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Employers and the Labor Code Private Attorneys General Act of 2004
by: Michael W. Pott
On January 1, 2004, Labor Code section 2699, the Labor Code Private Attorneys General Act of 2004, went into effect in California. The statute allows employees to sue their employers for most violations of the Labor Code without first pursuing their claims with the California Labor Commissioner. Under this law, employees can sue for civil penalties and collect their attorneys’ fees and costs if they prevail. It is anticipated that this law will have a negative financial impact on employers as it opens the door for civil penalties to be awarded for technical violations of the Labor Code when such violations do not have any negative impact on the suing employee.
Historically, the Labor Code has been enforced by the California Labor and Workforce Development Agency (LWDA) and its subdivisions. The LWDA was authorized to assess civil penalties for specific violations of the Labor Code. However, a concern existed that Labor Code violations were going unenforced and unpunished and that an underground economy of businesses was operating outside California’s tax and licensing requirement which resulted in an estimated loss of three to six billion dollars in potential taxes annually. To address these concerns, California State Senator Joseph Dunn introduced Senate Bill 796 (now Labor Code section 2699).
Labor Code section 2699 provides that an aggrieved employee may bring a civil action on behalf of himself or herself and other current or former employers to recover civil penalties for violations of the Labor Code, with the exception of a few of the workers’ compensation provisions. If a specific civil penalty does not exist for a Labor Code violation, this statute establishes a civil penalty of $500 if the person does not employ one or more employees, $100 for each aggrieved employee per pay period for an initial violation and $200 for each aggrieved employee per pay period for each subsequent violation. A prevailing employee is also entitled to an award of reasonable attorneys’ fees and costs. Civil penalties recovered by an employee are to be distributed as follows: 50 percent to the State’s General Fund, 25 percent to the LWDA for education of employers and employees about their rights and responsibilities under the Labor Code and 25 percent to the aggrieved employee. No civil action by an employee can be maintained if the LWDA or any of its agencies cites a person for a violation of the Labor Code and initiates proceedings to collect applicable penalties under the same facts and theories as the aggrieved employee.
The practical effect of this legislation for employers is that they must be wary of all of the rules contained in the Labor Code and make sure they are complying with each as a violation of any one could result in a lawsuit by an employee. Such lawsuits can run the gamut from being sued for a purported safety violation to being sued for failing to post signs. Moreover, depending upon the length of time an alleged violation has occurred, the penalties assessed on a per pay period basis could be very substantial.
The possible extent of a civil penalty award can be seen in a recent action filed in Ventura County wherein the employee alleges the employer violated Labor Code section 1102.8 from January 1, 2004 until February 2004 by failing to prominently display the telephone number of the whistleblower hotline. The employee also alleges the employer has: violated Labor Code section 1183 since 1999 by failing to post the Industrial Welfare Commission Order referenced in that code section; violated Labor Code section 3550 by failing to post the name of the current workers compensation carrier in a conspicuous place; and violated Labor Code section 431 by failing to file any application of employment which an employee is required to sign with the Labor Commissioner.
While some outcry by employers has been raised with the legislature, there is little minimal positive action to report at this time. Assembly Bill 2181, which was introduced to repeal Labor Code section 2699, did not pass. Assembly Bill 2650 would exclude all employers with less than 100 employees within a 75 mile radius from section 2699, but it too failed to pass. Senate Bill 1861 would require employees to first file a complaint with one of the labor agencies and allow the employees to sue if their complaints are not acted upon within 60 days of filing. This bill also failed to pass. Rehearing has been granted for all three bills.
Finally, the Senate recently passed SB 1809 which provides for three main amendments to Labor Code section 2699. First, before filing suit, an employee must report the alleged violation to the LWDA in writing. If no enforcement action is commenced withing fifteen days, then the employee can file suit in court. Unfortunately, this amendment will likely have little or no effect as it is highly doubtful the LWDA, which is already overburdened and underfunded, would have the ability to conduct appropriate intake and investigation into allegations so as to be in a position to commence an enforcement action within fifteen days of receipt of written notification of a violation.
The second main amendment would give the courts discretion to award a lesser amount than the amounts specified in Labor Code section 2699 depending on the facts of this case. The courts would have this discretion if a penalty calculation would result in a penalty that is unfair, arbitrary, or oppressive, or if the penalty would be disproportionate to the legislative goal. As there are no clear guidelines regarding what this means, it is difficult to anticipate what situations could result in a lesser penalty. The third main amendment would leave the recovery of civil penalties for posting or notice violations to the Labor and Workforce Development Agency or its subdivisions. Thus, employees would not be able to bring a lawsuit for such violations.
Absent the enactment of SB 1809 or some other amendment to Labor Code section 2699, employers must be wary that any violation of the Labor Code may result in a lawsuit for civil penalties and attorneys’ fees. If employers are concerned about this, they would be well-advised to address their concerns with their legislators while there is so much activity in the legislature regarding the matter.
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