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California Enacts New Law Targeting Warehouse Distribution Center Production Quotas | McGuireWoods LLP

On Sept. 22, 2021, Governor Gavin Newsom signed Assembly Bill 701 (AB 701). Effective Jan. 1, 2022, it will become the first state law of its kind to regulate and set parameters around the use of production quotas at warehouse distribution centers in California.

What Is the Stated Purpose of AB 701?

AB 701, codified at Labor Code Sections 2100-2112, targets warehouse distribution operations with high-volume production goals, based on the California State Legislature’s belief that employee productivity tracking technology is being used to ensure quicker delivery to customers and consumers, often at the expense of the worker. According to the Legislature, current warehouse quotas do not allow for compliance with safety guidelines or recovery from strenuous activity during work, and instead “incentivize unsafe work” by causing employees to miss breaks, which places them at a high risk of injury or illness. The legislative findings also suggest that employers are increasing warehouse productivity quotas as a means to counterbalance the higher minimum wages in place throughout California.

What Employers Does AB 701 Cover?

AB 701 applies to employers (1) that directly or indirectly employ (including through a third-party or staffing agency) 100 or more employees at a single warehouse distribution center in California or 1,000 or more employees at one or more warehouse distribution centers in California; and (2) whose warehouse distribution center operations are defined by or fall under any of the following North American Industry Classification System (NAICS) codes: 493110 (General Warehousing and Storage), 423/424 (Merchant Wholesalers – Durable and Non-Durable Goods), and 454110 (Electronic Shopping and Mail-Order Houses). However, it does not include NAICS 493130 (Farm Product Warehousing and Storage).

What Is a “Quota” Under AB 701?

A “quota” under AB 701 is defined as the “work standard under which an employee is assigned or required to perform at a specified productivity speed, or perform a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period and under which the employee may suffer an adverse employment action if they fail to complete the performance standard.”

What Does AB 701 Require and/or Prohibit?

AB 701 expressly prohibits any quota that prevents an employee from (1) meal or rest break compliance, (2) using bathroom facilities or traveling to and from the bathroom, or (3) complying with California “occupational health and safety laws” as set forth in the Labor Code. AB 701 further provides that any action taken by an employee to comply with occupational health and safety laws must be considered “time on task” and “productive time” for purposes of any quota.

AB 701 also requires covered employers to provide written documentation of any applicable quota (including detailed metrics regarding its requirements) to each employee either upon hire or within 30 days of the effective date of the new law.

Under AB 701, a covered employer may not take adverse employment action against an employee for failure to meet any quota that was not properly disclosed to the employee or which otherwise fails to meet its new provisions.

Work Speed Data Recordkeeping and Other Noteworthy Provisions of AB 701

If a current or former employee suspects a violation of AB 701’s provisions, the employee can request (and the employer must provide) a written description of each quota applicable to the employee and a copy of the most recent or last 90 days of the employee’s own personal work speed data. AB 701 defines work speed data broadly:

information an employer collects, stores, analyzes, or interprets relating to an individual employee’s performance of a quota, including, but not limited to, quantities of tasks performed, quantities of items or materials handled or produced, rates or speeds of tasks performed, measurements or metrics of employee performance in relation to a quota, and time categorized as performing tasks or not performing tasks.

Employers are required to comply with such requests as soon as practicable, but no later than 21 calendar days from the date of the request. While a former employee is limited to one request, current employees can submit multiple requests. Importantly, the law does not require these requests to be in writing; verbal requests are sufficient.

In addition, AB 701 enacts a rebuttable presumption of unlawful retaliation if an employer takes any adverse action against any employee within 90 days of the employee either: (1) initiating the first request in a calendar year for information about a quota or personal speed data; or (2) making an internal or external complaint alleging that the employer’s quota violates this new law.

When Does AB 701 Go Into Effect?

AB 701 becomes effective Jan. 1, 2022.

How Can AB 701 Be Enforced, and by Whom?

The enforcement provisions of AB 701 are vast. The California labor commissioner is charged with enforcement of AB 701 and can seek injunctive relief (and attorneys’ fees and costs) in any successful enforcement proceeding, and the California Division of Workers’ Compensation is required to notify the labor commissioner if a worksite or employer has an annual employee injury rate of at least 1.5 times higher than the industry average so the labor commissioner may determine whether to investigate potential violations under this new law. The state attorney general, a district attorney or city attorney also may enforce its provisions, and local governments are expressly permitted to adopt ordinances that provide “equal or greater protection to employees.” The new statute also provides that any state or local entity may request or subpoena records relating to an employer’s warehouse quotas and employee work speed data.

Separate from state and county enforcement actions and investigatory procedures, AB 701 permits current and former employees to seek injunctive relief to obtain compliance with its provisions, and to recover costs and reasonable attorney’s fees upon prevailing in that action. An employee may bring a claim for civil penalties under the California Labor Code Private Attorneys General Act (PAGA) for such violations, but the cure provisions of the PAGA apply to violations alleged under this new law.

Likely Effects and Next Steps

AB 701 takes a hefty swing at the use of productivity standards by covered employers in California and will inevitably spur lasting consequences for those with warehouse distribution center operations, regardless of how diligent employers are about meal and rest breaks and safety compliance.

Employees or their representatives might use AB 701 quota requirements to attack and attempt to invalidate legitimate work standards, which likely will increase litigation costs and impact operations. Because AB 701 provides numerous avenues for employees or their representatives to challenge quotas, it is crucial for covered employers to proactively draft clear and compliant production quotas. Given that these attacks may be under the rubric of safety, employers need to be prepared for unique scrutiny differing from typical discrimination comparisons. Moreover, employers will need to act in short order to prepare these quotas for dissemination when the law takes effect.

Covered employers should develop a reporting process to ensure they can respond to employees’ requests for written quotas or work speed data within 21 calendar days of receipt, as this deadline leaves virtually no room for delay or mistake. Furthermore, AB 701 does not specify to whom requests for written quotas or work speed data should be made. Accordingly, training for managers and supervisors on the provisions of AB 701 will be critical to ensure employee requests are identified correctly, processed efficiently and responded to promptly.

Employees may use AB 701 as a preemptive strike to avoid termination or discipline. As written, AB 701 presumes that any adverse action against an employee is retaliatory if it is taken within 90 days of (1) a first request by an employee for the employee’s quota or work speed data in that calendar year, or (2) a complaint to the employer or a government agency regarding an AB 701 violation. Thus, an employee who is underperforming or who commits misconduct can potentially misuse AB 701 to place an employer in the unenviable position of either disciplining the employee and facing an uphill battle on a retaliation claim, or leaving the employee’s misconduct or performance issues unaddressed, which could encourage unproductivity and further AB 701 complaints and abuse throughout the employer’s workplace.

Additionally, employers need to revise their record retention practices so they can defend against quota-based employment actions, as well as broader allegations that their production quotas violate AB 701. To be safe, covered employers should extend their document retention policies, for both written quotas and work speed data, to encompass at least four years.

In the end, the development of well-reasoned AB 701 compliance processes and procedures will help minimize some of the above issues, but only if implemented with widespread communication and training throughout the covered employer’s organization. With the effective date roughly three months away, time is of the essence for employers to start tackling AB 701’s provisions head on.