California recently signed Assembly Bill 701 into law that will go into effect January 2022 and will potentially impact many companies operating warehouses and distribution centers in the state. The law provides additional recourses for workers to take legal actions against current and former employers and gives additional authority to state and local regulators to scrutinize worker productivity and quota programs.

The law addresses alleged practices that state regulators believe may come at the expense of health and safety standards for workers, with Amazon appearing to be the primary target of scrutiny. California Assembly member Lorena Gonzalez stated that “We're absolutely targeting the practices of Amazon that are being picked up, quite frankly, by other retailers." 

This new legislation 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).

Breaking down the Bill – what does 701 mean for businesses?

For any company that falls into the category defined above, there are several key components of the legislation that may impact their business:

  • Any quota that prevents an employee from taking a meal or rest period, prevents the use of bathroom facilities, including reasonable travel time to and from bathroom facilities, or infringes on California occupational health and safety laws is unlawful.
  • An employer may not take adverse employment action against an employee for failure to meet such an unlawful quota.
  • Companies must provide individual performance data and productivity targets to state and local enforcement entities, not necessarily in connection to pending litigation or complaints.

Many industry groups have voiced concerns over the bill, including the President of the California Retailers Association, Rachel Michel, claiming that the bill “would impact distribution centers across multiple industries and would increase the cost of living for Californians, kill good-paying jobs and damage the region’s fragile supply chain.” The law firm McGuire Woods points to several likely effects and potential unintended consequences, including:

  • Employees or their representatives might use the provisions of the law to attack and attempt to invalidate legitimate work standards, which likely will increase litigation costs and impact operations.
  • Given that these attacks may be under the rubric of safety, employers need to be prepared for unique scrutiny differing from typical discrimination comparisons.
  • Employers will need to act in short order to prepare these quotas for dissemination when the law takes effect.
  • Employees may use AB 701 as a preemptive strike to avoid termination or discipline. 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.

In an environment where warehousing labor costs are rapidly increasing and finding, hiring, and retaining workers is becoming more and more difficult, establishing robust and effective productivity programs in warehouse operations is critical to maintaining service levels and cost performance. In the face of new legislature, it is critical that companies who operate warehouses assess their current productivity programs for gaps now and be proactive about addressing them before any regulatory or legal issues arise.

In addition to the design of the productivity program itself, many businesses will also need to ensure all documentation and data is maintained and can be furnished to regulators quickly. McGuire Woods law firm recommends “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.”

Stay on the front foot to avoid unwanted scrutiny and publicity 

Whether assessing current programs or designing new production target programs, companies must consider several key items:

  • Source and justification of production standards: Are targets based on industry benchmarks, historical performance, time and motion studies, year-over-year performance goals?
  • Policies tied to production standards: How are incentive-based pay structures, non-monetary rewards, disciplinary procedures, performance evaluations, and pay/promotion decisions tied to production performance?
  • Detail and sophistication of productivity measurements: Is performance determined by manual tracking, a labor management system (LMS), scan history, tracking at group or individual level, unit rates or multi-variables?
  • Understanding and communicating the program: is documentation complete and updated? How is the program being run vs. how it was designed? How robust is the reporting that supports the program?
  • Competitive benchmarking: How does your program compare to competitors’ programs or those of other warehousing operations near your facility?

Though this legislation is new territory and may bring heightened interest, the concepts of having a robust labor management program are not new. In our experience, it is critical that companies think about how their programs align with best practices and whether or not they meet expectations of stakeholders and customers. Being proactive is essential to mitigating unwelcome regulatory scrutiny and unwelcome negative publicity.