AB 5 … Again!
There is no doubt that the California Legislature has passed some sweeping legislation during their past session. Among the most disruptive is AB 5, which our colleague, Denis Kenny, writes about in detail above in this edition of Perspectives.
What most people may not be aware of, however, is that AB 5 has a significant impact upon our common interest development (“CIDs”) clients. Why? Most CIDs employ a variety of contractors or vendors to maintain the common area, carry out janitorial or landscaping services, or as handymen, many of whom state they are independent contractors. In the past, and because these vendors typically carried out part-time work for multiple customers, they would safely be assumed to fall pretty squarely into the category of independent contractors.
Now, however, and in light of AB 5, many of these workers might inadvertently qualify as employees. Where this distinction becomes important is when vendors get injured while performing services at your association. If serious enough, and if the vendor did not itself carry workers’ compensation insurance, these workers may look to CIDs to pay for their injuries and care by alleging the CIDs employed them. Unfortunately, there is case law that supports this, and the risk is substantially heightened by the passage of AB 5, which has a far broader impact in employment classification than merely on Uber drivers.
What can be done to mitigate this risk? Two things:
First, all CIDs should require that its independent contractors be fully insured. However, once AB 5 takes effect on January 1st, your CID could still be liable for gaps in your independent contractors’ coverages.
Therefore, the second step to take is to consider obtaining a “zero payroll” workers’ compensation insurance policy that covers independent contractors. These are available through multiple insurance agents. Based upon recent information we have been given, such a policy might only run between $350 and $550 per year.
SB 323.
Turning to CID-specific legislation, there are about half a dozen new laws that will take effect on January 1, 2020 that directly affect CIDs, but without a doubt, the single new law that has the greatest impact on CIDs is SB 323 (Wieckowski, 2019).
SB 323 amends or adds eight sections of the body of state law known as the Davis-Stirling Common Interest Development Act (California Civil Code §§ 4000-6150; the “Act”), which establishes the legal framework governing CIDs. We summarize the most notable changes brought about by SB 323 below and our suggestions as to how you should respond below.
Association Records (§5200)
We believe the most concerning change to the Act (for privacy and potential e-mail spam-prevention purposes) is the amendment that adds members’ email addresses to the definition of “association records.” With this change, a CID member could request to inspect and copy that CID’s member list, including the names, property address, mailing address, and e-mail address of members, unless those members have opted-out of permitting disclosure of email addresses.
Recommendation: If you are a member, notify your CID that you opt-out of sharing your name, property address, mailing address, and email address. If you are a Director, consider notifying the membership that they may opt-out of inclusion from the membership list.
Internal Dispute Resolution Participation Prior to Filing Litigation (§5910.1)
SB 323 will add a new code subsection to the Act, further clarifying a CID’s required participation in its internal dispute resolution (“IDR”) process and setting forth the requirement that a CID participate in its IDR procedure if requested by a member prior to filing a civil action in court against that member. Existing law requires that a CID provide a fair, reasonable, and expeditious IDR procedure, which includes the requirement that, if the IDR procedure is requested by a member, the CID must participate in the procedure. This new code section adds proverbial teeth to the requirement that a CID participate in the IDR procedure. Beginning January 1st, a CID may not file a civil action regarding a dispute in which a member has requested IDR unless the CID participates in good faith in the IDR procedures after a member invokes IDR.
Recommendation: Review your CID’s IDR procedure. Your CID should be distributing a summary of its IDR procedure as part of its Annual Policy Statement.
Secret Ballot Elections (§5100)
Beginning January 1st, a CID will be required to hold an election for a seat on the Board in accordance with the procedures set forth in §5100 at the expiration of a Director’s tem, and at least once every four (4) years. Currently, the Act is silent, and the frequency of Director elections is only required to be as frequently (or infrequently) as a CID’s governing documents require.
Recommendation:Check your Bylaws for compliance.
Election Rules (§5105)
Existing law required each CID to adopt election rules with certain procedures related to each CID’s elections. Under SB 323, a CID will be required to ensure that its election rules require the retention of CID election materials. Among other requirements and powers relating to election rules, a CID’s Inspector(s) of Elections will be required to deliver to each member a copy of the election rules, in addition to the ballot(s), at least 30 days before an election.
After January 1st, Section 5105 will include language relating to circumstances when a CID must, may, and may not disqualify a potential Board candidate nominee. A CID must disqualify a candidate for nomination if that person is not a member of the CID at the time of nomination. A CID may disqualify a person from nomination as a candidate, through its Bylaws or election rules, for four criteria, including not being a member of the CID for less than one year or if a potential nominee discloses (or if the CID becomes aware of) a past criminal conviction that would either prevent the CID from purchasing fidelity bond coverage or terminate the CID’s existing fidelity bond coverage, if the potential nominee was elected. A CID may not disqualify a potential nominee for candidate for the Board if the person has not been provided the opportunity to engage in IDR.
Amending a CID’s election rules will take longer after January 1st. Under existing law, election rules could be amended by following the procedures relating to operating rule changes, which require about at least 28-days’ notice. After January 1st, election rules could not be amended within 90 days before an election.
Recommendation: Consider the amendment of your CID’s election rules before December 31st, especially if your CID has an election in the first 90 days of 2020.
Inspector of Elections (§5110)
SB 323 will amend the Act’s requirements relating to a CID’s Inspector(s) of Elections to state that any third party that serves as a CID’s Inspector of Elections may not also provide other services for the CID.
Current law allows a CID to expressly authorize a third party, who is employed or under contract to the CID to serve as an Inspector of Elections. This might include their lawyer or property manager. SB 323 removes that exception; the third-party Inspector(s) of Elections may not be employed or under contract to the CID other than serving as Inspector(s) of Elections.
A CID may continue to select one to three Inspector(s) of Elections, who may be voluntary poll workers with the county registrar of voters, licensees of the California Board of Accountancy, notary publics, or a member of the CID, so long as that member is not a director, candidate for director, or relative to a director or candidate for director.
Also, the new law would amend the Act to make it clear that an Inspector of Elections must perform all duties in a manner that protects the interest of all CID members, which requirement was not previously included in the Act.
Recommendation: Whether any of your CID’s Inspectors of Elections is an individual or entity that is currently employed or under contract to the CID other than serving as an Inspector of Elections. If so, your CID should consider selecting new Inspector(s) of Elections, as appropriate.
Secret Ballot Procedures (§5115)
Beginning January 1st, CIDs will be required to follow additional steps in the Act’s secret ballot procedure. In relation to nominations for elections, CIDs must provide notice of the procedure and deadline for submitting a nomination at least 30 days before any deadline for submitting a nomination. Also, CIDs will be required to provide notice of the following items at least 30 days before secret ballots are distributed:
- The date and time of the deadline to return the ballots, and the physical address where the ballots may be returned;
- The date, time, and location of the meeting at which the ballots will be counted; and
- The list of all candidates’ names that will appear on the ballot.
Recommendation: Know your CID’s timeline for officer elections. Assuming officers are elected at the Annual Meeting, the timeline would be as follows:
- At least 90 days from the Annual Meeting: the CID should send notice of the nomination procedure and deadline, select the Inspector(s) of Elections, and set the date of the Annual Meeting.
- At least 60 days from the Annual Meeting: the CID should provide notice of the deadline and location where ballots may be returned; the date, time and location of the Annual Meeting; and the candidates list.
- At least 30 days from the Annual Meeting: the CID should deliver the ballots and copy of the election rules.
If you have further questions regarding these new laws and their impact upon your common interest development, please contact Bill Scherer at [email protected] or Louis Sarmiento at [email protected].
– Written by William Scherer and Louis Sarmiento