Tag: Insights

Health care service plans have increasingly used Artificial Intelligence (“AI”) to automate prior authorizations, process claims, and manage health outcomes, arguing it reduces costs and increases consistency.  However, concerns about AI errors, biases, and unwarranted coverage denials have caused California and other states to curb AI’s uses to prevent discrimination and protect patient rights.

Of particular interest is California’s SB 1120 (“The Physicians Make Decisions Act”), which has already passed in the State’s Senate and is advancing quickly through the Assembly.  SB 1120 is designed to regulate the use of AI and algorithms in health plans’ prior authorization decisions and management functions by ensuring that AI-based determinations are made with adequate human oversight. 

Insurers and health plans use prior authorizations as a tool to determine whether a health care service or treatment is medically necessary.  While health plans and insurers are subject to certain regulatory requirements in California, existing law does not expressly limit these entities’ use or application of AI when making patient coverage determinations.  SB 1120 would require denials, delays, or modifications of health care services based on medical necessity be made by a licensed physician or other competent health care provider. 

The bill further mandates that AI tools used for prior authorization base decisions on an enrollee’s medical history and individual clinical factors.  Finally, the use of AI tools must not directly or indirectly discriminate against individuals based on race, gender, age, disability, or other protected characteristics, be open to inspection, and comply with existing medical privacy laws. 

Originally printed in California Society for Healthcare Attorneys: SB 1120: California’s Initiative to Ensure Ethical AI Use in Healthcare

Since 2015, the California Labor Code requires all employers to provide their employees with a minimum number of paid sick days. This requirement applies regardless of whether the employer establishes a paid sick leave policy or a paid time off (“PTO”) policy. Effective January 1, 2024, Senate Bill 616 amended the Labor Code by, among other things, increasing the required minimum amount of annual paid sick leave from 24 hours or three days to 40 hours or five days.

The complexity of this legislation can make it challenging for employers to ensure that their sick leave or PTO policies are legally compliant. To provide guidance, below is a summary of what we believe most California employers need to understand and integrate into their 2024 employment policies going forward. 

First, a brief overview of the law- California employees’ right to paid sick leave is established under the Healthy Workplaces, Healthy Families Act of 2014 (the “Act”).¹ The Act states that an employee who works for the same employer for at least 30 days within a year is entitled to a minimum amount of paid sick leave. SB 616 expands the Act by amending Sections 245.5, 246, and 246.5 of the California Labor Code and increases the required amount of annual paid sick leave from 24 hours or three days to 40 hours or five days.

Employers are required to provide paid sick leave upon an employee’s oral or written request for the following purposes: 

1. diagnosis, care, or treatment of an existing health condition of, or preventive care for, an employee or an employee’s family member; or
2. time for an employee who is a victim of domestic violence, sexual assault, or stalking, to obtain relief to help ensure their or their child’s health and safety from crime or abuse.²

One of the most important aspects of this legislation is the extremely broad definition of who qualifies as suffering from the health condition that justifies paid sick leave. The law states that it applies to an employee or an employee’s “family member.” Family members include an employee’s spouse, registered domestic partner, child of any age (whether adopted, foster, or biological), parent, stepparent, foster parent, and legal guardian of either the employee or of the employee’s spouse. It also applies to a grandparent and to any sibling of the employee. Finally, it applies to whom the law refers to as a “designated person.” Employees are entitled to designate one person in any 12-month period to become a family member. There is no requirement that the designated person be living with the employee, and there is no requirement that the designated person be ill or injured since the definition of family member applies for the “preventative” care of designated persons as well.³

When establishing a paid sick leave policy, an employer is free to adopt one of two approaches: accrual or frontload. Each approach has unique aspects which are summarized below.

Accrual Approach

Under an accrual approach, employees earn (or accrue) paid sick leave throughout the year. The employee has the choice of three accrual approaches: 

1. The employer may provide the employee with one hour of sick time for every 30 hours worked, beginning either at the commencement of employment or January 1, 2024, whichever is later, subject to the accrual limits provided in the legislation; or
2. The employer may use any alternative method of accrual, as long as sick leave time is accumulated “on a regular basis” and as long as the employee will have accrued at least 24 hours of accrued sick leave by the 120^th day and 40 hours by the 200^th day, measured from (a) the beginning of the calendar year, (b) the beginning of the employee’s employment, or (c) any other 12-month period the employer selects and applies; or
3. If the employer elects to have the 12-month period begin on the employee’s first day of employment, the employer may elect for the employees to accrue “days” as an alternative to accruing “hours.” If a day-accrual approach is used, then the employee must have accumulated at least three days by the completion of the 120^th day of employment and five days by the 200^th day of employment.⁴

When might it be advantageous for an employer to use the “day” accrual method (see (3) above) as opposed to the “hours” accrual method? If the employee works less than an 8-hour day, then the day accrual method would appear to make more sense. Otherwise, the part-time employee will reap a windfall from the wording of the legislation. 

• Example: Assume the employee is part-time, working 6-hour days. The employer’s policy permits all employees, part-time and full-time, to accumulate one hour of leave for every 30 hours worked. At that rate, in every five days of employment (or in one week’s time), the 6-hour employee will have accumulated one hour of sick leave. By the 40^th week, the employee will have accrued 40 hours of leave (The maximum required by law if the hours’ method is used.). Since the employee only works 6 hours a day, 40 hours of sick leave will provide that employee with the equivalent of 6.6 days off each year. Instead, if the employer used the day accrual method, the employee’s sick days can be capped at 5 workdays (or 30 hours of paid sick leave each year). 

As pointed out above, the law requires that the employer permit the employee 40 hours or five days of paid sick leave in a 12-month period; however, if the employer does not wish for the employee to be entitled to more sick days than the minimum mandated by the legislation, it is important that the employer’s policy impose a cap that is consistent with this legislation. 

• Example: Assume the accrual rate is one hour per 30 hours worked (see (1) above), and the employee works 8-hour days. In that case, the employee will likely accrue more than 40 hours by year’s end. 
• Example: Beginning on January 1, 2024, the employee works 8 hours per day, five days per week, throughout the year and takes three weeks’ vacation, leaving 49 weeks in which the employee works. Without a cap, the employee will accrue about 65 hours of sick time by the end of the year. 

Further, if an employer uses the accrual approach, then employees are entitled to carry over unused, accrued sick leave from year to year. We will refer to those carried over sick days as being applied to a “subsequent year.” The employer may impose up to two additional caps: one cap on the number of paid sick days in any single subsequent year and a second cap on the total number of accrued sick days for all subsequent years. For those sick days the employee may take in any single subsequent year, the employer may, if it chooses, impose a cap of 40 hours or 5 days, and this cap may (but is not required to) limit both to the carried over days and the currently accruing days in the subsequent year to 40 hours or 5 days. Finally, the employer may impose a cap on the total number of days that are accruable for all subsequent years to 80 hours or ten days.⁵

Frontload Approach

Under the frontload approach, employers again have the choice of “hours” or “days.” Employers using this approach provide employees with either the full 40 hours or full five days of paid sick leave upfront at the beginning of a 12-month period. If an employer establishes a frontload policy, employees are not entitled to carry over unused sick leave from one year to the next. Employers are free to use either the employee’s first day of employment, the calendar year, or any other 12-month period as the time frame for compliance.⁶ 

Under either an accrual policy or a frontload policy, the employer may limit a new employee’s use of paid sick leave until the employee’s 90^th day of employment. Employers may also set a minimum of two-hour increments for each time paid sick leave is used, but they cannot require their employees to take an entire day of paid sick leave off at a time.

Frequently Asked Questions

Can employees borrow unaccrued time for paid sick leave?

Yes, employers have the discretion to lend paid sick leave before it is accrued. They may also allow new employee to use paid sick leave before meeting the 90-day employment requirement.

Do California’s paid sick leave laws apply to exempt and nonexempt employees?

Yes, this legislation applies both to exempt and nonexempt employees. The main difference between exempt and nonexempt employees is that the California Department of Industrial Relations’ wage and overtime laws apply to nonexempt employees, but they do not apply to exempt employees.

Can employers request medical certification when an employee uses paid sick leave?

We do not recommend requesting certification when an employee uses paid sick leave. Employees are entitled to take paid sick leave immediately upon oral or written request, assuming they confirm that it is for their or a “family member’s” care, and employers may not deny paid sick leave solely based on a lack of certification. The law does permit, in theory, employers to reasonably request certification before payment for sick leave if they have information indicating that the employee is not requesting leave for a valid purpose.  However, facts falling into this exception would be unusual. In effect, this law provides employees with up to five paid workdays off per year with little or no medical confirmation.

Are employers required to notify employees of their right to paid sick leave?

Yes, employers must display a poster notifying employees of their paid sick leave rights in a format that can be easily read at a location that is frequented by employees during the day.

The posting at the workplace should state the following: 

1. An employee is entitled to accrue, request, and use paid sick days.
2. The amount of paid sick days provided for under Article 1.5 of the California Labor Code. 
3. The terms of use of paid sick days.
4. That retaliation or discrimination against an employee who requests or uses paid sick days is prohibited and that an employee has the right to file a complaint with the Labor Commissioner against an employer who retaliates or discriminates against the employee.⁷

How does this legislation apply to employers with a PTO policy?

Under a PTO policy, employers do not distinguish between time off for reasons related to illness or injury and time off for other personal reasons, including vacations. Employers who have PTO policies are required to assure that the terms and conditions of this Act, in all respects, apply to employees who wish to take a PTO day off. In other words, the employer’s PTO policy must, at a minimum, satisfy all of the conditions and terms placed upon the sick leave requirements under this Act. 

1.  Cal. Lab. Code §§ 245-249.
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2.  See Cal. Lab. Code §§ 246.5; 230(c); 230.1(a).
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3.  Cal. Lab. Code § 245.5.
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4.  Cal. Lab. Code § 246(b).
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5.  Cal. Lab. Code § 246(j).
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6.  Cal. Lab. Code § 246(d).
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7.  Cal. Lab. Code § 247.
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Effective January 1, 2024, Senate Bill 848 amended the California Fair Employment and Housing Act. This amendment established that California employees now have a right to “reproductive loss leave.” Reproductive loss leave entitles employees to take time off from work if they endure what the law calls a “reproductive loss event.” A reproductive loss event is defined as a failed adoption, a failed surrogacy, a miscarriage, a stillbirth, or an unsuccessful assisted reproduction.

This latest reason for taking leave from work applies to all employers with five or more employees. The employee can take up to five days’ leave, and the days do not have to be consecutive. Reproductive loss leave must generally be taken within three months of the reproductive loss event. 

Frequently Asked Questions

Does this leave only apply if the employee personally suffers a reproductive loss event?

No, all of the recognized events which trigger this right to a leave (a failed adoption, failed surrogacy, stillbirth, unsuccessful assisted reproduction, and miscarriage) apply to both persons who would have been parents if the reproductive loss event had not occurred. 

Are employers required to pay employees while they are on reproductive loss leave?

No, reproductive loss leave is unpaid, but employees may use any compensatory time off that is otherwise available to them such as vacation, personal leave, or sick leave.

How soon after a reproductive loss event must employees take reproductive loss leave?

Generally, reproductive loss leave should be completed within three months of the reproductive loss event. Employees are entitled to take leave on nonconsecutive days.

Can employers request medical or legal verification before employees take leave?

It is important that the employer not prevent the employee from taking this leave by requiring any kind of advance confirmation or verification. The legislation expressly states that the employee is entitled to exercise reproductive loss leave without the “employer’s interference or restraint.” However, it is always appropriate for the employer to request medical or other appropriate confirmation after the employee has taken all or part of the leave, and, if the employee cannot provide reasonable confirmation that a reproductive loss event has occurred, the employer should be able to take disciplinary action. 

Are employers required to notify employees of reproductive loss leave?

No, the law does not require employers to notify their employees of reproductive loss leave.

Reproductive loss leave needs to be viewed as the latest in an increasing list of mandated leaves in California. Briefly, the other mandated leaves are as follows: 

1. The California Family Rights Act (CFRA) entitles employees to take unpaid, job-protected leave for up to 12 workweeks during a 12-month period for the following reasons:

   • • The birth, adoption, or foster placement of a child.
     • Taking care of a spouse, child, parent, or other designated person with a serious health condition.
     • The employee’s own serious health condition.

   CFRA applies to all employers with five or more employees. Employees are eligible for CFRA leave after working for the same employer for more than 12 months and at least 1250 hours.¹

2. California’s Pregnancy Disability Leave (PDL) entitles employees to take unpaid, job-protected leave for up to four months per pregnancy for any disability related to the pregnancy, childbirth, or related medical condition. This applies to all employers with five or more employees. There are no tenure, hours, or other eligibility requirements for employees.²

3. California’s Paid Sick Leave (PSL), established under the Healthy Workplaces, Healthy Families Act of 2014, entitles employees to take up to 40 hours or five days of leave for the diagnosis, care, or treatment of (or preventative care for) an employee or an employee’s family member. PSL applies to all employers, regardless of the number of employees.  Employees are eligible to earn PSL after working for at least 30 days.³

4. The California Fair Employment and Housing Act (FEHA) entitles employees to five days of Bereavement Leave upon the death of a family member. A “family member” under this statute means a spouse, child, parent, sibling, grandparent, grandchild, domestic partner or parent-in-law. This applies to all employers with five or more employees. Employees are eligible to take bereavement leave after working for the same employer for at least 30 days.⁴

1. Cal. Gov. Code. § 12945.2; 2 C.C.R. §§ 11087-11098.
2. Cal. Gov. Code § 12945; 2 C.C.R. § 11042.
3. Cal. Lab. Code §§ 245.5, 246, 246.5.
4. Cal. Gov. Code § 12945.7.

Employers have a right to demand loyalty from their employees while they are employed. This means that, during the term of employment, employers may legally prohibit an employee from competing or taking steps that would be detrimental to an employer’s ability to conduct business. However, contractual provisions applying those restrictions to a former employee—known as “covenants not to compete” or “non-competes”—are generally not allowed in California. California’s prohibition against non-competes has been around for many years and has made it difficult for California medical groups to prevent a former employee from competing directly, including joining a competing medical group. Effective January 1, 2024, the boundaries around what an employer may legally demand in this area have become even more limited, and the consequences for violators are significantly more severe. 

First, a brief overview of the law before this year’s changes: California has long prohibited the enforcement of covenants not to compete with very narrow exceptions. (See Bus. & Prof. Code § 16600.) This contrasts with many other states where it is lawful for an employer to impose covenants not to compete so long as the duration and geographic area of the restriction are “reasonable.” 

The one exception to California’s broad prohibition against the enforcement of non-competes is when a former employee was also an owner of the affiliated business. This area is legally complex, but generally, if the former employee was also an owner, then it’s possible for agreements to prohibit that employee from competing post-employment; however, such provisions must be carefully crafted, otherwise, a medical group employer can easily find itself unable to enforce such a provision. 

With this background, in the last legislative session, two new bills were enacted into law:  Assembly Bill No. 1076 and Senate Bill No. 699, both dealing with this subject. (Codified in Bus. & Prof. Code §§ 16600.1, 16600.5, respectively.) Next, we will briefly review these two new laws. 

AB 1076 reaffirms that covenants not to compete, unless they fall within a statutory exception, are void and unenforceable—but it goes beyond that. For the first time, it is now unlawful for employers to place unenforceable covenants not to compete in employment contracts, and, if the employer has any employment contracts that contain such covenants for employees who were employed after January 1, 2022, it must notify all such employees (and former employees) on or before February 14, 2024, that the provision is void. Failure to provide notice will constitute an act of “unfair competition” under California’s Unfair Competition Law (“UCL”) and subject the employer to the possibility of litigation and damages under that section. This makes it important that all employers have their employment contracts reviewed to assure that they do not contain any unlawful non-competes, and if they do, ensure such notifications are sent.

SB 699 adds additional teeth to the enforcement of non-compete violations, providing that any violation gives an employee the right to bring a private legal action, seeking an injunction, damages, and if such action is successful, reimbursement of attorneys’ fees by the employer. This means that, a former, or even current, employee can sue an employer for the mere presence of a non-compete provision, and not only obtain an injunction, but recover provable damages plus the cost of the employee’s attorneys’ fees in bringing such legal action.  

SB 699 additionally clarifies that California laws against covenants not to compete prevail over contradictory laws that might otherwise apply in other states. Thus, if the employment is to be performed within California, California’s prohibitions against covenants not to compete will control (even, for example, if the employee lives outside of California).

If you would like advice on your employment contracts, please reach out to one of the listed attorneys.