The necessity of employer VIGILANCE under California's "bounty hunter" law

One of Governor Davis' last acts in office was signing S.B. 796 permitting employees (and so-called "bounty hunter" attorneys) to bring civil suits, including class action lawsuits, to recover penalties from employers for violations of the Labor Code. Previously, only government agencies could assess and collect civil penalties for Labor Code violations. Now, under S.B. 796, an employee may bring a civil action against their employer on behalf of "himself or herself and other current or former employees" to recover civil penalties for any alleged Labor Code violation that a government agency does not prosecute. In addition, the employee may recover up to 25% of any penalties imposed on the employer, and the remainder of the penalties will be distributed to the State's General Fund (50%) and to the California Training Fund (25%). To the extent the particular Labor Code provision does not have monetary penalties attached, S.B. 796 imposes new penalties of up to $200 per employee per pay period for a violation of the Labor Code. Attorneys' fees and costs are also awarded to prevailing plaintiffs.

Needless to say, enactment of S.B. 796 caused much consternation in the employer community and a recent complaint filed in Ventura County demonstrates why that consternation is justified. The class action complaint alleges five substantive causes of action for violation of various posting and other relatively obscure provisions of the Labor Code and demands the penalties provided in S.B. 796. The causes of action include:

• Violation of Labor Code section 1102.8 for failure to prominently display the telephone number of the whistleblower hot line required by Labor Code section 1102.7.
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• Violation of Labor Code section 1183 for failure to post the Industrial Welfare Commission Order.
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• Violation of Labor Code section 3550 requiring the employer to post in a conspicuous location a notice stating the name of the current workers' compensation carrier of the employer.
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• Violation of Labor Code section 432.5, which precludes an employer from requiring an employee to agree in writing to any term or condition which the employer knows to be prohibited by law. Plaintiff alleges that the arbitration agreement which the employer requires employees to sign requires the employee to pay 50% of all arbitration costs, which plaintiff alleges is illegal under California law.
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• Violation of Labor Code section 431, which requires all employers to file any application of employment which an employee is required to sign with the Office of the Division of Labor Standards Enforcement (Labor Commissioner).

Several bills have been introduced in the California Legislature to overturn or modify S.B. 796. A.B. 2181 (Campbell) would repeal outright S.B. 796. A.B. 2650 (Bates) would exclude employers with fewer than 100 employees within a 75-mile radius. S.B. 1861 (Ashburn) would require employees intending to file claims under the statute to first report their grievances to the labor agencies and if one of the labor agencies does not act within 60 days, only then would the employee be able to file directly in civil court under the statute. Even the author of S.B. 796, Senator Dunn, has realized the new law goes too far and has proposed legislation (S.B. 1809) to restrict lawsuits similar to the one described above.

The lesson for employers is that they must be extremely vigilant about compliance with all of the requirements in the Labor Code and Industrial Welfare Commission Orders. Even the most innocuous or seemingly hyper-technical requirement of the Labor Code now provides the potential for a lawsuit and the imposition of significant penalties.