Recent developments in California labor and employment law

Recent California labor and employment law developments could signal good news for employers facing individual and/or representative claims under California’s Private Attorneys General Act (“PAGA”).  Specifically, a newly-enacted state law could potentially help rein-in the rising number of individual and representative PAGA claims by providing employers an opportunity to remedy certain “technical” Labor Code violations before employees can file lawsuits for those violations.  On a different front, the California Supreme Court in Williams v. Superior Court is examining the scope of a plaintiff’s right to statewide discovery in representative PAGA actions.  Once decided, this case could drastically impact the nature of PAGA litigation in California.

Overview of PAGA

The California Labor and Workforce Development Agency (“LWDA”) is authorized to assess and collect civil penalties for certain violations of California’s Labor Code.  Because LWDA is unable to prosecute employers for every alleged Labor Code violation, the Legislature in 2004 enacted PAGA, which allows employees to initiate a civil action against their employers.  Under PAGA, an employee can bring individual claims as well as representative claims on behalf of other current and/or former aggrieved employees.  Representative PAGA actions do not have to meet the requirements of class actions.

PAGA allows those represented to collect civil penalties previously enforceable only by LWDA.  It does not affect or apply to actions for statutory penalties recoverable directly by employees.  That said, PAGA does not limit an employee’s right to pursue or recover other remedies available under state or federal law, either separately or concurrently with an action taken under PAGA.

Employees Can Now Cure Technical Mistakes in Wage Statements

California Governor Jerry Brown recently signed into law Assembly Bill 1506 (“AB 1506”)—a measure that affords California employers an opportunity to cure wage statements that do not comply with Labor Code Section 226 before employees can file lawsuits to recover certain civil penalties under PAGA.  The new law, which passed the California state legislature with unanimous bipartisan support in October 2015, is viewed by California companies as being pro-business.

Overview of Section 226

Under Section 226(a), employers are required to include nine particular categories of information on employees’ wage statements: (i) gross wages earned; (ii) total hours worked; (iii) number of piece-rate units earned and piece rate, if applicable; (iv) all deductions; (v) net wages earned; (vi) dates of the employee’s pay period; (vii) employee’s name and identification number; (vii) employer’s name and address; and (ix) hourly rates and number of hours worked.

An employer’s failure to comply with each of these technical requirements could subject that employer to potential civil penalties under PAGA—penalties that could amount to millions of dollars in the event of a representative PAGA claim.

However, under AB 1506, employers who fail to comply with two of the technical requirements listed in Section 226(a) are given a second a chance to cure their mistakes before being hauled into court.  Indeed, AB 1506 gives employers an opportunity to correct wage statements that do not (i) state the employee’s pay period, a requirement under Section 226(a)(6); and/or (ii) state the name and address of the employee’s true employer, which is required by Section 226(a)(8).  Common errors under these two provisions include: (i) placing the company logo on the wage statement rather than spelling out the name of the employer; (ii) failing to include items such as “LLC,” “LP,” or “Inc.” after the name of the employer; (iii) listing the name of a parent company instead of a subsidiary that actually employs the employee; and (iv) listing the last date of the pay period, but not the beginning date of the pay period (even though the employees are paid every two weeks).

How to Cure

Under PAGA, a plaintiff is required to comply with strict notice requirements for each claim, including, among other things, giving written notice of the “specific provisions of [the Labor Code] alleged to have been violated” and providing “the facts and theories to support the alleged violations.”  An employer has 33 days from the date the employee gives notice to cure 226(a)(6) and (a)(8) violations.  To do so, an employer must first provide a compliant wage statement to each aggrieved employee for every pay-period in the last three years.  Then, the employer must provide written notice to LWDA and the aggrieved employees, describing the actions the employer took to cure the alleged Labor Code violation.

If the employee disagrees that the violation has been cured, she may provide written notice to LWDA.  LWDA has 17 days to review the employer’s attempt to cure.  After review and at its discretion, LWDA can give the employer an additional three business days to cure.  If LWDA determines the employer did not cure the violation, the employee can bring a PAGA action in court.  Alternatively, if LWDA determines the employer successfully cured the violation, the employee can appeal LWDA’s decision in a California superior court.  An employer may only cure a violation of subdivision 226(a)(6) or 226(a)(8) once in a 12-month period.

Potential Impact on Employers

AB 1506 became effective on October 2, 2015, and could potentially save employers from the time and expense associated with defending multi-million dollar PAGA lawsuits as a result of technical errors on wage statements.  However, employers should be mindful that the new law does not forgive errors with regard to the other seven pieces of information required to be included on wage statements.  Also, although AB 1506 might save an employer from having to pay certain penalties under PAGA, it is still unclear as to whether AB 1506’s cure provisions apply to situations in which an aggrieved employee seeks actual damages—on an individual or class wide basis—for violations under Section 226.  In fact, the face of the new law suggests that they do not, making it even more critical for employers to carefully review wage statements to ensure compliance with Section 226.

The California Supreme Court Takes Up PAGA Discovery Issues

In August 2015, the California Supreme Court decided to review one of the leading cases regarding the scope of discovery in a representative PAGA action: Williams v. Superior Court.

In Williams, the California Court of Appeal affirmed a lower court’s order that denied plaintiff’s request for statewide discovery.  After filing a representative PAGA action against a defendant-retailer, plaintiff served interrogatories requesting contact information of all of the defendant-retailer’s non-exempt employees in California.  The defendant objected that the request was “irrelevant, overbroad, unduly burdensome, and implicated the privacy rights of its employees.”  Plaintiff moved to compel the discovery, and the trial court ordered the defendant to produce contact information only for employees at the store at which plaintiff worked.

The Appeal Court denied plaintiff’s writ of mandate, holding that “bare allegations unsupported by any reason to believe a defendant’s conduct extends statewide furnishes no good cause for statewide discovery.”  According to the court, “[p]laintiff’s proposed procedure, which contemplates jumping into extensive statewide discovery based only on the bare allegations of one local individual having no knowledge of the defendant’s statewide practices, would be a classic use of discovery tools to wage litigation rather than facilitate it.”

The court made the following observation:

At this nascent stage of plaintiff’s PAGA action there has as yet been no discovery—plaintiff has not even sat for his own deposition. The litigation therefore consists solely of the allegations in his complaint . . . Nowhere does he evince any knowledge of the practices of [the defendant] at other stores, nor any fact that would lead a reasonable person to believe he knows whether [the defendant] has a uniform statewide policy. That being the case, it was eminently reasonable for the trial judge to proceed with discovery in an incremental fashion, first requiring that plaintiff provide some support for his own, local claims and then perhaps later broadening the inquiry to discover whether some reason exists to suspect [the defendant’s] local practices extend statewide.

In addition, the court noted that “nothing in the PAGA suggests a private plaintiff standing in as a proxy for the [Division of Labor Standards Enforcement]” is entitled to “access all places of labor or demand unlimited information.”

Although Williams is on appeal and, thus, cannot be cited as precedent, the case has nonetheless been relied on by lower courts evaluating the pleading requirements of PAGA complaints as well as the scope of discovery in representative PAGA claims.  See Mercado v. Atria Management Co., LLC.,  No. BC 570823, 2015 WL 5704376 (Cal. Super. Sep. 24, 2015).  If affirmed, Williams could potentially benefit employers by preventing plaintiffs from “[bootstrapping a] purely local singular experience into a statewide action” and using PAGA “as a basis for a [statewide]‘fishing expedition.’”

Norton Rose Fulbright will continue to closely monitor the California Supreme Court’s treatment of Williams for the latest developments.

For questions, please contact Art Silbergeld.