An overview of upcoming COVID-19-related actions from the Los Angeles City Council

Local governments have met the unprecedented circumstances surrounding COVID-19 with unprecedented changes in law. This is especially true in the city of Los Angeles. In the past weeks, the city council has proposed several significant legislative actions in response to the COVID-19 crisis. Recently, the city council passed an extensive supplemental paid sick leave ordinance, specifically geared to individuals unable to work for reasons related to COVID-19. In turn, Los Angeles Mayor Eric Garcetti suspended the ordinance, implementing an executive order seeking to achieve a similar aim. Now, the city council is poised to go even further.

Currently, the city council is considering proposals that would (1) restrict how companies rehire employees once the COVID-19 crisis ends, creating a “right of recall”; (2) add requirements on worker retention when companies change ownership; and (3) place new disclosure requirements on certain financial institutions doing business within the city. This article summarizes each proposed ordinance.

Right of Recall

Shelter-in-place restrictions have forced companies to make difficult decisions. Given the economic impacts caused by COVID-19, many employers have had to release their workers from employment. In response, Councilmembers Mike Bonin, Marqueece Harris-Dawson and Paul Koretz are proposing a right-of-recall ordinance, which would essentially require businesses to rehire workers based on seniority for the same or similar position or a new position with training. See Council File 20-0147-S15.

As currently drafted, the proposed ordinance would apply to businesses that generated more than $5 million in gross receipts in 2019, meaning that the scope of the ordinance could impact a wide swath of businesses. The ordinance would cover individuals who were employees for at least the past six months and released from employment on or after March 4, 2020, for “lack of business, a reduction in work force or other economic, non-disciplinary reason.” The proposed ordinance would create a rebuttable presumption that such a layoff was due to a non-disciplinary reason.

The proposed ordinance also adds procedural requirements impacting how covered employees would need to be rehired. As companies rehire, they would be required to send written employment offers. Employees would then have 10 days to accept or decline the offer. For businesses that want to ramp up as quickly as possible once the COVID-19 crisis ends, the 10-day waiting period could prove to be an impediment.

The right-of-recall ordinance is controversial. Businesses have raised concerns, and the Los Angeles Times recently published an editorial arguing that the proposed ordinance oversteps the city council’s role in regulating private business. However, with the city in a state of emergency and facing growing unemployment, the movement to protect workers is at least understandable. It remains to be seen how this will play out.

Worker Retention

The authors of the right-of-recall ordinance also seek to enact “legal protections for workers when a business changes ownership.” See Council File 20-0147-S15. As proposed, the legislation applies to all businesses in the city, and in cases where there is a change in control of a business (defined as “any sale, assignment, transfer, contribution, or other disposition of all or substantially all of the assets”), the new and outgoing owners would be required to comply with the following requirements:

1. Outgoing business owners would be required to prepare a “preferential hiring list” of employees who have been employed by the business for at least six months and employed on or after March 1, 2020, (excluding managerial, supervisory, or confidential employees) including “occupation classification” and provide it to the new owners.

2. The new owners would be required to hire from that “preferential hiring list” beginning upon execution of a purchase agreement or other document evidencing a change of control, and continuing for the first six months after the business opens to the public.

3. During any transition period, the new owner(s) would be required to retain employees for 90 days after they are hired; if staffing is reduced, it must be done according to seniority by job classification. The new owner(s) would not be permitted to discharge an employee without cause during this period.

4. After the 90-day transition period, employers would be required to prepare written performance evaluations for all employees, and if the performance is satisfactory, “shall consider offering the worker continued employment.”

5. The proposed ordinance also requires that new owners post notice of a change of control, within five days of the transfer and for six months after the business opens to the public.

The proposed ordinance contains an exemption for collective bargaining agreements, such that any or all of the terms of the ordinance may be explicitly waived in a CBA.

Importantly, the substance of a final proposed ordinance remains unsettled. Several councilmembers have pending motions to amend. The motions are a hodgepodge of changes to the proposed ordinance, including exemptions for certain restaurants, businesses that generated less than $5 million in gross receipts in 2019, non-profits, and institutions of higher learning that operate medical centers. Finally, a handful of councilmembers may seek to apply the ordinance to hospitality, tourism or janitorial workers and/or businesses with more than 50 employees only. Currently, the city’s chief legislative analyst, city attorney, city administrative officer, and Economic Workforce Development Department are developing reports on the amending motions.

The proposed ordinance is not without precedent. In 2005, the city council passed the Grocery Worker Retention Ordinance, similar to the one that is currently being proposed. The ordinance was unsuccessfully challenged by the California Grocers Association. See California Grocers Ass’n v. City of Los Angeles, 52 Cal. 4th 177, 188-91 (2011). However, the scope of the proposed ordinance here is broader than the 2005 law, even if some of the amending motions are folded into the legislation, and could draw legal challenges should it be implemented into law.

Responsible Banking

In May 2012, the city council passed the Responsible Banking Ordinance (see Los Angeles Admin. Code Section 20.95.1), which requires banks to disclose information regarding their community engagement. Among other requirements, commercial banks are required to file an annual statement of community reinvestment activities, such as mortgages and small business loans, provided by census tract, as well as their federal Community Reinvestment Act score. In addition, investment banks are required to file a statement of their corporate citizenship, including charitable participation and disadvantaged subcontractor use.

On April 7, 2020, several councilmembers including City Council President Nury Martinez introduced a motion to amend the city’s Responsible Banking Ordinance to include criteria for institutions that “offer mortgage relief paired with rent relief to rental properties in the city.” See Council File 20-0147-S19. Specifically, the motion would require:

1. Disclosure of programs for mortgagors of rental properties, acceptance and rejection rates for borrowers seeking relief, foreclosure rates (and eviction rates, where the financial institution is a landlord), and information on stimulus funds received and uses thereof;

2. “Scoring financial services bids to prioritize bidders that demonstrate they are providing the greatest available relief to rental property mortgage holders and their tenants during and in the aftermath of the COVID-19 emergency”; and

3. A publicly available scorecard on institutions’ performance regarding the dual goals of mortgage and rental relief.

Currently, the motion appears to have strong backing within the city council, with nearly half of the council supporting it. In addition to Martinez, the motion was co-authored by a diverse coalition including councilmembers Harris-Dawson, Koretz, Paul Krekorian, Curren Price and Herb Wesson, and seconded by Councilmember Monica Rodriguez. On April 10, 2020, the motion was referred to the Budget and Finance Committee, which co-author Krekorian chairs. A majority of committee members are co-authors, so the motion is likely to be passed out of committee.

Relevance

The city’s proposed right of recall, worker retention and responsible banking legislation each carry impacts — offering additional protections for city workers and residents at a time of crisis, but adding a layer of regulation on companies doing business in the city. Clearly, the regulatory landscape for businesses in Los Angeles is changing rapidly. The level of activity is exceptional. Employers and practitioners alike need to stay on top of these new requirements to ensure they are in full co=mpliance. 