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