Regular Rate Blues: California Supreme Court’s Decision on Premium Payments and Other Pay Practice Reminders
On July 15, 2021, the California Supreme Court decided in Ferra v. Loews Hollywood Hotel, LLC that employers must pay premium payments to employees for missed meal, rest, and recovery breaks at the employee’s “regular rate of pay” instead of the employee’s base hourly rate, as many employers were doing. The ruling is retroactive, and employers should audit their practices to determine if a true-up payment is necessary.
Under California wage and hour laws, an employer must provide and permit nonexempt employees who work more than five hours in a day an unpaid duty-free meal period of at least 30 minutes in length starting no later than the end of the fifth hour of work. Employees who work no more than six hours in a day may waive the meal period upon written agreement between the company and the employee. In addition, nonexempt employees who work at least three and one-half hours in a day must be provided and permitted a paid 10-minute duty-free rest period for every four hours of work or major fraction thereof, and a second rest period if working up to six hours a day. Employees who work outdoors are entitled to cool-down recovery periods in fixed, shaded areas whenever needed to prevent heat illness.
If an employer doesn’t provide compliant meal, rest, or recovery periods, the employer must pay the employee one additional hour of pay as a “premium” for each workday that the meal, rest or recovery period was not provided. (Labor Code § 226.7.) Before the recent ruling, it was unclear whether this premium should be paid at the employee’s base hourly rate or their “regular rate of pay” which includes all nondiscretionary incentive payments such as bonuses and commissions. The Court settled this issue: the premium must be paid at the regular rate of pay, not the base rate. This is bad news for employers that acted in good faith by paying premium pay at the base hourly rate.
How To Calculate “Regular Rate of Pay”
Regular rate calculation requires employers to include all compensation for hours worked and divide that number by the total hours worked. “All compensation” includes hourly wages, nondiscretionary bonuses, shift differentials, on-call pay, and commissions. In general, most bonuses are considered nondiscretionary and include any bonus that employees know about and expect such as: production bonuses, bonuses for quality of work, bonuses to induce employees to work more efficiently, attendance bonuses, and safety bonuses. Thus, if nonexempt employees are paid a commission, non-discretionary bonus, or other incentive payment, such payment must be factored into the employees’ regular rate in order to compute any applicable overtime or break premium compensation.
Different Rule for Flat Sum Bonus: Note that California law requires the use of a different rule for calculating “regular rate of pay” when employees earn a non-discretionary, flat sum bonus. A flat sum bonus is typically a bonus paid for working a shift that is not tied to any measure of production or efficiency, for example a flat sum bonus for working on a weekend. When calculating the regular rate of pay from a flat sum bonus, the bonus is divided by only the regular, non-overtime hours worked in the workweek instead of all hours.
For examples showing regular rate calculations you can review the Labor Commissioner’s website here.
When To Use Regular Rate
The regular rate of pay is used when calculating overtime, California paid sick leave (see sick leave section below) and now meal and rest pay premiums.
Overtime “True Up” Calculations
If the employees’ bonus or commission is paid out on a weekly basis, the calculation is simple and the additional pay is added to all other wages earned in the workweek and then divided by the total hours worked in that workweek to come up with the regular rate. However, the majority of bonuses and commissions are not paid on a weekly basis and are more often earned and calculated on a monthly or quarterly basis.
If employees earn nondiscretionary bonuses or commissions on a monthly, quarterly, or other non-weekly basis, the amount of the bonus or commission earned must be spread out over the period it was earned by the employee for purposes of the overtime calculation. Employers must apportion the bonus or commission payments to each workweek during the period the amount was earned on a pro rata basis. Once that is done, employers must then recalculate any additional overtime amounts that may be owed over the period the bonus or commissions was earned, and “true up” the amount by paying the employee the difference.
The true up process for overtime or premium payments should be done whenever the bonus or commission payments are made to employees. Any additional overtime or premium amount owed to employees should be paid at the same time as the bonus or commission or in the following pay period. If you have questions regarding the method of calculating the regular rate or “truing up” payments, you should work with legal counsel to ensure employees are being compensated appropriately.
Paid Sick Leave Pay for Hourly Employees Is Also Regular Rate
An often-overlooked provision of California’s paid sick leave law is that the rate of pay for paid sick leave for hourly (non-exempt) employees is also the regular rate, not the straight hourly rate of employees. This is different than how an employer usually pays vacation or PTO time, so it can often slip by even the most seasoned of HR professionals and payroll personnel.
Nonexempt employees must be paid their regular non-overtime hourly rate for the amount of time taken as paid sick leave. To determine the rate of pay for nonexempt employees taking sick leave, the employer may either:
- Calculate the regular rate of pay for the workweek in which the employee used paid sick leave, whether or not they actually worked overtime in that workweek (see above; this is calculated like the “flat sum” bonus), or
- Divide your total compensation for the previous 90 days (excluding overtime premium pay) by the total number of non-overtime hours worked in the full pay periods of the prior 90 days of employment
For exempt employees, paid sick leave is calculated in the same manner the employer calculates wages for other forms of paid leave time (for example, vacation pay or PTO).
This is a good time for employers to review their pay practices and contact their legal counsel to determine what, if any, corrections should be made. Because the ruling is retroactive, there may be an increase in litigation surrounding meal and rest breaks. It is important to be proactive in evaluating risk.
Top Three Tips for Employers in Implementing Remote Work Policies
The COVID-19 pandemic has created many challenges and changes in the workplace, with one of the biggest changes being the increase in remote work for employees. As the economy reopens this year, employers are now able to bring employees safely back to the workplace. However, many employers are also exploring flexible work arrangements that allow their employees to continue to work remotely.
Implementing a remote work policy can be a benefit to employers in retaining employees by allowing flexibility in their schedules and may also help attract new employees that would not otherwise live close enough to the employer’s workplace. Here are three tips employers should follow when implementing a remote work policy for their workplace.
1) Create a written policy for remote work. Having all or part of your workforce working remotely presents new challenges for both employers and employees, thus it is important to lay out the policy clearly in writing. A remote work policy should clearly state which employees are eligible for remote work (and any employees that are not eligible) and the requirements for working remotely, including the ability to still meet the essential functions of the position. Employers can implement a general work from home policy that allows employees to voluntarily work from home when it is necessary for the employee’s convenience. Alternatively, employers can approve remote work arrangements with employees on an individual basis that allow employees to work remotely either full or part time, in which case the employer should enter into a separate remote work agreement with each employee. Either way, the policies should be signed by employees to acknowledge receipt and should include a statement that the employer has the right to revoke the remote work option at any time.
2) Comply with all labor laws for non-exempt employees working remotely. Remote work for non-exempt employees can pose challenges for employers in ensuring that hours worked are tracked properly, all overtime is paid, and adequate meal and rest breaks are provided. Employees must track their time, including meal and rest breaks, as accurately as possible when working remotely just as they would in the workplace. Employers should be clear about the working hours for non-exempt employees to ensure they are not working off the clock. Policies requiring pre-approval for overtime should also be reiterated in the remote work policy. Working hours and breaks can be difficult to track when employees are not present at the worksite, thus it is important to layout the requirements in writing and set up a system of communication with your remote employees.
3) Reimburse employees business expenses where required. Under California law, employers must reasonably reimburse workers for all “necessary” business expenses incurred by the employee in carrying out their job duties. If the remote work policy is voluntary and employees have a designated office at the workplace that they can use anytime, their expenses for remote work will likely not need to be reimbursed since the remote work is voluntary and not “necessary.” However, during the pandemic most employees were required to work remotely and it became necessary for their job. If employees are still required to work remotely under an employer’s policy, employers must reimburse employees for expenses incurred in working remotely including paying all or part of their cell phone and internet bills, providing or paying for office supplies, and even paying for necessary office furniture.
Employers should work with legal counsel to ensure their remote work policies are compliant.
U.S. Supreme Court Rules Against Union Access to Agricultural Employer’s Land
On June 23, the U.S. Supreme Court held that a California regulation allowing union organizers to enter an agricultural employer’s property is unconstitutional. The regulation, on the books since the mid-1970s, requires farms to permit unions to speak with and recruit farmworkers in the hour before and after work and an hour during lunchtime for up to 120 days each year. (Cedar Point Nursery v. Hassid (U.S., June 23, 2021, No. 20-107) 2021 WL 2557070.)
In the case, a strawberry plant nursery and a fruit shipment company sued the California Agricultural Labor Relations Board arguing that the regulation gave farmworker unions an easement to enter and conduct business on their land without authorization or compensation. The Court agreed, holding that the regulation took away the agricultural employer’s right to exclude trespassers from its private property, amounting to a “taking” of company property without “just compensation” in violation of the Fifth Amendment.
With the regulation essentially gone (barring the unlikely scenario that the government or the unions decide to pay farms for access to their workers), labor unions will have to find alternative means to communicate with and recruit agricultural union members. This ruling is hailed as a resounding victory for agricultural employers. For more information about this contact Sarah Hirschfeld-Sussman or anyone on DP&F’s employment team.
End in Sight for Temporary Covid Relief Measures from CA ABC
The California Department of Alcoholic Beverage Control announced today end dates for the temporary relief measures announced in 2020 in response to the Covid-19 pandemic. Depending on the specific regulatory relief in question, the relief granted by ABC, and the expanded privileges granted to many licensees during Covid, will come to an end on either June 30 or December 31, 2021.
To assist licensees during the difficulties that arose from shut downs and restricted operations during Covid, the ABC issued various Notices of Regulatory Relief, advising the industry that certain practices would essentially be temporarily permitted With the end of Covid somewhat in sight here in California, the ABC has now provided the end dates for these measures.
The following Notices of Regulatory relief will be rescinded and no longer effective as of the close of business on June 30, 2021.
- Returns of Alcoholic Beverages
- Retail-to-Retail Transactions
- Extension of Credit
- Drive-Thru Windows for Off-Sale Transactions
- Hours of Operations for Retail Sales
- Delivery Hours Extended to Midnight
- Distilled Spirits Manufacturers Providing High-Proof Spirits for Disinfection Purposes
- Virtual Wine Tastings
- Extension of Regulatory Relief for Club Licenses: Type 50, 51 and 52
The ABC is allowing certain items of regulatory relief to remain in place until the end of the year. The following Notices of Regulatory Relief will thus temporarily remain in place until December 31, 2021 and rescinded immediately thereafter.
- On-Sale Retailers Exercising Off-Sale Privileges
- Sales of Alcoholic Beverages To-Go
- Deliveries to Consumers
- Free Delivery
- Expansion of Licensed Footprint
- On-Sale Licensees without Kitchen Facilities
- “Virtual” Meet the Winemaker or Brewer Dinners
- Renewal of Relief for Charitable Promotions and Sales
- Relief from Type-75 Requirement to Produce 100 Barrels of Beer Annually
These changes will have a big impact on industry members who have spent over a year incorporating some of these practices into their sales, marketing and distribution programs. For example, as of June 30, Virtual Wine Tastings with consumers (where samples of wine were shipped to the consumer for the tasting) will no longer be permitted, although Virtual Winemaker Dinners in conjunction with licensed retailers can continue until December 31.
Absent legislative changes to the ABC Act, none of the regulatory relief measures provided by ABC during Covid will become permanent, so licensees should start preparing now to make these shifts. It should be noted that proposals are already pending in the legislature to keep some of these measures in place for the long term. For example, a bill is currently pending that would allow certain licenses to donate a portion of their proceeds to charities, which was previously prohibited.
For more information on what each of the Notices of Regulatory Relief specifically provided, please visit https://www.abc.ca.gov/law-and-policy/coronavirus19/ or contact Bahaneh Hobel.
Regulating Social Media in the Workplace
The proliferation of social media creates new and difficult situations for employers. Many employers wonder to what extent they can regulate their employee’s social media activities or legally take an employment action based on an employee’s off-duty conduct.
For better or worse, most of us carry smart phones with the capacity to text, email, comment, and upload photos and videos instantaneously. Platforms like Facebook, Twitter, Instagram and YouTube allow us to easily share our personal, and potentially controversial, opinions publicly. In addition, our viewpoints or activities can easily be disseminated by others. Take, for example, an employee is recorded saying something offensive outside of work and the video is published on someone else’s social media account.
Navigating these situations is not simple. While the First Amendment’s right to free speech generally does not apply to actions taken by private employers, there are other privacy laws in California that do. For example, the California Constitution, at Article I, Section 1, gives every citizen a right to privacy, and California Labor Code Section 980 prohibits employers from asking employees for their social media log-ins and passwords or asking them to access their social media accounts on demand. However, depending on the circumstances, once an employee publishes on social media, the right to privacy may be considered waived.
California law, found at Labor Code Section 96(k), protects employees’ rights to engage in lawful off-duty conduct, and provides remedies when employment is adversely affected in violation of these laws. However, off-duty conduct that harms or potentially harms the employer’s business interests or involves a crime may be a valid basis for an employment decision. Since these are tricky situations, the individual facts must be considered and an employer may want to consult with legal counsel before taking action.
We recommend employers adopt a standard policy to handle these situations. Below are some guidelines to keep in mind when adopting a social media policy.
What Employers Can Regulate
Employers can restrict an employee’s social media behavior in the following ways:
- Use of personal social media during work time or on the employer’s equipment (company computers, phones)
- Use of the employer’s name, logos, brand names, slogans or trademarks and appearing to speak on behalf of the employer
- Communications about confidential or proprietary employer information including non-public information that may be valuable to competitors, such as client lists, product information, and pricing
- Posts about co-workers, supervisors, or the employer, competitors or suppliers that are vulgar, obscene, threatening, harassing, libelous, or discriminatory based on a protected class (but be careful about regulating negative posts made in the context of discussing terms and conditions of employment protected by the National Labor Relations Act, discussed below)
- If the employee chooses to identify themselves as an employee of the employer on any social media network, you can require them to state in clear terms that the views expressed on the social media network are theirs alone and that they do not necessarily reflect the views of the company
- Unlawful conduct, even when it occurs off-duty
What Employers Can’t Regulate
Employers should not prohibit or restrict the following:
- An employee’s communications about wages, hours, or other terms and conditions of their employment as these may be protected under the National Labor Relations Act
- Disclosure of facts related to sexual harassment in the workplace, as these may be protected depending on the circumstances
- An employee’s communications about their political beliefs, political associations or affiliations, engaging or participating in politics, and/or becoming candidates for public office
Before taking any adverse action against an employee based on a social media post or other off-duty conduct, employers should consider the following:
- Does the activity negatively affect the employer’s business? How?
- Does the activity violate the employer’s social media policy?
- Is the employer enforcing the policy uniformly? For example, have other employees posted similar content or about similar topics without being disciplined?
- Can the employer legally take action, or is the activity in question protected under the law? Consult legal counsel if you have any doubts.
- How did the employer learn of the posting or conduct? Did they learn in a way that could be considered an invasion of privacy?
- How will taking action affect employee morale?
- How will the action be perceived by the employer’s customers, community and the public if it is publicized?
Taking action based on an employee’s off-duty conduct or social media activity can be challenging for employers, and there are many factors to consider. Employers should think about the legal risks involved and adopt a legally compliant policy. As always, we recommend employers work with legal counsel when handling these sensitive issues.
ABC Launches New Online Portal for Mandatory Alcohol Beverage Server Training
The California Department of Alcoholic Beverage Control (ABC) has launched a new Responsible Beverage Service (RBS) portal to provide mandatory alcohol beverage service training and certification.
Under the Responsible Beverage Services Training Act, starting on July 1, 2022, all California licensees with on-premise consumption privileges (including bars, restaurants, and wineries, breweries, and distilleries with tasting rooms) must require all alcohol beverage servers and managers to attend responsible beverage service training. All servers and managers in licensees’ employment as of July 1, 2022, must attend this training and pass an online RBS exam by August 30, 2022. If any servers or managers were hired after July 1, 2022, then they must attend training and pass the RBS exam within 60 days after their hire date.
The ABC designed the RBS portal to be a one-stop shop for servers, managers, licensees, and RBS trainers and provides customized access based on user roles. Servers and managers can use the RBS portal to register as servers with the ABC, search for approved training providers, and, after completing training, take an alcohol server certification exam on the RBS portal. Licensees can soon use the RBS portal to confirm server certification and maintain online records. In addition, prospective RBS trainers who will provide training to servers on safe and responsible beverage service can submit their applications using the RBS portal.
The purpose of the mandatory training is to provide licensees, servers, and managers with tools and knowledge to promote responsible consumption and community safety and to reduce underage drinking, including by educating trainees on alcohol beverage control laws and on the impact of alcohol on the body.
All licensees with on-sale privileges should become familiar with the RBS portal and begin preparing their servers and managers to meet the training and certification deadlines above. Although the RBS training does not become mandatory until July 1, 2022, servers may use the RBS portal to search for RBS training providers and take the online certification exam now. There is no harm in fulfilling RBS training and certification requirements before July 1, 2022, so servers may want to register and complete their requirements on the RBS portal sooner rather than later. The RBS portal is available here. For any specific questions, please reach out to Bahaneh Hobel (Head of Alcohol Beverage Law) or Michael Mercurio (Law Clerk).
Governor Newsom Signs New Employee Recall Law (SB-93) – Effective Immediately
SB-93 was signed by Governor Newsom on April 16, 2021 and is effective immediately. The new law requires certain employers to recall eligible workers who were laid-off for reasons related to COVID-19 if their prior positions become available. Here are the key parts of the law employers need to know:
- Covered Employers: SB-93 only applies to employers who operate an “enterprise,” which is defined as a “hotel, private club, event center, airport hospitality operation, airport service provider, or the provision of building service to office, retail, or other commercial buildings” regardless of the number of employees.
- Hotel means a building offering overnight lodging to the public with 50 or more guest rooms, or suites of rooms.
- Private club means a membership-based business that operates a building with 50 or more guest rooms, or suites of rooms, for overnight lodging for members.
- Building service means janitorial, building maintenance, or security services for office, retail, or other commercial buildings.
- Laid-Off Employees: Laid-off employees are eligible to be offered employment if they were: (1) employed for six months or more from January 1, 2019 to January 1, 2020, full-time or part-time; and (2) most recently separated from active service due to a “reason related to the COVID-19 pandemic.” Reasons related to COVID-19 include: a public health directive, government shutdown order, lack of business, a reduction in force, or other economic, non-disciplinary reason due to the COVID-19 pandemic.
- Requirements: Covered employers must offer laid-off employees open positions that (1) become available after April 16, 2021, and (2) are the same or similar to the laid-off employee’s position at the time of the employee’s most recent layoff. Employers must make an offer within five business days of establishing the position, and give the employee five business days to accept or decline the offer.
- The offer must be made in writing and delivered in person or by mail to the employee’s last known address, and by email and text message if the employer has that contact information.
- If more than one laid-off employee qualifies for a position, the employer must offer the position to the employee with the longest length of service, which is the total of all periods the employee worked for employer since their hire date including time when they were on leave or vacation.
- If the laid-off employee is not qualified for the open position, the employer must provide written notice within 30 days stating the length of service of the individual who was hired and the reasons for the employer’s decision not to hire the laid-off employee.
- Record Retention: For each laid-off employee, employers must maintain the following records for three years from the date of the written notice of layoff:
- The employee’s full legal name
- The employee’s job classification at the time of separation from employment
- The employee’s date of hire
- The employee’s last known residential address
- The employee’s last known email address
- The employee’s last known telephone number
- A copy of written layoff notices provided to the employee, and
- All records of communications between the employer and the laid-off employee concerning offers of employment made pursuant to SB-93
The law allows laid off employees to file a complaint with the Division of Labor Standards Enforcement (“DLSE”) for violations of SB-93, and employers who violate the provisions of the law may be subject to penalties. The full text of the law can be found here.
Spring Employment Law Update
Join firm co-managing partner, Jennifer Douglas, along with Marissa Buck and Sarah Hirschfeld-Sussman, on Wednesday, April 7th, 10:00 AM – 12:00 PM for a complimentary webinar on current employment law issues.
In particular, the webinar will address recent changes to employment laws affecting California employers, and COVID-19 issues including vaccination. This webinar is open to all clients.
DP&F’s Employment Law practice advises firm clients in all manner of employment issues including wage and hour, discrimination, reasonable accommodation, leaves of absence, and implementing state and federal regulations.
The team often analyzes legal risks associated with hiring, disciplining and firing in order to counsel clients with these employment decisions. Although counseling is the key to DP&F’s employment practice, the team includes trained and experienced litigators who protect firm clients’ interests when litigation becomes necessary.
The employment law team recognizes the importance human resources plays in every business and an in-depth understanding of human resources enhances the team’s ability to counsel their clients in all areas of employment law.
Employer Focused Summary of American Rescue Plan Act and California COVID-19 Supplemental Paid Sick Leave Act
The American Rescue Plan passed and signed into law by President Biden on March 11, 2021 extends and resets the FFCRA after its expiration on March 31. The extension and reset goes into effect on April 1 through September 30, 2021.
In addition, Governor Newsom signed a new COVID-19 Supplemental Paid Sick Leave Act (SB-95) into law this past Friday, March 19 which is retroactive to January 1, 2021 and extends through September 30, 2021.
The relevant portions of the two laws are summarized below.
Federal: American Rescue Plan Act (“ARPA”)
- <500 Employees: The provisions of the ARPA only apply to employers with less than 500 employees.
- Additional Leave as of April 1: Amount of FFCRA leave available is reset to up to 80 hours (10 days) of emergency paid sick leave (“EPSL”) and up to 12 weeks of emergency FMLA leave (“EFMLA”).
- Leave taken prior to April 1 will not count toward the reset cap
- Providing Leave Not Required: Employers are not required to provide paid leave, but if they choose to they will receive payroll tax credits for doing so until September 30, 2021.
- New Qualifying Reasons for Leave: ARPA expands the qualifying reasons for taking leave under both the EPSL and EFMLA to include:
- Seeking or awaiting results of COVID-19 test after an exposure or at an employer’s request;
- Vaccination appointments;
- Conditions or complications related to receiving the COVID-19 vaccine.
- Changes to Paid Leave for EFMLA: ARPA expands the amount of paid leave available under the EFMLA as follows:
- Eliminates the requirement that the first 10 days of EFMLA is unpaid;
- Increases the total tax credit cap for EFMLA from $10,000 to $12,000 per employee.
- Additional Qualifying Reasons and Pay for both EPSL and EFMLA: Under the ARPA, both EPSL and EFMLA can be taken for the following qualifying reasons (in addition to the new reasons listed above). Note that this is an expansion of the EFMLA leave, which was previously only allowed for childcare purposes.
- Additional Qualifying Reasons and Pay for both EPSL and EFMLA: Under the ARPA, both EPSL and EFMLA can be taken for the following qualifying reasons (in addition to the new reasons listed above). Note that this is an expansion of the EFMLA leave, which was previously only allowed for childcare purposes.
- Qualifying Reasons Related to the Employee’s Own Health:
- Subject to quarantine or isolation order due to COVID-19;
- Advised to self-quarantine by heath care provider due to COVID-19;
- Experiencing symptoms of COVID-19 and seeking medical diagnosis.
- Under the EPSL this is paid at the employee’s regular rate of pay, up to $511/day (capped at $5,110) total; under the EFMLA it is limited to 2/3 of the employee’s regular rate of pay, up to $200/day (capped at $12,000 total)
- Qualifying Reasons Related to Employee’s Need to Care for others:
- Caring for a family member who is subject to quarantine, or has been advised to self-quarantine;
- Caring for a child whose school or child care is closed due to COVID-19.
- Under both EPSL and EFMLA this is paid at 2/3 employee’s regular rate of pay, up to $200 per day.
- Qualifying Reasons Related to the Employee’s Own Health:
- New Non-Discrimination Rule: The new law prohibits the tax credit for employers that discriminate in giving FFCRA paid leave by favoring highly compensated employees, full-time employees, or employees on the basis of tenure with the employer. If employers do not make FFCRA paid leave available to all employees without respect to their compensation level, job category or seniority, they could be denied the tax credit.
California: SB-95 – COVID-19 Supplemental Sick Leave
- 26+ Employees: The law requires employers with 26 or more employees to provide supplemental paid sick leave for COVID-19 reasons. The law does not apply to employers with 25 or fewer employees, however these employers are covered under the federal ARPA discussed above. Employers with 500+ employees will be covered by SB-95 and not by the federal ARPA.
- Retroactive to January 1 and through September 30: The requirement to provide the paid sick leave will take effect on March 29 (10 days after law enacted), at which point it will be retroactive to January 1, and extend until September 30, 2021. This means that if you did not provide paid sick leave for qualifying reasons as of January 1, but instead provided unpaid leave, you will need to provide pay for that leave retroactively by the next full pay period to comply with this law (note that you may qualify for FFCRA tax credits for doing so).
- Reasons for Leave: Employers must provide supplemental paid sick leave for employees that are unable to work or telework due to any of the following reasons:
- Subject to quarantine or isolation order or guidelines due to COVID-19;
- Advised to self-quarantine by heath care provider;
- Attending vaccine appointment;
- Experiencing symptoms of COVID-19 and seeking medical diagnosis;
- Caring for a family member who is subject to quarantine, or has been advised to self-quarantine;
- Caring for a child whose school or child care is closed or unavailable due to COVID-19.
- Amount of Leave: Full-time employees (work at least 40 hours per week on average) are entitled to 80 hours of supplemental paid sick leave. Other employees are entitled to the average amount of hours they normally work over a 14-day period.
- Amount of Pay: Employees get their regular pay during leave, up to a maximum of $511 per day, and $5,110 total.
- Separate from Sick Leave on Wage Statement: The COVID-19 Supplemental Paid Sick Leave is a separate entitlement from other paid sick leave provided by the employer, and must be listed separately on the written notice or wage statement provided to employees.
- Model Notice Forthcoming: The Labor Commissioner shall make a model notice available by the end of this week that employers can send to employees.
If you have questions or need further information please feel free to reach out to DP&F’s Employment Team, Jennifer Douglas, Marissa Buck and Sarah Hirschfeld-Sussman. This post is provided for general informational purposes only and should not be construed as legal advice. The various governmental agencies tasked with enforcing these laws will likely publish FAQs addressing some of the uncertainties that may develop as to how these laws will work in practice. We encourage you to check with those agencies frequently for regulatory guidance.
USPTO Celebrating Women in Wine and IP
The U.S. Patent and Trademark Office is celebrating Women’s History Month by highlighting the numerous and remarkable accomplishments of women in all fields. To celebrate the many successes of women in the world of wine, the USPTO is offering a free event on March 24, 2021, that will showcase the stories of women working at the integral intersection of wine and intellectual property. Speakers will include Katja Loeffelholz of DP&F and Elizabeth Schneider, host of the podcast Wine for Normal People. Join to learn more about these women and their efforts, often behind the scenes, as they strive to keep the wine world swirling. Free registration at https://www.eventbrite.com/e/wine-ip-women-innovators-in-the-wine-industry-registration-143884760191?aff=ebdssbonlinesearch
Prop 65 Warnings Streamlined for Alcohol Beverages Sold Online
California’s Proposition 65 warning regulations were recently amended to modify the delivery of the required state warnings for alcoholic beverages. The modified regulations somewhat ease compliance, as they will now allow for the required warning to be provided to the customer electronically for alcoholic beverages ordered online or via catalog. However, they muddle the standard for other orders that are placed for delivery.
Proposition 65, adopted in 1986, generally requires in California for a statement to be provided before the purchase of products that contain certain chemicals that may cause cancer or reproductive toxicity. Stores are generally required to post signs along-side listed products. The warning methods and language are product-specific, but there is also a requirement that, for products that are sold on line, the warning be provided via electronic device to the customer, without requiring the purchaser to seek out the warning, prior to or during the purchase of the product. Under the existing regulations for internet purchases of products, including alcoholic beverages, the warning or a clearly marked hyperlink using the word “WARNING” must be provided on the product display page or by otherwise prominently displaying the applicable warning to the customer prior to completing the purchase on the website. This rule is not changing.
In addition to the warning on the website, a copy of the alcohol beverage exposure warning was also required to be included on or in all alcohol packages when delivered in California. This portion of the rule is changing, making it easier for online orders, but more convoluted in the case of orders placed other than via the internet or catalog.
Going forward, for an order that is to be delivered to customers in California at a location other than the point of sale that is not made online or from a catalog – for example, for wines ordered in a tasting room for delivery to the customer at another location within California – the product-specific warning must be provided prior to or during the purchase of the wines. The regulation does not specify how the warning must be provided however, but presumably notice should be provided by signage similar to in-store sales, a printed warning on a sales document, or – although not spelled out specifically in the regulation –verbally for phone orders. The regulation is specific though that the warning be provided prior to or at the time of the purchase – not at the time of delivery as was the case previously.
While such transactions are now less clear, with respect to internet or catalog orders of alcoholic beverages, the warning has gotten simpler to deliver. The prior method of a warning on or in the package is still allowed, but the rule has been streamlined to instead allow the required warning to be included in an email or text message with the purchase confirmation rather than having to be printed and included with the shipment. Providing the warning as part of the electronically delivered receipt or confirmation should simplify shipping and can potentially reduce liability for inadvertent warning omissions in shipments to California.
All businesses that employ more than 10 employees that produce or sell alcoholic beverages to consumers in California are subject to Proposition 65 and must be in compliance with the modified regulations by April 1, 2021. Because the definition of “employee” under the regulations is imprecise, we recommend that all applicable Proposition 65 warnings be complied with, even if a winery or retailer has fewer than 10 employees.
For more on this and related issues, please contact Josh Devore.
TTB Adds New Standards of Fill for Wine and Distilled Spirits
On December 29, 2020, the U.S. Tax and Trade Bureau (TTB) published a final rule in the Federal Register that, among other things, expands the number of available standards of fill (or container/bottle sizes) for wine and distilled spirits, effective immediately.
Under the final rule, wine may now use the following new standards of fill: 200 mL, 250 mL, and 355 mL. No previously existing standards of fill were removed. As a result, the complete list of available standards of fill for wine are: 50 mL, 100 mL, 187 mL, 200 mL, 250 mL, 355 mL, 375 mL, 500 mL, 750 mL, 1 L, 1.5 L, and 3 L. In addition, wine can also be bottled in containers larger than 4 L if such containers are filled and labeled in quantities of whole liters (e.g., 4L, 5 L, 6 L).
Similarly, distilled spirits may now use the following new standards of fill: 700 mL, 720 mL, 900 mL, and 1.8 L. No previously existing standards of fill were removed. As a result, the complete list of available standards of fill for distilled spirits are: 50 mL, 100 mL, 200 mL, 375 mL, 700 mL, 720 mL, 750 mL, 900 mL, 1 L, 1.75 L, and 1.8 L. In addition, distilled spirits in metal containers that are generally shaped and designed like a can (i.e., cannot be readily reclosed after opening), can be filled at the following sizes: 50 mL, 100 mL, 200 mL, and 355 mL.
Furthermore, the final rule codifies the TTB’s current policy that distilled spirits may be labeled with the U.S. equivalent measurement in addition to the mandatory metric measurement, and that malt beverages may be labeled with the equivalent metric measure in addition to the mandatory U.S. measure.
The TTB expressly declined to eliminate standard of fill requirements generally and also declined to adopt an administrative approval system that would have allowed the TTB to approve additional container sizes. The TTB also noted, however, that it was committing to a future rulemaking proposing new standards of fill for wine of 180 mL, 300 mL, 360 mL, 550 mL, 720 mL, and 1.8 L, in accordance with the U.S.-Japan Free trade Agreement.
This final rule provides greater flexibility for both importers and domestic producers. Importers may now import into the U.S. certain bottle sizes that are already standard in the global marketplace and approved in other countries. Likewise, domestic producers now have more options for bottling or canning their products. In particular, the newly available 250 mL and 355 mL container sizes for wine make canned wine more viable; these can sizes are readily available since they are already mass-produced for beer and soda, and cans are often preferable to glass or large containers at certain venues or occasions.
NEW Cal/OSHA Emergency Standards for COVID-19 Prevention
On November 30, the Office of Administrative Law reviewed and approved the Emergency Standards for COVID-19 Prevention proposed by the California Occupational Safety and Health Standards Board (Cal/OSHA). The new rule goes beyond Cal/OSHA’s guidance issued to date, and employers must comply immediately.
Cal/OSHA has indicated it plans to take enforcement action based on the new standards. As a result, employers need to critically review any existing COVID-19 policies and procedures and bring them in line with these new regulations.
Which employers must comply?
The emergency rule applies to all California employers and employees except:
- workplaces with one employee who does not have contact with others;
- employees that are working from home; and
- employees subject to Cal/OSHA’s Aerosol Transmissible Diseases standard (such as healthcare facilities, nursing homes, paramedics and emergency responders).
Written COVID-19 Prevention Program
Covered employers must maintain a written COVID-19 Prevention Program, which can be integrated into the employer’s IIPP or maintained in a separate document. The requirements of a written COVID-19 Prevention Program are extensive and will need to be tailored to each employer’s circumstances.
An employer’s COVID-19 Prevention Program must include the following categories of information summarized below. Employers should review the regulations for more details and reach out to legal counsel with any individual concerns.
1. System for Communicating
OSHA requires employers to communicate with employees about certain topics, including asking employees to report any symptoms, exposures or hazards in the workplace, providing information about access to testing and COVID-19 hazards, policies and procedures.
2. Identification of COVID-19 Hazards
Employers have an obligation to identify, evaluate and respond to hazards. The Prevention Program must include:
- A process for screening employees for COVID-19 symptoms (which can include self‑screening at home prior to reporting to work)
- Policies and procedures to respond to COVID-19 cases, taking into account a workplace-specific evaluation of potential COVID-19 hazards
- Strategy for maximizing quantity of outdoor air when possible and increasing filtration efficiency
3. Investigating and Responding to COVID-19 Cases
Employers must have an effective procedure to investigate COVID-19 cases in the workplace, including a procedure for verifying cases, collecting information and contact tracing to determine potential exposure to others.
An employer must give notice of potential COVID-19 exposure within one business day to any employees, contractors or other employers who may have been exposed without revealing personal identifying information. (This is the same requirement as AB-685.)
Cal/OSHA requires that employers offer COVID-19 testing, at no cost to employees during their working hours, if they have had a potential exposure in the workplace, and inform them of any benefits they may be entitled to (such as workers’ compensation and protected leave laws).
4. Correction of Hazards
Employers must implement effective policies and/or procedures for correcting unsafe or unhealthy conditions, work practices, policies and procedures in a timely manner based on the severity of the hazard.
Employers must provide training and instruction on the employer’s policies and procedures, how COVID spreads and how to minimize the spread using various methods.
6. Physical Distancing
The standard requires that employees must be separated by at least six feet, unless the employer can demonstrate that such separation is not possible, in which case employees should be as far apart as possible.
7. Face Coverings
Employers must provide face coverings and ensure they are properly worn by employees (over the nose and mouth when indoors, or outdoors and less than six feet away) with limited exceptions.
8. Other Controls and PPE
Based on the employer’s workplace environment, the employer must put controls and procedures in place to minimize transmission, such as disinfection and cleaning protocols, handwashing stations, erection of barriers and usage of PPE.
9. Reporting and recordkeeping
Employers must follow certain recordkeeping and reporting requirements, including reporting any COVID-19 case that results in the hospitalization or death of any employee to Cal/OSHA, and documenting steps taken to implement the COVID-19 Prevention Program and comply with Cal/OSHA regulations.
Employers must record and track all COVID-19 cases with the employee’s name, contact information, occupation, location where the employee worked, the date of the last day at the workplace and the date of a positive COVID-19 test, and this information shall be made available to employees with personal identifying information removed.
10. Exclusion of Cases
Employers must take steps to ensure COVID-19 cases are excluded from the workplace until return to work criteria is met.
Importantly, the regulation specifies that excluded employees must continue to receive earnings, seniority and other rights and benefits of employment as if they had not been removed from their job, with some exceptions.
11. Return to Work criteria
Generally, employees with symptoms cannot return to work until:
- At least 24 hours have passed since a fever of 100.4 or higher has resolved without the use of fever-reducing medications;
- COVID-19 symptoms have improved; and
- At least 10 days have passed since COVID-19 symptoms first appeared.
Employees without symptoms who test positive cannot return to work until a minimum of 10 days have passed since the date of specimen collection of their first positive COVID-19 test.
A negative COVID-19 test shall not be required for an employee to return to work. This has been interpreted by most in the community to mean that employers cannot require a negative test in order to return to work.
There is different return to work criteria when an employee is subject to an isolation or quarantine order, or when an employee’s removal would create an undue risk to community health or safety.
Response to Multiple Infections & Outbreaks
The Cal/OSHA regulations provide requirements in the event a workplace suffers from multiple COVID-19 infections or an “outbreak.”
An “outbreak” occurs (under the Cal/OSHA regulations and according to the California Department of Public Health) if there are three or more COVID‑19 cases within a 14-day period, or if a local health department identifies a workplace as an outbreak location. In the event of an “outbreak,” the employer must:
- Provide immediate no-cost testing to all employees at the exposed workplace who were present during the period of outbreak, and then another test one week later. Then, employers must provide continuous testing of employees who remain at the workplace at least once per week, until no new COVID cases are detected in the workplace for a 14-day period;
- Exclude any cases and exposed employees from the workplace;
- Investigate and determine possible workplace factors, implement any changes necessary, and document any steps taken;
- Notify the local health department within 48 hours after the employer discovers an outbreak . (This is the same timeframe as required by AB-685. Note that AB-685, and the regulation described above also requires employers notify any employees within one business day that they may have been exposed if they were on the worksite during the infectious period.)
Response to Major Outbreaks
The Cal/OSHA regulations provide requirements in the event a workplace suffers from a “major outbreak” which occurs when there are 20 or more COVID-19 cases in a 30-day period. In such instances, employers must provide testing at least twice weekly until there are no new cases detected in a 14-day period. In the event of a major outbreak, in addition to taking all the same steps for an “outbreak,” an employer must conduct a thorough investigation and take preventative steps such as installing high efficiency air filters and evaluating whether to halt some or all operations temporarily.
Requirements for Employer-Provided Housing & Transportation
The new Cal/OSHA regulations provide specific requirements for employers that have employer-provided housing and transportation, including prioritizing assignment of housing and transportation, cleaning and disinfection protocols, hand hygiene, physical distancing and the use of face coverings.
For more details, a full copy of the approved Cal/OSHA regulations can be found here.
HOW THE PASSING OF PROPOSITION 24 WILL CHANGE THE CCPA
In 2018, California adopted the most extensive privacy provisions in the United States, the California Consumer Privacy Act of 2018 (CCPA.) Emulating provisions adopted in Europe’s General Data Protection Regulation (GDPR), the CCPA gives California consumers of certain, generally larger, businesses rights relating to the use and sale of personal information like names, addresses or internet purchasing history. In general, the CCPA provides consumers with the right to learn what categories of personal information are collected or sold; to request businesses delete their personal information or opt-out of the sale of their personal information; and creates liability for failing to reasonably protect consumers’ personal information.
California residents voted 56%-44% in the November 2020 election to amend and expand the CCPA through the passage of Proposition 24, the California Privacy Rights Act (CPRA). Proposition 24 imports more of the GDPR’s provisions, providing additional consumer privacy rights over sensitive information. It also expands penalties established through the CCPA, and creates a new agency in California to oversee and enforce consumer data privacy laws. Most of the provisions of CPRA go into effect on January 1, 2023, although the creation of the new state agency and requirements for developing new regulations will immediately go into effect. Businesses must comply with the regulatory provisions of the CCPA until those new regulations are in place.
Most notably, the proposition 1) creates a new administrative enforcement agency and eliminates the existing 30-day period to cure CCPA violations to avoid penalties; 2) slightly narrows which businesses are subject to the consumer data privacy requirements; and 3) provides customers with new data privacy rights, including limiting the sharing of personal data.
Changes to Administrative Enforcement Procedures and Penalties
Under the existing CCPA, a business can be penalized for violation of the regulations only if it does not cure any alleged noncompliance within 30 days after being formally notified by the California Attorney General’s office. Prop 24 creates a separate agency to enforce the CPRA – the California Privacy Protection Agency — and eliminates the existing 30 day opportunity to cure compliance oversights (but provides instead for discretion in whether to impose penalties or allow time to cure), effective January 2023. As a result, all businesses subject to the CPRA will need to be in compliance with the CPRA to avoid the potential issuance of administrative fines once the provisions go into effect in 2023. The new California Privacy Protection Agency will be responsible for investigating violations and assessing administrative penalties, although violations will still be subject to enforcement actions brought by the Attorney General as well. Among other changes, Prop 24 also increases the penalty up to $7,500 on businesses that violate the consumer privacy rights of minors.
Changes which Businesses Must Comply with Consumer Data Privacy Laws
Proposition 24 changes which type of businesses will be subject to California’s consumer data privacy requirements. To be subjected to the CPRA, a business must either:
- Derive at least 50% of its annual revenue from selling or sharing (as opposed to just selling under CCPA) the personal information of California consumers;
- Have gross revenue over $25 million (unchanged); or
- Buy, sell, or share the personal information of more than 100,000 (increased from 50,000 under CCPA) California consumers/households. (Helpfully, the standard now counts only California consumers or households; the CCPA also counted “devices.”)
Other notable changes include:
- Delays the applicability of the CCPA to personal information of a business’s own employees and other business-to-business communications until 2023.
- Requires rulemaking for the protection of trade secrets from disclosure as a result of a consumer request.
- Expands consumer “right to know” requests beyond the prior 12-months, beginning with data collected after January 1, 2022.
IMPACT OF CALIFORNIA’S NEW MARKETPLACE FACILITATOR ACT ON ALCOHOL BEVERAGE LICENSEES
During all the chaos that has been 2020, alcohol beverage licensees and third party providers may have missed the enactment of a new law that actually went into effect near the end of 2019. The Marketplace Facilitator Act (the “Act”) has changed the rules and regulations regarding which businesses must collect and remit sales tax for transactions occurring on third party “marketplaces,” which include electronic platforms, apps or websites where a marketplace seller or third party provider sells or offers for sale tangible merchandise for delivery in California In brief, the Act provides that third party providers, referred to as marketplace facilitators, must collect and remit the sales tax for each sale facilitated through the third party provider’s website. The Act applies to marketplace facilitators that either (1) have physical presence in California or (2) have economic nexus with California (i.e. annual sales of tangible personal property delivered to California consumers greater than $500,000).
This new regulation may seem unusual and contrary to ABC requirements for alcohol beverage licensees, who are the actual seller of the alcohol beverage products on a third party provider website. Typically, where alcoholic beverages are sold on a third party provider’s website or marketplace, the third party provider of alcohol beverages does not hold a license from the California Department of Alcoholic Beverage Control (“ABC”). Because only licensees may sell alcoholic beverages and exercise license privileges, including sales and controlling all funds arising from such transactions, the third party provider would not be considered the seller of the alcoholic beverages since it does not hold a license. All sales of alcoholic beverages are made by the licensee. This is problematic since the Act defines the third party provider as the seller.
The ABC recently addressed this contradiction in an industry advisory. Finding that the collection and remittance of sales tax does not constitute sharing in the profits or revenue from the sale of alcoholic beverages, the ABC stated that the third party provider could be the seller for tax purposes, while the licensee would be the seller of the alcoholic beverages for purposes of exercising license privileges, ABC licensees must continue to keep control over the revenue from sales facilitated by the marketplace facilitator on the marketplace, but may segregate the sales tax component of the transaction and provide those funds directly to the marketplace facilitator for remittance.
As the seller under the Act, a third party marketer either located in California or with nexus in California must therefore register with the California Department of Tax and Fee Administration (“CDTFA”) for a Seller’s Permit or Certificate of Registration, and report and pay sales tax on all retail sales of alcoholic beverages sold on its platform for delivery to California customers. A licensee selling alcohol on a third party marketplace for delivery to consumers in California will also report such sales as part of its total sales to the CDTFA, but would claim an “other” deduction since no tax is owed. Note that these new provisions only apply to sales made for delivery in California, and thus a third party provider would not collect and remit taxes for sales made by alcohol beverage licensees for delivery outside of California.
TTB Increases Flexibility for Calorie Labeling and Advertising in Wine, Spirits, and Malt Beverages
On September 28, 2020, the U.S. Tax and Trade Bureau (TTB) issued TTB Ruling 2020-1 and TTB Procedure 2020-1 expanding the tolerance range for voluntary calorie statements in labeling and advertising alcohol beverages – making the TTB’s rules more consistent with the food labeling requirements of the US Food and Drug Administration (FDA).
The TTB permits alcohol beverage industry members to make voluntary nutrient content statements – such as calorie or carbohydrate content – on their products’ labels and advertisements, provided such statements are truthful and not misleading. The TTB periodically verifies nutrient content claims by analyzing samples of alcohol beverage products. In analyzing such claims, the TTB has certain “tolerance ranges” to allow for normal production and analytical variables, while continuing to ensure that the labeling or advertising does not mislead the consumer.
The new rules expand the TTB’s tolerance range for calorie content statements. Such statements will now be considered acceptable as long as the TTB’s analysis determines that the calorie content of the products are either:
- Within a “reasonable range” below the labeled or advertised amount (within good manufacturing practice limitations); or
- Not more than 20% above the labeled or advertised amount.
Previously, the TTB tolerance range for calorie content claims was only a range of plus 5 or minus 10 calories of the labeled or advertised amount. The new rules have no impact on the TTB’s tolerance ranges for carbohydrates and fats (20% tolerance for understatements) and proteins (20% tolerance for overstatements).
Importantly, the TTB clarified that industry members may use a number of reasonable methods to support their calorie content claims. Lab analyses of each product batch are not required; industry members may instead rely on databases and “typical value” charts. Regardless of the method used to support their calorie content claims, industry members remain responsible for ensuring that their claims are reliable, accurate, and fall within the tolerance ranges set by the TTB.
The new rules are a boon for both producers and restaurants. Producers now have greater flexibility for making calorie content claims on their labels and advertisements, if they choose to do so. Restaurants that are subject to the FDA’s menu labeling requirements also often rely on the nutrient content claims of alcohol beverage products, and the new rules may incentivize producers to provide calorie statements on more alcohol beverage products.
TTB Ruling 2020-1 is available here. TTB Procedure 2020-1 is available here. For questions regarding the above or general labeling questions, please contact Bahaneh Hobel (Partner) or Michael Mercurio (Law Clerk).
Napa County Moves to Orange Reopening Tier
On Tuesday, October 20, Napa County was approved to move to the Orange, Moderate Risk Level reopening tier under California’s Blueprint for a Safer Economy. As a result, effective Wednesday, October 21, many businesses will be able to expand their activities under the Orange Tier guidelines.
Wineries will begin to be allowed indoor tasting, with capacity limited to 25% or 100 people, whichever is less.
Restaurants will be allowed to increase their inside dining capacity to 50% or 200 people, whichever is less.
Bars, breweries and distilleries that have not previously been allowed to open without food service will be allowed to reopen, though only for outside activities.
Information on other businesses and their allowed activities under different tiers is available at https://www.countyofnapa.org/2739/Coronavirus-COVID-19
Napa County is expected to issue additional specific local guidance on reopening requirements in advance of the official change to Orange Tier operations. Additional information from the County and answers to Frequently Asked Questions can be found on the County website.
New Law Expands California’s Cannabis Geographical Indications And Mandates Terroir-Based Appellations of Origin
On September 29, 2020, Governor Gavin Newsom signed Senate Bill 67 into law, expanding the range of geographical indications for cannabis to include city of origin and limiting the use of appellations of origin to cannabis grown outdoors and in the ground. DP&F’s client, Origins Council, representing the legacy cannabis producing regions of California, worked tirelessly with legislators to promote and define terroir-based appellations.
The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) required that the California Department of Food and Agriculture (CDFA) establish the standards by which a licensed cultivator may designate a county of origin and an appellation of origin for cannabis. These requirements are codified in Section 26063 of the Business and Professions Code (B&P).
Senate Bill 67, introduced by Senator Mike Maguire, who represents the 2nd Senate District – North Coast / North Bay, modifies the language of B&P Section 26063(a) to include a city, or city and county, of origin for cannabis products. The statute’s advertising, labeling, and marketing provisions were modified to encompass the city or city and county designation and to prohibit any use of a similar name that is likely to mislead consumers as to the kind of cannabis contained in a product, when the cannabis was not produced in that county, city, or city and county.
Further, the bill prohibits the use of a name of a California county, city, or city and county, including any similar name that would be misleading to consumers, in advertising, labeling, marketing, or packaging of cannabis products unless 100% of the cannabis contained in the product was produced in the named geographic area. These new provisions would, for example, prohibit a licensed cultivator or manufacturer from labeling a product containing 5% cannabis from Riverside with the city or county name of “Mendocino”, even if the product contained 95% cannabis from the city or county of Mendocino.
Under MAUCRSA, CDFA was also tasked with establishing, by January 1, 2021, a process for licensed cultivators to establish appellations of origins which would encompass standards, practices, and cultivars specific to cannabis products from particular geographical areas in California. Currently, CDFA is engaged in rulemaking to develop appellation regulations that will govern the establishment as well as the enforcement of cannabis appellations of origin.
Senate Bill 67 establishes a terroir baseline for cannabis appellations of origin. Specifically, CDFA may not approve an appellation of origin unless the appellation requires that the cannabis is planted “in the ground in the canopy area.” The bill also prohibits the practice of “using structures,” including greenhouses, hoop houses, glasshouses, conservatories, hothouses, or any similar structure, or “any artificial light in the canopy area” to grow cannabis that qualifies for an appellation of origin. The practical impact of Senate Bill 67 is that only licensed outdoor cultivation with plants “in the ground,” flowering under full sun, will be able to establish an appellation of origin.
The bill also expands the advertising and marketing restrictions for appellations of origins to prohibit any use of a similar name that is likely to mislead consumers as to the kind of cannabis in any advertising, labeling, marketing, or packaging of cannabis. If an appellation of origin is used on a package or label, 100% of the cannabis contained in the product must meet the appellation of origin requirements, and 100% of the cannabis must be produced in the designated geographical area.
On October 2, 2020, CDFA announced modifications to the proposed appellations regulations which take into account Senate Bill 67. This is the second public comment period. Written comments on the proposed regulations will be accepted until October 19, 2020.
2020: The Year Testing Availability and Technology Failed Our Wine Industry Economy
Accurate, available and cost-effective diagnostic tools have never been more critical to economic survival than in 2020. While the world waits for a COVID-19 vaccine, large segments of our economy have been closed or hamstrung by government restrictions or voluntary measures implemented to slow the spread of the novel coronavirus. The lack of readily available, quick and accurate COVID-19 testing has been a primary contributor to the implementation of restrictions that have put millions out of work and slowed or recessed economic growth. Now, California and other west coast wine regions have been placed in another impossible situation as a result of the lack of testing resources and technologies available to make timely decisions about the quality of wine grapes.
The 2020 fires, the first round of which was caused by the lightning storms of August 16-19, occurred earlier in the harvest season than the fires and smoke exposure of previous years. The timing and breadth of these fires has caused an enormous demand for smoke taint testing at the go-to laboratory for smoke taint analysis- ETS Laboratories- although ETS and the Napa Valley Vintners have compiled a list of other testing resources available in state and abroad. Because of the enormous and unprecedented demand for ETS services, even with technicians working around the clock, some wineries and growers are shipping their samples overseas in hopes of getting results prior to the pick date.
Smoke taint tests primarily come in two forms: (a) whole berry testing where grape berries are analyzed for “free” guaiacol and 4-methylguaiacol (two of the primary indicators of smoke taint); and (b) wine tests where guaiacol and 4-methylguaiacol are measured in wine that has been fermented or micro-fermented. In the second test, where smoke taint is present, the guaiacol levels will be higher because some or most of the guaiacol that had been bound to sugars in the grapes will have released from the sugars through fermentation.
Whole berry testing was generally considered the most reliable testing option after the 2017 fires. However, it was known that smoke taint characteristics would increase after sugar bonds broke during fermentation and would continue to exacerbate through aging. In 2018, wineries started harvesting small batches of grape clusters to perform in-winery micro-fermentations to then test for smoke taint. Many growers objected to this process because of a lack of transparency regarding the micro-fermentation methodology or any uniformly recognized industry standard protocol. Some growers suspected that grape rejections were based on business factors, such as a wine supply glut, rather than actual smoke taint.
Now in 2020, the demand for testing is so intense that ETS is posting timing updates to receive test results on the landing page for their website. That is, please accept our condolences- ETS is currently reporting results from samples received on August 26 and samples received on September 10 will be reported by October 20.
This delay causes significant problems for wineries and growers. First, wineries cannot evaluate smoke impacts to grapes in real time to make informed grape harvest and acceptance decisions. Second, even if a winery will rely on an “old” test, the delay in receiving even dated information may result in grapes passing maturity and being subject to other defect liabilities. For growers, the problem is more severe and immediate. Growers across the state are watching grapes mature on the vines and many have no definitive answers from the wineries regarding a pick and delivery date or rejection.
In other cases, wineries are offering to process fruit but delay determination on quality until after fermentation. This risk for growers may payoff if smoke taint fears are worse than their reality, but if the fermented wine is ultimately rejected, some growers may be left without any compensation or insurance claim for an entire year of farming and nurturing the 2020 crop. Growers should be speaking regularly with their crop insurance agents and adjusters to determine whether they can maintain claim rights for rejections that occur in the winery, an option that had not previously been available.
In circumstances where pick decisions have not been made because of the lack of timely technical analysis, the delay will result in effective rejection and a much more complicated crop insurance claim process. For every fraction of increased Brix in grapes, the grapes also lose water, or desiccate, meaning that there will be lower tonnage, negatively impacting the purchase price for tonnage-based grape purchase agreements. Two extreme heat spikes over the past 30 days have further exacerbated the rate of desiccation. The delay in making informed pick or rejection decisions may also negatively impact growers’ ability to deliver sound and merchantable fruit and meet any contractual quality standards even if the grapes are shown not to be adversely impacted by smoke conditions.
For growers who have crop insurance, and want to make a claim for unharvested fruit, they need the winery to reject the crop, evidence of an independent analysis of the crop showing smoke taint, and the crop insurance adjuster to evaluate the tonnage of the crop in the vineyard. Any crop insurance payment will be based on either the contract price, or the average price set by the government-backed insurance program, multiplied by the crop tonnage and then reduced further by the policy coverage, which is based on the historic average yields on the vineyard, the amount of coverage purchased, the manner in which the farm units were defined by the policy and broken up by contract and less a deduction because the crop was not harvested. The longer that winery and grower are delayed in determining whether smoke taint is present, the lighter the tonnage and further reduced crop insurance claim. For growers who have recently planted vineyards, add to the insult the inability to show the progressive increase in crop yield on the vineyard for future crop insurance policies.
On top of all this, most Grape Purchase Agreements have provisions that allow for acceptance or rejection of grapes at the time of delivery, but while such a provision may be suitable to reject raisinated grapes or grapes that don’t meet the contractual Brix requirements, they are not well suited for rejection/acceptance based on smoke taint where meaningful inspection cannot occur on the crush pad at delivery. Even contracts that have specific smoke provisions, those provisions were predicated on the assumption that smoke taint test results could be obtained in a timely manner for a contract where time is of the essence in performance. With contracts that don’t adequately address the unexpected inundation of testing needs and a crop insurance program that doesn’t accommodate in-vineyard rejection without test results, wineries and growers are also challenged to consider contract amendments that attempt to mitigate the crop quality risks of this season.
I have always believed that strong relationships between wineries and growers are the cornerstone of this industry that I love and the basis for making beautiful wines that I love to drink. This harvest, like this year, is pushing many of us to the edge. And while testing resources are available and good people are doing their best, for a fire season that has cost lives and livelihoods, this 2020 harvest has shown that we do not have the testing and technology available to support the wine industry economy in the face of climate change.
The industry should demand and advocate for necessary and appropriate changes to crop insurance claim requirements that reflect the reality that smoke impacts are not like other grape defects that can be evaluated in the vineyard. For wineries that are partnering with their growers and taking the risk on grapes that they cannot adequately evaluate in the vineyard, a holistic approach is required to support these efforts and collaborations both on the production side and for the grower who has been left, in many cases, with no better option as a result of conditions they could not control. Much like the emergency relief put in place to allow businesses to adapt to the restrictions required to respond to the COVID-19 pandemic, state and local emergency action can support this industry now.
This year will end and that sounds great, but the challenges of climate change won’t go away on December 31. It is time to use our creativity and resources to prepare for the challenges of the future, at least so we can drink beautiful wine at the end of a long, hard-fought day trying to solve these problems.
Join DP&F’s Richard Mendelson for Free Webinar: Doing Business in the Time of COVID
DP&F’s Richard Mendelson will be the moderator for a star-studded panel of Napa business executives in a free Zoom webinar on Doing Business in the Time of COVID. Giving the perspective of the wine industry will be Jean-Charles Boisset, owner of Raymond Cellars and JCB Collection, and Emma Swain, CEO of St. Supery Estate Vineyards & Winery. They will be joined by Lindsey Gallagher, President and CEO of Visit Napa, who will address the tourism challenges of COVID on the Napa Valley. The webinar is being presented as part of the North Bay Business Journal’s Impact Napa conference and will take place on Wednesday, September 30, 2020 from 10:00-11:30 a.m. It is FREE for all to attend, just register at the following link: