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As part of the recent state budget compromise, Gov. Arnold Schwarzenegger in August signed into law SB 1809, a Labor Code measure also known as the “Private Attorney General’s Act of 2004.” The new statute addresses perceived inequities and abuses resulting from the so-called “bounty hunter law” of 2003, which encouraged employees to file lawsuits for minor and technical violations of the Labor Code by providing civil penalties for such violations as well as reasonable attorneys fees. SB 1809 seeks to correct these deficiencies by, among other things, instituting a detailed scheme that requires all administrative remedies to be exhausted before a suit can be filed, as well as judicial oversight of the civil penalties assessed. The prior law, SB 796, authorized suits to recover civil penalties for those provisions of the Labor Code for which a civil penalty was not already provided. It also allocated the distribution of any penalties recovered, with 25 percent going to the aggrieved employee, 25 percent to the Labor Workforce Development Agency (LWDA) and 50 percent to the state general fund. The law was enacted as a result of the Legislature’s acknowledgment that government agency enforcement of the state’s labor laws “had fallen drastically behind the growth in the labor force and would continue to worsen with the state budget crisis.” This measure made it attractive for employees to sue their employers for violations of the state’s wage-and-hour and safety laws under the “bounty hunter” provisions. As employees began filing such suits, however, the potential for abuse quickly became apparent. The assessment of civil penalties created by the statute for previously “non-penalized” violations — set at $100 for each aggrieved employee per pay period for each initial violation and $200 for each aggrieved employee per pay period for each subsequent violation — were automatic. No adjustments were made based on either the employer’s intent to evade the law or the ultimate effect of the violation on employees. Minor violations such as failing to provide employees with the itemized information required on their paycheck stubs could result in massive potential liability, with essentially no defense. For this reason, business groups argued that the new law tipped the balance of labor law protection disproportionately in favor of employees and undermined the governor’s efforts to keep and attract new businesses to the state. These arguments in turn led to the enactment of SB 1809, which was specifically intended “to provide relief to some employers who may be adversely affected by frivolous lawsuits” filed under the earlier bounty hunter law. SB 1809 addresses the perceived inequities in the law in a number of ways. First, the civil penalties that can be collected have been reallocated so that, while 25 percent still goes to the aggrieved employee, the remaining 75 percent is allocated to the LWDA “for the purposes of enforcement and education.” Moreover, a court can award a lesser amount than the maximum civil penalty in any lawsuit brought by an employee seeking to recover civil penalties under the statute if, based on the facts and circumstances of the particular case, doing otherwise would result in an award that is “unjust, arbitrary and oppressive or confiscatory.” A trial court is also required to review and approve any penalty sought as part of a proposed settlement agreement reached in such a suit. In addition, no civil action may be brought for any posting, notice, agency reporting or filing requirement violation of the Labor Code under the new statute except when it involves mandatory payroll or workplace injury reporting. Furthermore, § 431 of the Labor Code, which required employers to file a copy of their employment application forms with the state, has been repealed. The new law also provides for three different kinds of civil actions under Labor Code § 2699.3. Suits under subsection (a) of that statute may be brought only after the aggrieved employee or his representative has given the LWDA and the employer written notice by certified mail of the specific provisions of the code that have allegedly been violated, including the facts and theories to support the alleged violation. If, within 30 calendar days of the date of the employee’s notice, the agency notifies the employer and employee by certified mail that it does not intend to investigate the alleged violation, that employee may file suit. If the LWDA intends to investigate the alleged violation, it is required to notify the employer and employee within 33 days of the employee’s notice and to complete its investigation within 120 days thereafter. The agency may issue a citation for civil penalties within that time period. However, if no citation is issued or if the agency fails to provide timely notification of its decision to issue a citation within 158 days of the employee’s initial notice, the employee may proceed with a civil action. These provisions to require the employee to exhaust all administrative remedies and give notice to the employer and the LWDA, will apply to most alleged violations of the state Labor Code. One section of the new law specifically applies to all civil actions alleging a violation of any provision listed in § 2699.5, which includes more than 100 separate sections of the Labor Code. Among these is § 203, which provides for up to 30 days of waiting-time penalties for the failure to pay all wages due at the time of termination; § 226.7, under which employers must pay an extra hour of wages each work day for missed meal and rest periods; and § 510, which requires overtime payment for more than eight hours of work in one day. Under § 2699.3(b), an employee must first give notice to Cal/OSHA and the LWDA for any alleged violations of the Labor Code commencing with § 6300 (which addresses safety issues). If Cal/OSHA issues a citation, the employee may not sue for civil penalties under the statute. If Cal/OSHA fails to issue a citation, the employee may challenge that decision in superior court. The court, for its part, is required to follow precedents set by the Cal/OSHA Appeals Board in determining whether a citation should be issued. Section 2699.3(c) requires an employee to follow more detailed exhaustion procedures and gives the employer an opportunity to cure alleged violations that are not listed in § 2699.5 or in the safety provisions of the Labor Code commencing with § 6300. Again, the employee must notify the LWDA and the employer of the specific provisions of the code alleged to have been violated. But if the employer cures that violation within 33 days of the notice, the employee is barred from filing a lawsuit. Under the statute, however, no employer may avail itself of the “notice and cure” provisions of subsection (c) more than three times in 12 months for the same violations contained in the notice, regardless of the work site location. If the employee disputes that the alleged violation has been cured, he may provide the employer and the LWDA with written notice specifying grounds of the dispute. The LWDA is required to review the actions taken by the employer to cure the violation and to provide notice of its decision within 17 days. The agency may grant the employer three additional business days to cure the alleged violation, but the employee can proceed with a suit seeking civil penalties if the agency determines that the violation has not been cured or if it fails to provide “timely” or “any” notification. Moreover, if the agency determines that the alleged violation has been cured but the employee still disagrees, he may appeal that decision to the superior court. No procedure for initiating such an action is specified in the statute. The Legislature applied SB 1809 retroactively to Jan. 1, 2004 (the effective date of the bounty hunter law) and stated that the measure shall affect all applicable pending proceedings. It also provided that a plaintiff may amend an existing complaint to add a cause of action alleging compliance with the requirements of the new law within 60 days of complying with its procedural and administrative requirements. It is important to note that the new “exhaustion” requirements contained in § § 2699.3(a), (b) and (c) apply only to suits seeking the recovery of civil penalties under § 2699. They do not apply to lawsuits for overtime violations, unpaid wages, vacation pay or any other relatively routine kinds of violations of California’s labor laws. Because suits seeking civil penalties resulting from violations of those laws are much less common than those to recover unpaid wages and other kinds of penalties provided under the statute, the ultimate effect of the new law may be to make such cases even rarer in the future. Ronald W. Novotny is a partner at Los Angeles’ Hill Farrer & Burrill, where he chairs the firm’s labor and employment practice.

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