sale or sharing of their personal information. This is typically a setting in a consumer’s browser or device that once set, sends the signal to every page the consumer visits. To provide a little more detail on the requirements of honoring an opt-out preference signal:

• the business must present on its website whether or not it has processed the consumer’s opt-out signal;
• the business must honor the opt-out signal as a valid request to opt-out of the sale and sharing for that browser or device; and
• the business is required to implement and maintain a process to reconcile circumstances where the consumer’s opt-out signal is incompatible with the consumer’s preferences previously shared with the business or the consumer’s participation in a financial incentive program.

As of January 1, 2023, businesses are required to be compliant with the above.

Authorized Agent

The AG alleged that the mobile applications subject to the noncompliance letters failed to process consumer requests submitted via an authorized agent. The AG stated: “On this Data Privacy Day and every day, businesses must honor Californians’ right to opt out and delete personal information, including when those requests are made through an authorized agent.” It is unclear whether the businesses will receive penalties or will negotiate terms of compliance with the AG.

The announcement specifically referenced the alleged failure of the targeted mobile applications to process requests sent by “Permission Slip.” Permission Slip is a mobile application developed by Consumer Reports that aims to help consumers manage the data companies may have about them by submitting consumer requests on behalf of such consumers. Permission Slip may serve as an authorized agent for California consumers.

Under CCPA, an “authorized agent” may exercise certain consumer rights on behalf of California consumers (e.g., requests to know, delete, and opt-out). An authorized agent is defined as “a natural person or a business entity registered with the Secretary of State to conduct business in California that a consumer has authorized to act on their behalf...”. Businesses are required to:

• allow consumers to use an authorized agent to submit an opt-out request if a consumer provides signed authorizations; and
• include instructions in their privacy policy regarding how authorized agents can make requests.

With the development of Permission Slip (and other similar mobile applications), the process of submitting consumer requests is being streamlined which may result in increased consumer requests. With the AG keeping an eye on compliance, businesses should ensure they are compliant and prepared to deal with such requests.

Recommendations

Businesses should ensure that they:

• provide the proper opt-out mechanisms on their website and/or mobile application. For example, implementing a “Do Not Sell or Share My Personal Information” link on the homepage of your website or landing page of a mobile application if they indeed do engage in such “sales” or “sharing” as broadly defined under CCPA;
• provide consumers with a standard procedure or format to submit consumer rights requests; and
• institute policies and procedures to ensure that authorized agent requests are processed and resolved, in compliance with imposed timeline restrictions.

Enforcement

As a reminder, the 30 day cure period in CCPA expired on January 1, 2023, and enforcement begins on July 1, 2023. The penalties for noncompliance are $2,500 per violation ($7,500 for violations that are willful or involve children under the age of 16). However, both the AG and the newly formed California Privacy Protection Agency (“CPPA”) maintain discretion on whether to offer a cure period in light of the lack of intent to violate the law and any voluntary efforts to cure the alleged violations. As such, good faith efforts to comply with the law may mitigate risk or the likelihood of being fined for violations.

Please reach out to us if you need any assistance in implementing opt-out mechanisms, updating your privacy policies, or have other privacy concerns related to your business.

For more information, please contact Chiara Portner and Kenny Gutierrez.

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1. Background

It may be time to scrutinize your data maps and data processing agreements. With the recent modifications to the California Consumer Privacy Act that the California Privacy Rights Act (collectively, CCPA) ushered in, the protections afforded to personal information now flow downstream from businesses to service providers, contractors, and third parties. 

Generally, disclosures made by a business to another entity trigger CCPA’s opt-out rules (e.g., requiring placement of a “Do Not Sell or Share My Personal Information” link on your homepage), unless an exception applies. One such exception is the disclosure of personal information to service providers or contractors for a business purpose. Broadly speaking, a business purpose is the use of personal information in furtherance of the services for which the personal information was disclosed. However, such disclosures are subject to contractual terms, as specified by CCPA. Without such contractual terms, the disclosures are considered a sale and/or sharing to a “third party” and thus trigger the consumer opt-out rights.

An added benefit of having the statutorily required contractual terms in place is limiting your business’s liability for a breach or violation caused by a service provider, contractor, and even with respect to a third party- as long as the business does not know (and should not know) that the service provider, contractor, or third party intends to violate the CCPA. In such a case, the service provider, contractor, or third party would be liable for the breach of personal information, not the business.

In turn, it is important to understand the distinctions between service providers, contractors, and third parties because the contractual terms and obligations will turn on such classification.

2. Definitions

The CPRA defines service providers, contractors, and third parties as follows:

• Service providers are entities that process personal information on behalf of a business for a business purpose, such as cloud data storage or website hosting providers.
• Contractors are entities that perform work for or provide services to a business, and that may receive or have access to personal information in the course of performing that work or providing those services.
• Third parties are entities that are not service providers or contractors, but receive personal information from a business for business or commercial purpose, for their own purposes, including for marketing or advertising.

For the purpose of distinguishing between these disclosures, service providers and contractors are fairly similar, whereas a third-party is primarily an entity to which personal information is sold or shared. A service provider is defined as a “person that processes personal information on behalf of a business and that receives from or on behalf of the business consumer's personal information for a business purpose pursuant to a written contract…..” and a contractor is a “person to whom the business makes available a consumer's personal information for a business purpose, pursuant to a written contract….” Third parties are neither of these, but would include entities that purchase personal information from a business or entities that receive the personal information for their own advertising or cross-contextual behavioral advertising purposes.

3. General Requirements

Contracts between a business and a service provider, contractor, or third party must include terms that:

1. Specify that the personal information is sold or disclosed by the business only for limited and specified purposes.
2. Obligate the third party, service provider, or contractor to comply with applicable obligations under the CCPA and obligates those persons to provide the same level of privacy protection as is required by the CCPA.
3. Grant the business rights to take reasonable and appropriate steps to help ensure that the third party, service provider, or contractor uses the personal information transferred in a manner consistent with the business’ obligations under the CCPA.
4. Require the third party, service provider, or contractor to notify the business if it makes a determination that it can no longer meet its obligations under the CCPA.
5. Grant the business the right, upon notice, to take reasonable and appropriate steps to stop and remediate unauthorized use of personal information.

There are additional requirements for contracts between a business and a service provider or contractor, including certain prohibitions on the usage of personal information. Specifically these contracts must include terms that prohibit:

1. Selling or sharing personal information;
2. Retaining, using or disclosing the personal information or any purpose other than for the business purposes specified in the contract for the business
3. Retaining, using, or disclosing the information outside of the direct business relationship; and
4. Combining personal information from different sources – an area also subject to future regulations.

Further if the contract is between a business and contractor, the contractor must certify that it understands and will comply with these restrictions.

It is worth noting, that service providers are permitted to use personal information for their own limited internal purposes set forth in the CCPA and its regulations, including “to build or improve the quality of [the service provider’s] services, provided that the use does not include building or modifying household or consumer profiles to use in providing services to another business, or correcting or augmenting data acquired from another source.” For example, a car rental business may use a consumer’s driver’s license for the purpose of testing that its internal text recognition software accurately captures license information used in car rental transactions.

A business considering implementing these contracts will also need to address information security measures, data breaches, consumer requests, and limitations of liability. They must also take steps to ensure that service providers, contractors, and third parties protect personal information in accordance with the law. Given the potential civil penalties and private rights of action for a violation of the CCPA, businesses must take care to address their contractual requirements with all of their vendors.

Please reach out to us if you need any assistance in implementing these contracts or have other privacy concerns related to your business.

For more information, please contact Chiara Portner and Kenny Gutierrez.

Dear Clients and Colleagues:

This letter discusses major planning issues related to recent estate and gift tax developments.  Specifically, this letter provides updates related to estate, gift and generation-skipping transfer taxes and the extension of time to file a portability election. Moreover, this letter also highlights key aspects of Setting Every Community Up for Retirement Enhancement 2.0 (“SECURE Act”) expanding on the prior SECURE Act passed in 2019, and the Corporate Transparency Act (“CTA”). Note that there have been many changes, and only through individual consultation can we adequately assess how these changes may impact a specific client’s situation.

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) doubled the estate tax, lifetime gift tax and generation-skipping transfer (“GST”) tax exemptions beginning in tax year 2018. Exemption amounts will continue to increase with yearly inflation adjustments through tax year 2025, at which time the exemption amounts will revert to pre-2018 amounts. The 2017 Act maintained the 40% estate tax, gift tax and GST tax rates for amounts above the exemption. The 2017 Act also preserved the stepped-up basis treatment of assets at date of death.   

The new transfer tax exemptions for 2023 are as follows:

• $12,920,000 federal estate tax and lifetime gift tax exemption (increased from $12,060,000 in 2022)
• $12,920,000 GST tax exemption (increased from $12,060,000 in 2022)
• $17,000 annual gift tax exclusion (increased from $16,000 in 2022)
• $175,000 annual exclusion for gifts to a noncitizen spouse (increased from $164,000 in 2022)

These increased exemptions create opportunities to make larger lifetime gifts, to leverage more assets through a variety of estate planning techniques, and to shift income-producing assets to individuals such as children or grandchildren, who may be in lower income tax brackets and/or reside in states with low or no state income tax. The increased GST exemption amount also offers an opportunity to allocate GST exemption to prior transfers for which there was insufficient GST exemption available at the time of the original transfer. Such allocation of GST exemption to prior year gifts will be based on current asset values at the time of the subsequent allocation. 

Clients should review their existing trust instruments to ensure they are still in line with their current objectives. This is particularly important for plans that are designed to allocate or distribute amounts based on the available estate tax exemption or GST exemption. 

As a reminder, unlimited tax-free transfers can be made for certain medical and educational expenses, but only if the payment is made directly to the medical provider or educational institution.

Absent further legislation, in 2026, the exemption amounts will revert to prior levels under the American Taxpayer Relief Act of 2012 ($5,000,000 per taxpayer, indexed for inflation for years 2010 through 2025). As a result, the planning opportunities offered by the increased exemption amounts are ending in the next two years. As a result, it is critical for clients to consider implementing a lifetime gifting strategy with the guidance and advice of their professional team (e.g.: attorney, accountant and financial advisor) to take advantage of higher exemption amounts before their expiration on December 31, 2025. 

Gift tax returns (IRS Form 709) for gifts made in 2022 are due on Tuesday, April 18, 2023. This deadline may be extended to October 16, 2023, with a timely filed request for an automatic extension to file 2022 income tax returns. However, the extension does not extend the time to pay any gift taxes that may be due.

For clients who have grantor retained annuity trusts (“GRATs”) and/or qualified personal residence trusts (“QPRTs”) that terminated in 2022, consideration should be given regarding whether or not to file a gift tax return to avoid unintended consequences.

As a result of the recent California storms, the IRS announced that victims of the California storms will have until May 15, 2023 to file various federal individual income and business tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns) and make tax payments otherwise due between December 27, 2022 or January 8, 2023, and May 15, 2023. This relief applies to our local counties such as Santa Clara, San Mateo, San Francisco, Contra Costa, Marin, Alameda, Solano, Santa Cruz, Sonoma, Monterey, and San Benito. Please note that the start date for the initial deadline (December 27, 2022 or January 8, 2023) varies by county. Eligible individual taxpayers impacted by this extension will also have until May 15, 2023, to make 2022 contributions to their IRAs and health savings accounts. 

In California, the Franchise Tax Board provided the same extension for individuals and businesses.  In addition, taxpayers affected by the California storms may claim a deduction for a disaster loss. 

Please consult with your CPA to make sure you follow the proper requirements and procedures.

Portability planning continues to take on greater importance given the temporary nature of the increased exemption amounts. With portability, a deceased spouse’s unused estate and gift tax exemption can be transferred to and used by the surviving spouse during his or her lifetime or at death. This allows many clients with A-B trust provisions to amend their current estate planning documents to simplify administration after the first death. The portability election can only be made on the deceased spouse’s U.S. estate tax return (IRS Form 706). Previously, the IRS allowed a surviving spouse to file a federal estate tax return solely to elect portability within two years of the spouse’s date of death, provided that the surviving spouse meets certain requirements. In 2022, the IRS extended the period from two years to five years in response to the backlog of portability requests and late filings. Failure to claim a deceased spouse’s unused exemption results in lost estate tax benefits and may lead to estate tax (or greater estate tax) at the death of the surviving spouse.  

The SECURE Act of 2019 created key reforms to laws governing retirement plans. To understand how they apply to you, it is recommended that you speak to your tax or financial advisor. Among other things, the Act provided individual retirement account (“IRA”) owners and participants in qualified plans (collectively a “Participant”) additional time to contribute to their IRAs and delayed the withdrawal of required minimum distributions (“RMDs”). On December 29, 2022, the SECURE Act 2.0 was signed into law. There are too many changes to list, but some of the changes implemented by the SECURE Act 2.0 that may be relevant to our clients and colleagues are as follows:

• Qualified Charitable Distributions:  If a Participant is age 70½ or older, the SECURE Act 2.0 expands the IRA charitable distribution provision to allow for a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts.
• Delayed RMDs:  For individuals turning 73 between 2023 and 2029, the required beginning date for a Participant to begin withdrawing required minimum distributions (“RMDs”) from their retirement accounts is now 73 years old; for individuals turning 73 between 2030 and 2032, the required beginning date for such Participant to begin withdrawing RMDs from their retirement accounts is now 74 years old; and for individuals turning 74 from 2033 onwards, the required beginning date for such Participant to begin withdrawing RMDs from their retirement accounts is now 75 years old.
• Repealed ROTH Account Pre-Death RMDs:  Previously, pre-death distributions were required of Roth designated accounts in employer retirement plans (e.g., 401(k)s and 403(b)s). The SECURE Act 2.0 repealed the pre-death distribution requirement for Roth accounts in employer plans, effective for taxable years beginning after December 31, 2023.
• Conversions from 529 Plan to Roth IRAs:  Assets in 529 plans (provided that the 529 account was established for at least 15 years) may be rolled over to a Roth IRA for the benefit of the 529 plan beneficiary, subject to restrictions such as annual Roth contribution limits and an aggregate lifetime limit of $35,000. This new rule offers some flexibility and peace of mind for donors concerned about penalties associated with non-qualified withdrawals from an overfunded 529 plan.
• IRS Proposed Regulations as of February 2022: One of the major changes implemented by the SECURE Act was the 10-year rule.  Recall that under the 10-year rule, most beneficiaries of a deceased Participant’s IRA were required to withdraw all IRA assets within 10 years of the Participant’s death.                                            On February 23, 2022, the IRS released proposed regulations to clarify this aspect of the SECURE Act. Specific to RMD, the proposed regulation provides that if a Participant dies before their required beginning date, the 10-year rule only requires that the entire account be distributed by December 31 of the tenth year following the year of the death of the Participant. But, if the Participant dies after their required beginning date, then annual RMDs are required in years one through nine.  By year 10, the entire account must be distributed.

These changes will affect each Participant differently. Individuals with significant value in traditional IRAs may want to consider advanced planning techniques including Roth conversions, charitable remainder trusts and life insurance. 

In 2021, Congress enacted the Corporate Transparency Act (“CTA”) as a means to locate anonymous shell companies. However, this applies to all limited liability companies (LLCs), limited partnerships (LPs), C Corporations, and S Corporations, and General Partnerships, if they are registered with a Secretary of State.

Specifically, the CTA imposes reporting requirements on domestic or foreign companies that are formed by filing with the Secretary of State of any jurisdiction in the United States or a foreign entity registering to do business in the United States. As for individuals, the CTA requires the reporting company to disclose information regarding (i) every individual who, directly or indirectly, exercises authority over the reporting company or owns or controls at least 25 percent of the company interest; and (ii) every individual who acts as an agent on behalf of the company.

This compliance starts in 2024, and anyone who owns companies registered with a Secretary of State must comply with these rules.

Clients may wish to consider updating their current estate planning documents to reflect changes in the law. For example, by utilizing the portability rules, many married couples can simplify the administration of their revocable living trust after the first spouse’s death. Also, it is imperative that estate plans designed to allocate or distribute amounts based on the available estate tax exemption and/or GST exemption be reviewed to ensure that the new, higher exemption levels are consistent with the original objectives of the plan. 

We typically recommend a review of estate planning documents with one of our attorneys every two or three years. Reasons that clients may need modify their plan include:

• An increase or decrease in the size of their estate;
• Acquisitions of major assets including out of state real property and life insurance;
• Changes in marital status of clients or their children (marriage, divorce or separation);
• Additions to their family through birth, adoption or marriage; or
• New thoughts about who should administer funds for their heirs, or how and when their heirs should receive their estate.

Family Wealth and Tax Planning Group

Our Family Wealth and Tax Planning (FWTP) Group has added three attorneys and one paralegal to make us the largest Trust & Estate practice in Northern California:

Alma Soongi Beck is Of Counsel in the FWTP Group, based in our Redwood City office. Prior to joining Hopkins & Carley, Alma was a partner at Lakin Spears, LLP, as well as founder and principal attorney of The Beck Law Group.

Sara E. Hire is an associate in the FWTP Group, based in our San Jose office. Prior to joining Hopkins & Carley, Sara was with the Law Offices of Lisa C. Bryant, in San Jose. 

Angel Y. Riley is an associate in the FWTP Group, based in our Redwood City office. Prior to joining Hopkins & Carley, Angel was with Chauvel & Glatt, LLP in San Mateo. 

Jacqueline R. Fritze has re-joined the FWTP Group as a paralegal and is based in our San Jose office. 

Peter LaBoskey and Bruce B. Roberts have retired from the active practice of law.

As always, we look forward to assisting you and your family with your estate planning needs. If you have any questions or would like to discuss any of the above issues in more detail, please feel free to contact any one of our FWTP attorneys listed below: