Avoiding California Wage & Hour Class Action Suits

Most employers with business operations in states outside of California are generally aware of the employment practices that can lead to collective actions under the federal Fair Labor Standards Act (FLSA). These include:

• Misclassifying employees as independent contractors;
• Misclassifying non-exempt employees as exempt from overtime;
• Not paying non-exempt employees for all hours worked; and
• Not paying non-exempt employees time and one-half overtime pay for hours worked over 40 in a workweek.

National employers also understand and appreciate that collective action lawsuits for violations of the FLSA can lead to significant financial awards including not only the wages owed for up to three years, but also possible liquidated damages equaling the wages owed, and plaintiffs’ attorneys’ fees.

California also provides for actions on behalf of all current and former employees for violations of the same basic types of wage and hour statutory violations. These suits are brought in California not as collective actions but, instead, as class actions under California’s class action statute – Code of Civil Procedure section 382.

While there are some more stringent exempt classification and overtime requirements under California law (i.e., exempt employees must perform non-exempt work in excess of 50% of their workday and must be paid overtime for all hours worked over eight in a workday), there are two additional areas of serious potential employer liability that distinguish California class action cases from those under the FLSA.

These two areas are 1) the significant number of additional specific substantive California wage and hour laws upon which employees may file suit, and 2) the plethora of California statutory and civil penalties that plaintiffs may enforce in connection with even the most modest substantive wage and hour claims.

Additional Labor Code Rights of Employees

The California Labor Code provides many individual rights upon which employees may file suit for which there are no comparable FLSA claims. These statutes include, for example, the non-waivable right to uninterrupted meal and rest periods at specified times during each workday (LC §§ 512 and 226.7), final payment of all wages at the time of termination and within 72 hours of resignation (LC §§ 201 and 202), and immediate vesting of all earned vacation (LC § 227.3). Many of these statutory rights include specified penalties for their breach, which are to be paid directly to the employee (“statutory penalties”).

Other Labor Code sections require specific personnel procedures to be followed by employers for which penalties, payable to the state, are also provided (“civil penalties”). Examples include detailed requirements for what information must be included on all employee pay statements which must be provided with all wage payments (Labor Code § 226(a)), and the requirement for identifying on employee paychecks at least one location in the state where the check can be cashed “without discount” (Labor Code § 212 (a)).

Statutory and Civil Penalties

While the underlying substantive claims that may be brought as class actions on behalf of all current and former employees may be substantial, there is a very significant additional incentive for plaintiffs’ counsel to bring such cases in California. As mentioned above there are specific statutory penalties provided with respect to many claimed Labor Code violations. There are, in addition, civil penalty claims available for violations of every Labor Code section. These additional civil penalties may be sought in class actions by former and current employees under the California Labor Code Private Attorneys General Act of 2004 (PAGA). These civil penalties often dwarf the substantive claims upon which they are based, by millions of dollars. This is because they are assessed per employee, for each pay period in which the violation occurred. An example is the civil penalty for providing wage statements that do not contain all of the required information (LC § 226.3). The civil penalty provided for each violation is $250 per employee, per pay period, from one year prior to the date the class action suit is filed. Claims under this section have been brought based solely upon the inadvertent omission of one required item such as the beginning date of the weekly pay period.

There is one thing that is certain with respect to all wage and hour class actions filed in California. Every class action suit will include at lease one, and sometimes as many as seven, independent claims for either civil or statutory penalties, or both. It is this additional penalty liability that definitely distinguishes California wage and hour class actions from collective actions brought under the FLSA.

What Employers Can Do to Prevent California Wage and Hour Class Action Suits

Initially, all employers with employees in California must take the same basic precautions they would take for FLSA-covered employees working anywhere. These include making certain all employees are properly classified as exempt or non-exempt, and that all non-exempt employees are paid for all hours worked at the appropriate hourly rate. In California, the appropriate overtime rate is time and one-half for all hours worked over eight per day and over 40 per week, and double time for all hours worked over 12 per day and over eight on the seventh day of any workweek.

In addition to these basic classification and hour requirements, California employers must be proactive in ensuring that their pay and other employment practices are compliant with the various requirements of the California Labor Code and applicable Wage Orders of the Industrial Welfare Commission. (The Wage Orders are found at http://www.dir.ca.gov/iwc/wageorderindustries.htm.)

In reviewing compliance, special attention should be paid to the fact that employers must correctly record and report the actual daily hours worked by their non-exempt employees (Labor Code § 1174). Most class actions involve some aspect of improper recording of hours. This includes claims that employees were not provided the full 30 minutes required for their meal periods because the starting and ending times were not properly recorded on the employees’ daily time card.

Other important areas for compliance include the requirement to provide pay statements that contain all of the information specified in Labor Code section 226(a) and making certain that departing employees are paid the full amount of wages owed to them at the time of their termination or within 72 hours, as may be applicable under Labor Code sections 201 and 202. These are good examples of frequent and easy targets for plaintiffs’ counsel in class action cases.

When employing workers in California it is important to remember that even relatively small dollar amount violations of the Labor Code provisions may lead to expensive class action claims for damages and penalties. Taking special efforts to ensure compliance with all Labor Code provisions is, therefore, a prudent approach for all employers to take.