BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: April 28, 2010 2009-2010 Regular
Session
Consultant: Alma Perez Fiscal:No
Urgency: Yes
Bill No: SB 989
Author: Hollingsworth
Version: As amended April 15, 2010
SUBJECT
Labor Code Private Attorneys General Act of 2004
KEY ISSUE
Should the Legislature require parties to a case, pursuant to
the Private Attorneys General Act (PAGA), to serve notice of a
proposed settlement to the Labor and Workforce Development
Agency (LWDA) prior to filing the request for approval in
superior court?
Should the Legislature require parties to notify the LWDA of a
settlement in a case that the agency chose not to litigate?
PURPOSE
To amend the Private Attorneys General Act to make an additional
requirement of a party seeking court approval of a civil action
settlement brought under the PAGA.
ANALYSIS
Existing law provides that the Labor and Workforce Development
Agency (LWDA) and its various departments, divisions,
commissions, boards, agencies or employees may assess and
collect penalties for violations of the Labor Code.
Under existing law, the Private Attorneys General Act of 2004
(PAGA) allows aggrieved employees to bring civil actions to
recover penalties for violations of the Labor Code if the LWDA
or its departments, division, commissions, board, agencies or
employees do not do so. Existing law 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 employee per pay
period for subsequent violations. The penalty is $500 per
violation where the violator does not employ any employees at
the time of the violation.
Under existing law , the penalties collected in these actions are
distributed 75% to the agency (LWDA) to be continuously
appropriated for purposes of enforcement and education of
employers and employees about their rights and responsibilities
under the Labor Code and 25% to the aggrieved employee, except
that if the person does not employ one or more persons, 100% of
the penalties collected are distributed to the agency by
continuous appropriation.
In addition, existing law provides that the aggrieved employee
is authorized to recover attorney's fees and costs and, in some
cases, penalties. However, an aggrieved employee may recover
these penalties only after complying with specified procedural
and administrative requirements and providing specified written
notice to the agency and to the employer of the specific
provisions of the code alleged to have been violated, including
the facts and theories to support the alleged violation. (Labor
Code 2699.3) The specific procedural and administrative
requirements vary depending on which section of Labor Code is
alleged to have been violated and for which civil penalties are
sought.
Existing law provides that no private right of action may be
maintained where the LWDA or any of its subdivisions cites the
alleged violator on the same facts and theories and under the
same section or sections of the Labor Code, or initiates
specified proceedings. In certain cases, the employer may cure
the alleged violation, as defined, and if found to have
corrected the violation, no civil action may commence, as
specified.
Existing law requires a court, in any action by an aggrieved
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Senate Committee on Labor and Industrial Relations
employee seeking recovery of a civil penalty pursuant to the
PAGA, to review and approve any penalties sought as part of a
proposed settlement agreement. (Labor Code 2699) Existing law
also authorizes a court to award a lesser amount than the
maximum civil penalty amount allowed if to do otherwise would
result in an award that is "unjust, arbitrary and oppressive, or
confiscatory." For occupational safety and health violations,
existing law requires that the provisions of a settlement be
submitted to the division (Division of Occupational Safety and
Health) at the same time that they are submitted to the court.
This Bill would require that a party seeking court approval of
the settlement of a civil action brought under the Private
Attorneys General Act, shall serve notice of this request upon
the Labor and Workforce Development Agency not fewer than 20
calendar days prior to filing the request for approval in
superior court.
This bill would declare that it is to take effect immediately as
an urgency statute in order to address the existing economic
conditions in California by spurring new job creation.
COMMENTS
1. Background and Need for this bill?
The PAGA was enacted to allow aggrieved employees to file a
civil action to recover penalties for violations of the Labor
Code for cases where the Labor and Workforce Development
Agency, or its divisions and departments, chose not to do so.
Previous to PAGA, penalties could be assessed and collected
primarily by the LWDA or its subordinate entities. Currently,
the Labor Code requires an aggrieved employee or
representative to give written notice to the LWDA and the
employer of the specific provisions alleged to have been
violated by an employer. Once a settlement or judgment is
entered, it will direct either the Defendant employer or
Plaintiff- directly or through their attorneys -to distribute
the PAGA penalties to the LWDA and aggrieved employees.
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Senate Committee on Labor and Industrial Relations
The author of the bill, however, believes that the LWDA is
often left out of the loop as the PAGA lawsuit goes to court.
This bill would create a mechanism in law that would ensure
that the LWDA is made aware of settlement agreements at least
20 days prior to a party's request for court approval.
A similar version of this bill, AB 2997 (Houston), was
previously heard by the Legislature in 2006. AB 2997 was
heard and passed in the Assembly Labor and Employment
Committee and referred to the Assembly Judiciary Committee;
however, the bill was amended into intent language in order to
give the author time to address concerns raised. The author
of the bill indicated that the primary desire with the bill
was to provide the agency with a manner in which to be made
aware of what penalties, if any, were owed to it under a PAGA
settlement. The bill was never amended with negotiated
language and was held in the Assembly Judiciary Committee.
2. Proponent Arguments :
According to the author, the PAGA permits employees to act as
government enforcers and sue their employers for violations of
the Labor Code without the necessity of alleging actual
damages. The author argues that although Governor Arnold
Schwarzenegger signed urgency "clean up" legislation in 2004
that ended the most egregious types of "Sue Your Boss"
lawsuits, unwarranted litigation practices persist. In
particular, proponents argue, the threat of penalties and
attorneys' fees continue to be used by some unscrupulous
plaintiffs and lawyers to extract merit-less settlements from
employers, particularly small businesses, for whom it is
impractical or infeasible to defend a costly lawsuit in court,
despite a defensible position.
Proponents argue that there is no mechanism in existing law
ensuring that the LWDA is made aware of these settlements, and
as such, the LWDA may be left out of the loop when a PAGA
lawsuit settlement is approved by a court. Being unaware of a
settlement, proponents argue, also prevents the LWDA from
ensuring that it is receiving penalties due to them. In
addition, the author argues that, unfortunately, in some cases
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Senate Committee on Labor and Industrial Relations
the cost to LWDA to litigate its right to its share of
penalties exceeds the potential recovery, making such
litigation impractical.
The author believes that in order to uphold the educational
and enforcement intent of the PAGA, the LWDA must be made
aware of court approved PAGA lawsuit settlements in order to
permit the LWDA to, among other things, identify problem
industries with high rates of non-compliance and also help
expose attorneys using the PAGA by filing lawsuits intended
only to garner high attorneys' fees and little in the way of
penalties for aggrieved employees. Proponents argue that this
bill provides a very modest, limited reform that will help to
ensure that settlements are processed appropriately and that
the LWDA receives sums due to it, particularly in light of
these challenging fiscal times for the state, its citizens,
and our employers.
3. Opponent Arguments :
According to opponents of the measure, the PAGA is an
important tool for enforcing employees' rights under the Labor
Code in cases where the LWDA has chosen not to take the matter
on. Opponents argue that under current law, the prospective
PAGA plaintiffs are required to exhaust their administrative
remedies by sending a letter to the LWDA and giving that
agency the first shot at enforcing PAGA and seeking penalties.
In addition, opponents contend, the PAGA gives California's
superior courts, not the LWDA, the responsibility to approve
or disapprove all PAGA settlements.
Opponents argue that the 20-day advance notice to the LWDA
requirement proposed by this bill would increase the hurdles
plaintiffs must jump through in order to process a viable
claim and would unreasonably slow the process, discourage
legitimate PAGA actions and even interfere with a settlement
to which the plaintiff and defendant have agreed. Opponents
also argue that giving the LWDA veto power over a settlement
agreement in PAGA litigation where it was not a party and did
not participate in settlement discussions is counterproductive
to the settlement process and increases the likelihood of
prolonged litigation. In addition, opponents argue that the
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PAGA assigns superior courts the duty to balance competing
interests in making determinations of penalty amounts that are
recoverable by allowing the court to reduce or even eliminate
penalties.
In conclusion, opponents contend that the PAGA provisions
adequately protect the public interest in cases where the LWDA
is not litigating the case because it chose not to take the
matter on and believe that this bill would complicate and
delay the ability to recover penalties for Labor Code
violations. Opponents argue that if the agency declines to
pursue a matter at the front end, it should have little
further active role in the litigation or disposition of most
other cases. Overall, opponents argue that this bill would
weaken the PAGA by allowing the unnecessary intervention by
the LWDA into PAGA cases prior to settlement.
4. Double Referral to the Senate Judiciary Committee:
If this bill is passed out of the Senate Labor and Industrial
Relations Committee, it will next be referred to the Senate
Judiciary Committee.
5. Prior Legislation :
AB 2997 (Houston) of 2006: Held in Assembly Judiciary
Committee
This bill is very similar to AB 2997 (Houston) of 2006 which
would have required the parties seeking court approval of a
settlement under the PAGA to serve the LWDA a notice of the
request not less than 20 calendar days prior to filing the
request with the court. In addition, AB 2997 would have
required a court to award the LWDA reasonable attorney's fees
and costs in any proceeding in which the LWDA is adjudged to
be entitled to penalties under the PAGA.
SB 1809 (Dunn): Chapter 221, Statutes of 2004
This bill significantly amended the PAGA by enacting specified
procedural and administrative requirements that must be met
prior to bringing a private action to recover penalties of
Labor Code violations. SB 1809 also expanded judicial review
of PAGA claims by requiring courts to review and approve any
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Senate Committee on Labor and Industrial Relations
penalties sought as part of a proposed settlement agreement,
and those portions of settlements concerning violations of
health and safety laws. In addition, SB 1809 changed the
prior penalty formula to provide that 75 percent of most civil
penalties recovered pursuant to PAGA shall go to the LWDA for
labor law enforcement and education.
SB 796 (Dunn): Chapter 906, Statutes of 2003
This bill enacted the Private Attorneys General Act which went
into effect on January 1, 2004.
SUPPORT
California Association of Joint Powers Authorities
California Chamber of Commerce
California Framing Contractors Association
California Grocers Association
California Hospital Association
California Independent Grocers Association
California Manufacturers and Technology Association
National Federation of Independent Business
OPPOSITION
California Applicants' Attorneys Association
California Employment Lawyers Association
California Labor Federation
California Rural Assistance Foundation
Consumer Attorneys of California
National Lawyers Guild Labor & Employment Committee
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Hearing Date: April 28, 2010 SB 989
Consultant: Alma Perez Page 7
Senate Committee on Labor and Industrial Relations