The Threat from Within: California Employees Become Labor Code Enforcers

On Oct. 12, 2003, then-California Gov. Gray Davis signed Senate Bill 796 into law and created a new private right of action for California employees to enforce most provisions of the Labor Code (with the exception of certain workers' compensation provisions). S.B. 796 will likely have significant implications for all California employers, both for franchisors with either company-owned or franchised units in California, and franchisees operating in the state.

The bill, which became effective on Jan. 1, 2004, allows employees to act as private attorneys general in suing their employers for employment law violations that are not cited by a governmental agency. By providing for civil penalties and lawyers' fees for the successful plaintiff, S.B. 796 might represent full employment for some California lawyers.

Under S.B. 796, private rights of action will now be for wage and hour obligations (including overtime and minimum wage laws), employee classification issues, drug and alcohol rehabilitation requirements, state laws governing layoffs, public works, occupational safety and health, workers' compensation, and a myriad of conditions of employment from A (absences) to Z (zoning and labor camps). (Mercifully, most antidiscrimination and anti-harassment statutes are contained in the Government Code, and thus are not encompassed by this new law.)

We know of no other state that has given employees such open-ended authority to sue their employers.

California's Labor Code is generally enforced by the Labor and Workforce Development Agency (LWDA) and its agencies, which may assess and collect civil penalties for specified violations of the code. Some Labor Code sections also provide for criminal sanctions, which may be obtained through actions by the attorney general and other public prosecutors. With the exception of some of the workers' compensation provisions, all Labor Code provisions may now also be enforced by individual employees.

There are eight main provisions of the bill:

1) An aggrieved employee may now recover a civil penalty through a civil action filed on behalf of himself or herself and others. Labor Code Section 2699(c).

2) Any employee who prevails in any such action is entitled to an award of attorneys' fees and costs. Labor Code Section 2699(f).

3) This new right of action is in addition to any other pre-existing remedies and does not preclude separate or concurrent pursuit of those other remedies. Labor Code Section 2699(f).

4) An aggrieved employee is defined as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Labor Code Section 2699(c).

5) If no existing penalty exists for a particular violation, the bill creates a formula for assessing civil penalties for a violation. “If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.” Labor Code Section 2699(e).”

6) The civil penalties recoverable under the bill are distributed as follows: 1) 50% to the General Fund; 2) 25% to the Department of Labor and Workforce Development for programs aimed at the education of employers and employees about their responsibilities and rights under the Labor Code; and 3) 25% to the aggrieved worker(s). Labor Code Section 2699(h).

7) No civil action by an aggrieved employee to recover civil penalties may be maintained if the LWDA or any of its agencies or employees, relying on the same facts and theories, cites a person for a violation of the Labor Code and initiates proceedings to collect applicable penalties. Labor Code Section 2699(g).

8) The provisions of this bill are not intended to affect the exclusive remedy provisions of the workers' compensation laws. Labor Code Section 2699(j).

Possible Flood of Litigation

A flood of litigation may now confront California employers over virtually any alleged Labor Code violation that is not pursued by a governmental agency. This exposure is not limited to company-owned stores of franchised brands. Plaintiffs' lawyers can attempt to use Labor Code Section 2699, in combination with vicarious liability theories, to sue franchisors directly for alleged Labor Code violations in franchised stores. Because the imposition of vicarious liability is often intensely fact driven, it is not beyond contemplation that franchisors may be held liable for the Labor Code violations of their franchisees.

As an example, even if the California Occupational Safety and Health Administration (Cal/OSHA) does not cite a franchised store for a purported safety violation, an employee may now sue the franchisee and the franchisor (under a vicarious liability theory) and obtain attorneys' fees if the employee prevails. The same is true for minor, alleged Labor Code violations involving documentation and posting of signs.

It is unclear exactly how all of this will work in practice. The bill expressly authorizes employees to file an action on behalf of other employees, but does not explicitly or implicitly define class-certification requirements. Whether pre-existing class certification requirements will apply to actions under the bill remains to be seen. Notably, the bill contains no requirements that employees first exhaust administrative remedies for filing a claim with the appropriate governmental agency. Thus, employees may be free to bypass the LWDA completely and go directly to court.

This new law raises the prospect that plaintiffs' attorneys, unions, and/or various activist groups will train employees to wander around the workplace looking for missing posters, minor safety infractions, and such, in order to set up a civil action to collect penalties and attorneys' fees. In sum, absent corrective action by Gov. Arnold Schwarzenegger and the California legislature, California ' always a scary place for employers ' just got scarier.

On Oct. 12, 2003, then-California Gov. Gray Davis signed Senate Bill 796 into law and created a new private right of action for California employees to enforce most provisions of the Labor Code (with the exception of certain workers' compensation provisions). S.B. 796 will likely have significant implications for all California employers, both for franchisors with either company-owned or franchised units in California, and franchisees operating in the state.

The bill, which became effective on Jan. 1, 2004, allows employees to act as private attorneys general in suing their employers for employment law violations that are not cited by a governmental agency. By providing for civil penalties and lawyers' fees for the successful plaintiff, S.B. 796 might represent full employment for some California lawyers.

Under S.B. 796, private rights of action will now be for wage and hour obligations (including overtime and minimum wage laws), employee classification issues, drug and alcohol rehabilitation requirements, state laws governing layoffs, public works, occupational safety and health, workers' compensation, and a myriad of conditions of employment from A (absences) to Z (zoning and labor camps). (Mercifully, most antidiscrimination and anti-harassment statutes are contained in the Government Code, and thus are not encompassed by this new law.)

We know of no other state that has given employees such open-ended authority to sue their employers.

California's Labor Code is generally enforced by the Labor and Workforce Development Agency (LWDA) and its agencies, which may assess and collect civil penalties for specified violations of the code. Some Labor Code sections also provide for criminal sanctions, which may be obtained through actions by the attorney general and other public prosecutors. With the exception of some of the workers' compensation provisions, all Labor Code provisions may now also be enforced by individual employees.

There are eight main provisions of the bill:

1) An aggrieved employee may now recover a civil penalty through a civil action filed on behalf of himself or herself and others. Labor Code Section 2699(c).

2) Any employee who prevails in any such action is entitled to an award of attorneys' fees and costs. Labor Code Section 2699(f).

3) This new right of action is in addition to any other pre-existing remedies and does not preclude separate or concurrent pursuit of those other remedies. Labor Code Section 2699(f).

4) An aggrieved employee is defined as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Labor Code Section 2699(c).

5) If no existing penalty exists for a particular violation, the bill creates a formula for assessing civil penalties for a violation. “If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.” Labor Code Section 2699(e).”

6) The civil penalties recoverable under the bill are distributed as follows: 1) 50% to the General Fund; 2) 25% to the Department of Labor and Workforce Development for programs aimed at the education of employers and employees about their responsibilities and rights under the Labor Code; and 3) 25% to the aggrieved worker(s). Labor Code Section 2699(h).

7) No civil action by an aggrieved employee to recover civil penalties may be maintained if the LWDA or any of its agencies or employees, relying on the same facts and theories, cites a person for a violation of the Labor Code and initiates proceedings to collect applicable penalties. Labor Code Section 2699(g).

8) The provisions of this bill are not intended to affect the exclusive remedy provisions of the workers' compensation laws. Labor Code Section 2699(j).

Possible Flood of Litigation

A flood of litigation may now confront California employers over virtually any alleged Labor Code violation that is not pursued by a governmental agency. This exposure is not limited to company-owned stores of franchised brands. Plaintiffs' lawyers can attempt to use Labor Code Section 2699, in combination with vicarious liability theories, to sue franchisors directly for alleged Labor Code violations in franchised stores. Because the imposition of vicarious liability is often intensely fact driven, it is not beyond contemplation that franchisors may be held liable for the Labor Code violations of their franchisees.

As an example, even if the California Occupational Safety and Health Administration (Cal/OSHA) does not cite a franchised store for a purported safety violation, an employee may now sue the franchisee and the franchisor (under a vicarious liability theory) and obtain attorneys' fees if the employee prevails. The same is true for minor, alleged Labor Code violations involving documentation and posting of signs.

It is unclear exactly how all of this will work in practice. The bill expressly authorizes employees to file an action on behalf of other employees, but does not explicitly or implicitly define class-certification requirements. Whether pre-existing class certification requirements will apply to actions under the bill remains to be seen. Notably, the bill contains no requirements that employees first exhaust administrative remedies for filing a claim with the appropriate governmental agency. Thus, employees may be free to bypass the LWDA completely and go directly to court.

This new law raises the prospect that plaintiffs' attorneys, unions, and/or various activist groups will train employees to wander around the workplace looking for missing posters, minor safety infractions, and such, in order to set up a civil action to collect penalties and attorneys' fees. In sum, absent corrective action by Gov. Arnold Schwarzenegger and the California legislature, California ' always a scary place for employers ' just got scarier.