BILL ANALYSIS
SB 796
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Date of Hearing: July 9, 2003
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Paul Koretz, Chair
SB 796 (Dunn) - As Amended: July 2, 2003
SENATE VOTE : 21-14
SUBJECT : Employment.
SUMMARY : Establishes an alternative "private attorney general"
system for labor law enforcement that allows employees to pursue
civil penalties for employment law violations. Specifically,
this bill enacts the "Labor Code Private Attorneys General Act
of 2004" which:
1) Establishes a civil penalty where one is not specifically
provided under the Labor Code of $100 for each aggrieved
employee per pay period for an initial violation, and $200
for each aggrieved employees per pay period for subsequent
violations. The penalty would be $500 per violation for a
violator who is not an employer.
2) Authorizes aggrieved employees to sue to recover civil
penalties under the Labor Code in an action brought on behalf
of himself or herself and other current or former employees
against whom one or more of the alleged violations was
committed. However, no private action may be maintained
where the Labor and Workforce Development Agency (LWDA) or
any of its subdivisions initiates proceedings against the
alleged violator on the same facts and theories and under the
same section or sections of the Labor Code.
3) Defines an "aggrieved employee" as "any person who was
employed by the alleged violator and against whom one or more
of the alleged violations was committed."
4) Provides that civil penalties recovered against a person that
employs one or more employees shall be distributed as
follows: 50% to the General Fund, 25% to the Labor and
Workforce Development Agency (LWDA) for employer and employee
education, and 25% to the aggrieved employees. Civil
penalties recovered against persons that do not employ one or
more employees are to be divided evenly between General Fund
and the LWDA.
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5) Provides for the award of reasonable attorney's fees and
costs to an aggrieved employee who prevails in such an
action.
EXISTING LAW
1) Authorizes the LWDA (comprised of the Department of
Industrial Relations, the Employment Development Department,
the Agricultural Labor Relations Board, and the Workforce
Investment Board) to assess and collect civil penalties for
violations of the Labor Code, where specified.
2) Authorizes an individual employee to file a claim with the
Labor Commissioner alleging that his or her employer has
violated specified provisions of the law, and to sue the
employer directly for damages, reinstatement, and other
appropriate relief.
3) Authorizes the Attorney General and other public prosecutors
to seek appropriate injunctive relief and file criminal
charges against employers for criminal violations of the
Labor Code, where specified.
4) Further provides that any person acting for itself, its
members, or the general public, may sue to enjoin any
unlawful, unfair, or fraudulent business act or practice, and
to recover restitution and other appropriate remedies.
FISCAL EFFECT : This measure was approved by the Senate
Appropriations Committee pursuant to Senate Rule 28.8.
COMMENTS : Generally, civil enforcement statutes allow civil
penalties to be recovered only by prosecutors, not by private
litigants. Private plaintiffs who have been damaged by a
statutory violation usually are restricted to traditional damage
suits, or where damages are difficult to prove, to "statutory
damages" in a specified amount or range.
The Labor Code is enforced by the LWDA and its various
subordinate entities, 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.
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The State of Labor Law Enforcement in California
At issue in this bill is the appropriate role of employees in
protecting their rights under the Labor Code when the government
entity mandated to enforce the Labor Code is unable to do so
adequately due to budgetary and staff constraints. The bill's
intent language states that "adequate financing of essential
labor law enforcement functions is necessary to achieve maximum
compliance with state labor laws" and that [s]taffing levels for
state labor law enforcement agencies have, in general, declined
over the last decade and are likely to fail to keep up with the
growth of the labor market in the future."
In 2001, the Assembly Committee on Labor and Employment
conducted hearings regarding the effectiveness and efficiency of
the enforcement of wage and hour laws by the Department of
Industrial Relations (DIR). The committee reported that in
fiscal year 2001-2002, the Legislature appropriated over $42
million to the Division of Labor Standards Enforcement (DLSE)
within DIR for the enforcement of over 300 laws under its
jurisdiction. The DIR's authorized staff numbered over 460,
making it the largest state labor law enforcement organization
in the country.
Nevertheless, evidence indicated that the DIR was failing to
effectively enforce labor law violations. Estimates of the size
of California's "underground economy" - businesses operating
outside the state's tax and licensing requirements - ranged from
60 to 140 billion dollars a year, representing a tax loss to the
state of three to six billion dollars annually. Further, a U.S.
Department of Labor study of the garment industry in Los
Angeles, which employs over 100,000 workers, estimated the
existence of over 33,000 serious and ongoing wage violations by
the city's garment industry employers, but that DIR was issuing
fewer than 100 wage citations per year for all industries
throughout the state.
Moreover, evidence demonstrates that the resources dedicated to
labor law enforcement have not kept pace with the growth of the
economy in California. California's enforcement agencies are
responsible for protecting the legal rights of over 17 million
California workers and regulating almost 800,000 private
establishments, in addition to all the public sector workplaces
in the state (U.S. Census Bureau 1999). However, according to
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a recent study, the resources available to the labor enforcement
divisions remain below the levels of the mid-1980s. (Bar-Cohen,
Limor and Deana Milam Carillo. "Labor Law Enforcement in
California, 1970-2000." The State of California Labor . (2002),
p. 135). According to the same study, between 1980 and 2000
California's workforce grew 48 percent, while DLSE's budgetary
resources increased only 27 percent and Cal/OSHA's actually
decreased 14 percent. Similarly, DLSE and Cal/OSHA staffing
levels have decreased 7.6 percent and 10.8 percent,
respectively, over the last two decades.
As a result of the legislative hearings discussed above, the
Legislature enacted AB 2985 (Assembly Committee on Labor and
Employment), Chapter 662, Statutes of 2002, requiring the LWDA
to contract with an independent research organization to study
the enforcement of wage and hour laws, and to identify state and
federal resources that may be utilized to enhance enforcement.
The completed study is to be submitted to the Legislature by
December 31, 2003.
Arguments in Support :
The co-sponsors of the measure, the California Labor Federation,
AFL-CIO and the California Rural Legal Assistance (CRLA)
Foundation, argue that this bill will address inadequacies in
labor law enforcement in two major ways. First, this bill
assigns nominal civil fine amounts to the large number of Labor
Code provisions which currently carry criminal, but not civil,
penalties. Second, it authorizes the filing of civil actions to
recover existing and new civil penalties by aggrieved workers
acting as private attorneys general.
The sponsors state that many Labor Code provisions are
unenforced because they are punishable only as criminal
misdemeanors, with no civil penalty or other sanction attached.
Since district attorneys tend to direct their resources to
violent crimes and other public priorities, Labor Code
violations rarely result in criminal investigations and
prosecutions. The CRLA Foundation cites the resurgence of
violations of Labor Code prohibitions against the "company
store," as an example of the need for this bill. This occurs,
for example, when the employer coerces the employee to purchase
goods at that store. Currently, violations of these code
sections are misdemeanors but no civil penalty is attached. The
CRLA Foundation notes that the bill's proposed penalty structure
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is "nominal" and is based on existing provisions of the Labor
Code.
Proponents also contend that the state's current inability to
enforce labor laws effectively is due to inadequate staffing and
the continued growth of the underground economy. This
inability, coupled with the state's severe budgetary shortfall
requires a creative solution that will help the state crack down
on labor law violators. Therefore, private actions to enforce
the provisions of the Labor Code are necessary to ensure
compliance with the law.
In addition, the sponsors claim that recent hiring freezes and
elimination of vacant positions announced in response to the
budget crisis may dramatically impact the LWDA and its
enforcement activities.
Arguments in Opposition :
Opponents contend that this bill tips the balance of labor law
protection in disproportionate favor to the employee to the
detriment of already overburdened employers. Several employer
groups, including the California Chamber of Commerce, cite the
fact that employees are entitled to attorney's fees and costs if
they prevail in their action under this bill, yet similar
attorney's fees and costs are not provided for prevailing
employers. Additionally, opponents cite the fact that there is
no requirement imposed upon employees prior to filing civil
action such as preliminary claim filing with the Labor
Commissioner.
Opponents also expresses concern that this bill will encourage
private attorneys to "act as vigilantes" pursuing frivolous
violations on behalf of different employees. Opponents liken
the danger of the bill to recent alleged abuse of Business and
Professions Code Section 17200. Representative of this
sentiment is the California Landscape Contractors Association,
who notes:
[This bill] will create an entirely new litigation arena
that will encourage
employees, particularly employees who were terminated or
subject to a
disciplinary action, to file retaliatory claims against
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their employer. As we
have seen with similar causes of action under Section
17200?, innocent
businesses will be pressured to settle these claims because
of the high cost
of defense and the relatively small amounts involved.
Opponents also contend that California already has a formal
administrative procedure to handle these type of claims under
the Labor Code that is both economical and efficient.
Relationship Between SB 796 and the "Unfair Competition Law"
(UCL) :
As discussed above, some opponents have expressed concern about
the relationship between this bill and the "Unfair Competition
Law" (UCL), Section 17200, et seq., of the Business and
Professions Code. As reported in press accounts and further
illuminated by a joint legislative hearing conducted earlier
this year by the Senate and Assembly Committees on Judiciary,
there have been allegations of abuse of the UCL by certain law
firms and individual attorneys. In light of the recent
attention focused on the UCL, a brief discussion of that law's
relationship to this bill, and the arguments thereto on both
sides, is warranted here.
California law has contained a statute prohibiting "unfair"
practices in competition since the first Civil Code was enacted
in 1872. Numerous amendments to the UCL and case law
interpreting its provisions have provided broad and expansive
protections to California consumers to prevent businesses from
using unfair practices to gain advantage over competitors.
Based on the underlying premise that such anti-competitive
behavior creates an unfair playing field to the detriment of
consumers, the law has since been used to protect consumers from
instances of unfair, unlawful or fraudulent behavior.
Although the UCL permits private actions to enjoin unlawful
business acts, the sponsors assert that it is an inadequate tool
for correcting Labor Code violations. First, the UCL only
permits private litigants to obtain injunctive relief and
restitution, which the sponsor claim is not a sufficient
deterrent to labor law violations. Second, since the UCL does
not award attorney's fees to a prevailing plaintiff, few
aggrieved employees can afford to bring an action to enjoin the
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violations. Finally, sponsors assert that since most employees
fear they will be fired or subject to hostile treatment if they
file complaints against their employers, they are discouraged
from bringing UCL actions.
Opponents, on the other hand, argue that this measure, if
enacted, will result in abuse similar to that alleged involving
the UCL. For example, the Civil Justice Association of
California (CJAC) argues that this bill will expose businesses
to frivolous lawsuits and create a new litigation cottage
industry for unelected private attorneys performing the duties
of a public agency whose staffs are responsible to the general
public. CJAC argues that similar private attorney general
actions have resulted in an excessive amount of meritless,
fee-motivated lawsuits. Allowing such "bounty hunter"
provisions will increase costs to businesses of all sizes, and
add thousands of new cases to California's already over-burdened
civil court system.
Similarly, the California Motor Car Dealers Association, writing
in opposition to the bill, states, "a private enforcement
statute in the hands of unscrupulous lawyers is a recipe for
disaster."
The sponsors are mindful of the recent, well-publicized
allegations of private plaintiffs abuse of the UCL, and have
attempted to craft a private right of action that will not be
subject to such abuse, pointing to amendments taken in the
Senate to clarify the bill's intended scope. First, unlike the
UCL, this bill would not open up private actions to persons who
suffered no harm from the alleged wrongful act. Instead,
private suits for Labor Code violations could only be brought by
an "aggrieved employee" - an employee of the alleged violator
against whom the alleged violation was committed.
Second, a private action under this bill would be brought by the
employee "on behalf of himself or herself and other current or
former employees" - that is, fellow employees also harmed by the
alleged violation - instead of "on behalf of the general
public," as private suits are brought under the UCL.
Third, the proposed civil penalties are relatively low. Most of
the penalty recover would be divided between the LWDA (25
percent) and the General Fund (50 percent), and the remaining 25
percent would be divided between all identified employees
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aggrieved by the violation, instead of being retained by a
single plaintiff. The sponsors contend that this distribution
of penalties would discourage any potential plaintiff from
bringing suit over minor violations in order to collect a
"bounty" in civil penalties.
Finally, the bill provides that no private action may be brought
when the LWDA or any of its subdivisions initiates proceedings
to collect penalties on the same facts or theories under the
same code provisions.
Related Legislation :
AB 276 (Koretz) of 2003 increases various civil penalties under
the Labor Code, many of which have not been increased for
decades. AB 276 is currently pending before the Senate
Committee on Labor and Industrial Relations.
REGISTERED SUPPORT / OPPOSITION :
Support
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Independent Public Employees Legislative Council
California Labor Federation, AFL-CIO
California Pipe Trades Council
California Rural Legal Assistance Foundation
California State Association of Electrical Workers
California Teamsters Public Affairs Council
Engineers and Scientists of California, Local 20
Hotel Employees, Restaurant Employees International Union
Peace Officers Research Association of California (PORAC)
Professional and Technical Engineers, Local 21
Region 8 States Council of United Food & Commercial Workers
Sierra Club California
Western States Council of Sheet Metal Workers
Opposition
Alliance of American Insurers
Associated Builders and Contractors of California
Association of California Water Agencies
California Apartment Association
California Chamber of Commerce
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California Landscaper Contractors Association
California Manufacturers & Technology Association
California Motor Car Dealers Association
California Restaurant Association
Civil Justice Association of California
Motion Picture Association of America, California Group
Wine Institute
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091