April 2004                                                                                                                 Contra Costa Lawyer               

Added Penalties Privatize Wage and Hour Law Enforcement in California: Private Attorneys General To Some, Bounty Hunters to Others

By Harvey Sohnen, Esq.

SB796^[1] is a bold new California law effective January 1, 2004 that privatizes wage and hour law civil enforcement by allowing individual aggrieved employees to collect a portion of the penalties that have previously been collectible solely by the Labor Commissioner, a branch of the California Department of Labor Standards Enforcement, and also expands the number of violations for which penalties may be assessed. In some cases, the amount of penalties are also increased.

This may change the landscape of wage and hour law, and has already received considerable attention. Employee advocates intent on making claims under the new law are pleased to call themselves “private attorneys general” following the title of the law “The Labor Code Private Attorneys General Act of 2004." Employer counsel are urging employers to conduct self-audits of all their employment practices to make sure that there are no violations of the Labor Code which make them prey to “bounty hunters” who will be using the new law.

To understand what the private attorneys general/bounty hunters will be doing under the new law, it is best to start with a description of how wage and hour laws were enforced both by employees themselves and by the State of California before January 1, 2004.

The lawsuit “du jour” in this area is the California law overtime claim. Prior to January 1, 2004, there was a contrast between private enforcement and agency enforcement.  Take, for example, a “dot com” business, where every employee receives a monthly salary, where the employees,   “net-slaves,” are expected to work well over forty hours per week, and where none or almost none of the employees qualify under existing exemptions from overtime laws applicable to administrators, managers, or highly-paid computer professionals. Prior to January 1, 2004, if an individual employee brought a claim for overtime, he or she could seek premium pay (at time and a half or double time) for hours worked in excess of eight per day or forty per week, and potential penalties under Labor Code Section 203 of up to thirty days wages for willful violations. In the event of a lawsuit, attorney fees might be awarded under Labor Code Section 1194.  The damages arithmetic would depend on the rate of pay, the daily/weekly work hours, and the length of employment. A significant number of such claims were too small to interest private counsel in taking the case, with the result that they were not pursued at all, or that the employee filed an individual administrative claim with the Labor Commissioner, typically without counsel.

In contrast to the employee individually pursuing a claim, before January 1, 2004,  if the Labor Commissioner audited such an employer and issued a citation, the employer’s exposure was significantly greater than that described above. The Labor Commissioner could issue a citation for all wage and hour violations for every employee, and seek penalties that an individual employee could not seek. In the overtime context, the principal such penalty is under Labor Code Section 558 in the amount of $50 for the first violation per employee, and then $100 per employee per pay period while the violations continue. The damage amount, including penalties was larger when the Labor Commissioner pursued a matter as opposed to an employee, both because of the penalties and the Labor Commissioner’s standing to seek a remedy for all employees.

The problem from a law enforcement perspective is that like so many other state agencies, the Labor Commissioner’s budget is not adequate to police the enormous mass of wage and hour violations. Given violations in sweatshops and “underground economy” situations that make the “dotcom” working conditions discussed above seem benign in comparison, SB796 puts some of the Labor Commissioner’s clout in the hands of private litigants. After January 1, 2004, in the illustration above, an individual will have a larger dollar claim because they can claim the penalties the Labor Commissioner could have obtained, and keep 25% of the penalties recovered. An individual has standing to maintain a class action on behalf of others even if the Labor Code violations vary from class member to class member, and new penalties have been added, so that each violation of the Labor Code now has a penalty. The newly created penalties are $100 per person per pay period for the first violation, and $200 for each subsequent violation.

While in the past significant wage and hour enforcement was often directed at the “biggest fish”

via the class action mechanism (See e.g. Bell v Farmers Insurance Exchange, Calif. Ct. of Appeal, February 9, 2004, 2004 Daily Journal DAR 1440) upholding $90 million overtime Alameda County judgment  based on misclassification of adjusters as exempt from overtime), placing new and added penalties into the arsenal of private litigants can only have the effect of expanding the number of claims that are economically viable to pursue.

Pertinent provisions of Section 2699 include that any civil penalty that the state is entitled to assess for a violation of the Labor Code, “may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees.” (Section 2699(a).)

The law further provides that an aggrieved employee, i.e. one who has been the subject of one or more violations, may recover the civil penalty described in subdivision (e) in a civil action filed on behalf of himself or herself and other current or former employees against whom one or more of the alleged violations was committed. (Section 2699(e)) Thus, an employee who is a subject of one violation is specifically entitled to sue as a representative of employees who have suffered different violations by the same employer.