CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2004 No.12
July 30, 2004

Vol 2004 No. 12 July 30, 2004

Private Attorneys General Law Scaled Back
in Budget Accord

California employers are among the winners as the legislature worked out the final details of the state budget. The bonus comes not in the form of more favorable tax treatment, but in a significant scaling back of last year's SB 796, sometimes referred to as the employer "bounty hunter" law conceived and crafted by the plaintiffs bar. That law permits any employee to sue his or her employer or former employer for any violation of the California Labor Code.

Background

Like the state's notorious Business & Professions Code Section 17200, SB 796 allows individuals to act as "private attorneys general" by suing employers on behalf of themselves or other employees. Through this single legislative act, the entirety of the Labor Code-representing decades of legislative efforts to balance the interests of employers and employees-was turned into a fertile field for trial lawyers.

SB 796 sets civil penalties for each violation, and awards the aggrieved employee 25% of the penalties imposed, with the remainder allocated to state employment agencies and a general fund. Not surprisingly, the law, which became effective on January 1 this year, has already spawned numerous law suits, among them, high-dollar claims based on employer posting violations.

Because an aggrieved person suing in a representative capacity would have broad powers to seek information pertaining to the employer's employment practices, and because the employer must pay the plaintiff's attorneys fees unless it undertakes the enormous costs of defending the suit and prevailing, plaintiffs have tremendous leverage under the statute to extract large settlements based on the slightest violations.

The amendments contained in the budget deal are intended to temper the more egregious effects of the statute by erecting sensible procedural requirements that have to be met before a law suit can be filed, granting courts more authority over settlements and awards, and eliminating outright more frivolous claims.

Summary

Administrative remedies and right to cure. Before an employee may sue for statutory civil penalties, he or she is first required to give written notice by certified mail to one of two agencies and to the employer. The notice must specify the provisions of the Labor Code alleged to have been violated, including the facts and theories to support the claim. Which agency must be notified and what happens next depend on the nature of the claim.

Serious, non-safety claims. If the claim arises from a provision of the Labor Code identified in Section 2699.5, then the notice is submitted to the Labor and Workforce Development Agency (Labor Agency). These are provisions of the Labor Code that are identified as more substantive and not subject to an employer's right to cure. If the Labor Agency notifies the employer and employee that it does not intend to investigate, or it fails to respond in a timely manner, then the employee may commence suit in court.

Safety violations. If the potential claim arises from an alleged safety violation (pursuant to Section 6300 and following) , the notice goes to the Division of Occupational Safety and Health (OSH) with a copy to the Labor Agency. At that point, OSH "shall" inspect or investigate, and if it issues a citation, the employee may not pursue the suit. If for some reason the OSH does not investigate, the employee may sue under the procedures described below, in which the employer has the right to cure a violation. As to these safety violation claims, the employee has access to the courts to challenge an OSH action.

An employee may not submit a notice or commence a suit when the employer has voluntarily entered into a consultation with OSH to ameliorate a worksite condition. Conversely, an employer may not, as a means of avoiding an employee action, enter into such a consultation with the OSH after the action has already commenced.

Less serious, non-safety claims. If the potential claim arises from provisions of the Labor Code not listed in Section 2699.5 and does not involve alleged safety violations, then the notice is given to the Labor Agency, and the employer has 33 days to cure the violation before a suit may be brought. This means that the employer has abated the violation, is in compliance with the statute in question, and the employee has been made whole. Only if the violation is not cured in a timely fashion may the employee commence a suit.

Procedures are available to resolve disputes about the sufficiency of a cure, as well as a means for an employee to appeal an agency decision to the superior court.

Court supervision. The amendments contemplate a much larger role for courts in SB 796 cases. While most claims will be settled out of court, all settlements must be reviewed and approved by a court before they become final. This provision applies retroactively to January 1, 2004, so pending settlements are affected. Also, a court may award a lesser amount than the maximum civil penalty. With regard to settlements arising from alleged safety violations, the court must also ensure that the settlement is at least as effective as the protections or remedies provided by state and federal statutes applicable to the alleged violations.

No claim for minor infractions. An employee suit based on a violation of a posting, notice, agency reporting, or filing requirement is prohibited outright, unless it pertains to mandatory payroll or workplace injury reporting. Agencies retain the authority to enforce these violations and collect civil penalties. Because this change is made effective retroactively as of January 1, 2004, cases filed this year based on such requirements could be dismissed.

Filing of employment applications. One of the more arcane provisions of the Labor Code is the requirement for an employer to file with the Director of Labor Standards Enforcement any job application form that is required to be signed by a job applicant. It was quickly recognized after SB 796 was passed that this provision, which even the agency ignored, could immediately subject a vast number of California employers to civil penalties. This provision is now repealed.

No retribution for action or notice under SB 796. Under existing law, an employer is prohibited from discharging or otherwise discriminating against an employee or applicant for engaging in certain protected activities. The amendments would explicitly protect an employee or applicant from retribution for initiating any action or notice under SB 796.

These amendments are effective immediately upon execution by the governor. If you have any questions, you may contact Leland Chan, CBA general counsel at lchan@calbankers.com.