Wage and Hour Class Actions – Employers, Do Not Wake the Sleeping Giant

In the 1970 film Tora! Tora! Tora!, regarding Japan’s attack on Pearl Harbor, Japanese Admiral Isoroku Yamamoto is quoted, “I fear all we have done is to awaken a sleeping giant…” Those with employees in the State of California need to understand that a wage and hour class action is a sleeping giant not to be awaken.

Employing people in California means dealing with California’s unique and complex wage and hour regulations. California employers are increasingly finding themselves having to defend against costly wage and hour class actions and PAGA lawsuits. These lawsuits frequently cost large sums of money to resolve, either through litigation or settlement. Employers need to understand the risks that provoke class action litigation and chart ways to avoid, manage and resolve these issues. An employer’s proactive planning will help minimize the risk of a very costly wage and hour class action lawsuit.

The California Labor Code provides statutes that certain employees use to file suit, both individually and as a class representative. These statutes involve overtime, uninterrupted meal and rest periods at specified times during each workday, final payment of all wages at the time of termination and within 72 hours of resignation for certain employees, and immediate vesting of all earned vacation if the employer has an established policy to do so. Many of these statutes include specific penalties for their breach, which are to be paid directly to the employee (“statutory penalties”).

Some Labor Code sections require specific procedures to be followed by employers for which penalties are payable to the state (“civil penalties”), and some Labor Code sections provide for both civil and statutory penalties. Thus, in addition to statutory penalties, employers can face additional civil penalties. One example is a statute with detailed requirements for what information must be included on employee pay statements. Even if the employee was not injured as a result of a wage statement error, and even if the error was inadvertent, civil penalties may still be awarded.

These additional civil penalties bring a significant incentive for plaintiffs’ counsel to bring class actions in California, relying on the California Labor Code Private Attorneys General Act of 2004 (PAGA). These civil penalties often dwarf the substantive claims upon which they are based. 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 such as gross wages earned, total hours worked, deductions, net wages, name of employee, the last four digits of the social security number, and all hourly rates. The civil penalty provided for each violation is $50 for the initial pay period and $100 per employee, per pay period, but not to exceed an aggregate penalty of four thousand dollars. For failure to include the inclusive dates of the period for which the employee is paid, the employer can be penalized $100 for each aggrieved employee per pay period for the initial violation and $200 per pay period for each subsequent violation for one year. 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.

All employers with employees in California must take the same basic precautions they would take for employees working in any state. 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.

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. Many 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.

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 let sleeping giants sleep by compliance with Labor Code provisions and consulting with knowledgeable and experienced California employment counsel is a prudent and necessary approach for all employers of California employees.

By Bicvan Brown and Karl Schlecht