Penalties in California Wage & Hour Suits

California Labor Code § 510 requires employers to pay overtime compensation for hours worked over eight hours per day and 40 hours per week. An employer may avoid paying overtime for hours worked over eight per day by adopting a valid Alternative Workweek Schedule (“AWS”). The procedures for adopting a valid AWS are set forth in Labor Code § 511 and the relevant Industrial Welfare Commission (“IWC”) Wage Order No. 16 (California Code of Regulations, title 8, § 11160, subd. 3(B), 3(C)). Among other things, the law requires an employer to hold a secret ballot election regarding the AWS amongst its employees and to file the results of the election with the State. Prior to the election, the employer must issue a written notification to the affected employees, explaining the election process and the effects of the AWS on the employees’ work schedule and compensation.

Labor Code § 226.7 prohibits employers from requiring an employee to work during any meal or rest period mandated by the relevant IWC Wage Order. Wage Order No. 16 requires employers to authorize and permit its employees to take one 30-minute meal break for every 5 hours of work. 8 C.C.R. § 11160, subd. 10. Employees are entitled to one hour of pay per day in which the employer fails to authorize and permit a legally complaint meal period. Id.; Labor Code § 226.7(c).

Labor Code § 226(a) requires employers to furnish accurate, itemized wage statements to each of its employees showing, inter alia, the total hours the employee worked during the pay period and the applicable pay rate. Section 226(e) gives each injured employee the right to collect statutory penalties for an employer’s knowing and intentional failure to provide accurate wage statements—$50 for the initial violation and $100 for each subsequent pay period in which there is a violation, up to a maximum of $4000 per employee. Clearly, overtime rates and wages should be reported on wage statements. Furthermore, meal period premium wages constitute wages for the purposes of inaccurate wage statement penalties. Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094, 1114 (2007) (missed-break premium wages are part of an employee’s wages earned); Avilez v. Pinkerton Government Services, 286 F.R.D. 450 (C.D. Cal. 2012) (“[I]f an employer fails to provide appropriate meal breaks . . . and also fails to record the premium accrued as a result . . . the employer has not kept accurate records and so also violates Section 226(a).”).

Labor Code § 201(a) requires an employer to pay all wages owed to employees immediately upon termination. If the employer willfully fails to do so, the employer must pay the aggrieved employees 30-days’ pay as an individually-recoverable statutory penalty under Labor Code § 203. Missed-break premium wages constitute wages for the purposes of waiting time penalties. Murphy, supra, 40 Cal.4th 1094, 1114 (missed-break premium wages are part of an employees’ wages earned); Avilez, supra, 286 F.R.D. 450. Pursuant to Labor Code § 203(b), the statute of limitations for these “waiting time” penalties is the same as that for the underlying wages owed.

“Wilfulness” in the context of waiting time penalties just means “intentional.” “’[T]o be at fault within the meaning of [section 203], the employer’s refusal to pay need not be based on a deliberate evil purpose to defraud workmen of wages which the employer knows to be due. As used in section 203, ‘wilful’ merely means that the employer intentionally failed or refused to perform an act which was required to be done.’” Armenta v. Osmose, Inc., 135 Cal.App.4th 314, 325 (2005) (quoting Barnhill v. Robert Saunders & Co., 125 Cal.App.3d 1, 7 (1981)). Thus, if an employer intended to pay its discharged employees the specific amount that was actually paid, and the amount did not include unpaid overtime and premium wages, then the underpayment was wilful.

“An employer’s good faith mistaken belief that wages are not owed may negate a finding of wilfulness.” Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., 102 Cal.App.4th 765, 782–783 (2002). In Road Sprinkler the employer misclassified its employees as exempt and failed to pay them overtime. The employer argued that its failure to pay the employees their overtime wages upon termination was not wilful, for the purposes of waiting time penalties, since it believed in good faith that it its employees were exempt. The court rejected that argument, holding that, in order to negate wilfulness, a good faith mistaken belief has to be reasonable. In that case it was clear from existing law that the employees were non-exempt, so the employer’s subjective belief that the employees were exempt was unreasonable. Thus, the court upheld waiting time penalties.

The Labor Code Private Attorneys General Act of 2004 (Labor Code § 2698 et seq.) (“PAGA”) deputizes private parties to collect civil penalties for Labor Code violations. Arias v. Superior Court, 46 Cal.4th 969, 986 (2009) (“An employee plaintiff suing, as here, under [PAGA] does so as the proxy or agent of the state’s labor law enforcement agencies.”). “When proven, Labor Code violations give rise to civil penalties.” Amaral v. Cintas Corp. No. 2, 163 Cal.App.4th 1157, 1195 (2008). “Imposition of civil penalties has, increasingly in modern times, become a means by which legislatures implement statutory policy.” Hale v. Morgan, 22 Cal.3d 388, 398 (1978); Starving Students, Inc. v. Department Of Industrial Relations, 125 Cal.App.4th 1357, 1367 (2005). Without penalties, employers are encouraged to violate the labor code because doing so would be a zero-sum game—they would just owe the unpaid wages if they got sued. Thus, penalties are an essential part of California’s wage-and-hour protections.

Where the Labor Code does not provide a penalty for a particular violation, PAGA establishes a default penalty of $100 per employee per pay period for an initial violation and $200 per employee per pay period for subsequent violations. Labor Code § 2699(f). Since the Labor Code does not provide any civil penalty specifically for overtime and meal period violations, the PAGA default penalty applies. Thurman v. Bayshore Transit Management, Inc., 203 Cal.App.4th 1112, 1134 (2012); Home Depot U.S.A., Inc. v. Superior Court, 191 Cal.App.4th 210, 218 (2010). Thus, Section 2699(f) penalties apply.

Labor Code § 204 requires employers to, every pay period, pay its employees their wages earned for that pay period. Labor Code § 210 subjects employers to a penalty for failing to do so. The penalty is $100 per employee per pay period for an initial violation and $200 per employee per pay period for subsequent violations, plus 25% of the unpaid amount. Section 210 states that the penalty is “In addition to, and entirely independent and apart from, any other penalty.” Since employees are immediately entitled to overtime when they work over 8 hours per day and to premium wages whenever they miss a break, those wages must be paid to the employee at the end of the pay period during which the wages accrued. Murphy, supra, 40 Cal.4th at 1108.

Labor Code § 558 subjects employers to penalties for violating any provision of any IWC Wage Order regulating hours of work. The penalty is $50 per employee per pay period for an initial violation and $100 per employee per pay period for subsequent violations. Section 558 penalties are “in addition to any other civil or criminal penalty provided by law.”

Labor Code § 226.3 subjects employers to a civil penalty for wage statement violations. The penalty is $250 per employee per violation for an initial citation and $1000 per employee per violation for subsequent citations. Penalties under this section are discretionary if the violation was due to a “clerical error or inadvertent mistake.” Labor Code §§ 226.3, 2699(e)(1). “Inadvertent” in this context means “unintentional, accidental or not deliberate.” Heritage Residential Care, Inc. v. DLSE, 192 Cal.App.4th 75, 83–86 (2011).

There are many public policy considerations that favor the use of class actions in the employment context in California. First, individual awards in employment cases tend to be modest so the availability of a class action claim plays an important function by permitting employees a relatively inexpensive way to resolve their disputes. Additionally, class actions allow many employees, who may not otherwise file an individual suit due to fear of retaliation, to safely have their day in court as a member of the class. Class actions also serve to inform and protect employees who, for one reason or another, may not otherwise become aware that their rights are even being violated. These factors weigh so heavily in favor of class action treatment for wage and hour claims that there is sometimes justification for class certification in cases where certain statutory requirements for certification are “otherwise questionable.” See, e.g., Gentry v. Super. Ct., 42 Cal.4th 443, 459-61(2007). Meal and period claims are specifically suited to class treatment. See Brinker Rest. Corp., 53 Cal.4th at 1033 (certifying a California class with meal and rest break claims).

A class may be certified under Federal Rule of Civil Procedure (“FRCP”) Rule 23 if (1) the class is so numerous that joinder of all members individually is “impracticable”; (2) questions of law or fact are common to the class; (3) the claims or defenses of the class representative are typical of the claims or defenses of the class; and (4) the person representing the class is able to fairly and adequately protect the interests of all members of the class. FRCP, Rule 23(a). Applying this standard, numerous cases similar to this case have certified classes of retail employees, who have suffered wage and hour violations under California law. See Brewer v. Gen. Nutrition Corp., No. 11-CV-3587 YGR, 2014 WL 5877695 (N.D. Cal. Nov. 12, 2014) (certifying California Rule 23 class in a case ascertaining similar wage and hour violations for non-exempt, hourly employee working as Sales Associates and Assistant Managers for GNC).

The commonality requirement of FRCP, Rule 23(a)(2) “is met if there is at least one common question or law or fact.” Fry v. Hayt, Hayt & Landau, 198 F.R.D. 461, 467 (E.D. Pa. 2000). As the Ninth Circuit held in Hanlon: Rule 23(a)(2) has been construed permissively. Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998). Plaintiff “need not show that every question in the case, or even a preponderance of questions, is capable of classwide resolution . . . a single common question” satisfies commonality. Wang v. Chinese Daily News, Inc., No. 08-55483, 2013 WL 4712728 (9th Cir. Sept. 3, 2013)). Furthermore, the existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class. Hanlon, 150 F.3d at 1019. Rule 23(b)(3) requires Plaintiff to demonstrate that these common questions predominate over questions that affect only individual putative subclass members. “When the claim is that an employer’s policy and practices violated labor law, the key question for class certification is whether there is a consistent employer practice that could be a basis for consistent liability.” Kamar v. Radio Shack Corp. 2008 WL 4552953 *10 (C.D. Cal. October 8, 2008). Thus, where the employer has a uniform policy that is uniformly applied, the appropriateness of class certification is “easily established.” Id. 

“Rule 23(a)(3) requires that the claims of the named parties be typical of the claims of the members of the class.” Fry, 198 F.R.D. at 468. “Under the rule’s permissive standards, a representative’s claims are ‘typical’ if they are reasonably coextensive with those of absent class members; they need not be substantially identical.” Hanlon, 150 F.3d at 1020. To satisfy the requirement of typicality, “a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.” Gen. Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 156 (1982).

In reality, an employee need not even resort to class certification in order to obtain substantial recovery for all aggrieved employees since they can obtain relief as a private attorney general under PAGA. PAGA representative actions do not have to comply with class action requirements because PAGA actions are law enforcement actions, and a plaintiff is authorized to investigate and prove Labor Code violations just as the State would. Arias v. Superior Court, 46 Cal.4th 969, 981 (2009) (“An employee need not satisfy class action requirements to bring a representative action against an employer under [PAGA].”).