The New Bounty Hunter Law and its Recent Reforms

I. Introduction

A. Labor Code Section 2699: The Original Bounty Hunter Law

On January 1, 2004, the Labor Code Private Attorney General's Act went into effect. Signed by Governor Davis on October 12, 2003 as Senate Bill 796, this statute created a private right of action for employees to enforce any provision of the Labor Code, with the exception of a few workers' compensation provisions. Codified as Labor Code § 2698 et seq. ("Section 2699"), this law authorized any employee to bring a civil action against his or her employer on behalf of himself or herself and others, and to collect attorneys' fees, for employment law violations that are not cited by a governmental agency.

Section 2699 not only created new penalties for violations which were not previously established by the Labor Code, but also rewards employees for bringing these lawsuits by giving them a percentage of any recovery of monetary penalties. Section 2699 has no counterpart in any other state or federal labor law. Because the statute allows any employee to bring class action lawsuits against employers of all sizes in California, Section 2699 has become known as the "bounty hunter law" or the "sue-your-boss law." Since January 1, 2004, Section 2699 has resulted in over 65 anti-employer lawsuits, many involving trivial posting violations.

B. Senate Bill 1809: Recent Reforms to Section 2699

Responding to these concerns, Governor Schwarzenegger signed a reform measure amending Section 2699, on August 11, 2004. The newly reformed law, enacted through Senate Bill 1809 ("SB 1809"), went into effect immediately on August 12, 2004, and significantly amends Section 2699 by specifying procedural and administrative requirements that must be met prior to bringing a Section 2699 action.. Because two provisions of this bill apply retroactively to January 1, 2004, many frivolous lawsuits which were brought under Section 2699 during the first half of this year will be affected. While the new reforms do not repeal Section 2699, they attempt to provide some measure of protection for employers to filter out and guard against frivolous lawsuits.

II. Basic Provisions of Section 2699 Still in Effect

There are six surviving provisions of the original bill, the first two being the most significant:

1. For every single provision of the Labor Code, if no current penalty exists, Section 2699 establishes a $100 penalty for the first violation, and $200 for each subsequent violation. Such penalties are assessed on a per employee, per pay period basis. Section 2699(e).
2. An aggrieved employee is defined as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." Section 2699(c).
3. Section 2699 deputizes an aggrieved employee as private attorneys general to enforce Labor Code provisions. An aggrieved employee can then recover a percentage of civil penalties through a civil action filed on behalf of himself or herself and others. Section 2699(a), (e)(2).
4. An employee who prevails in any civil action against an employer is entitled to an award of attorneys' fees and costs. Section 2699(f).
5. This new right of action is "in addition" to any other pre-existing remedies under state or federal law. An action under Section 2699 does not limit an employee's right to pursue separate or concurrent remedies with an action taken under this section. Section 2699(f).
6. The provisions of this bill are not intended to affect the exclusive remedy provisions of the workers compensation laws. Section 2699(j).

III. An Analysis Of The New Reforms

A. Procedural and Administrative Requirements

The most significant change brought about by SB 1809 is that it creates procedural and administrative requirements which an employee must meet prior to bringing a private action under Section 2699. The appropriate procedure depends upon on whether the alleged Labor Code violation falls into one of three categories: Serious Labor Code Violations, Health and Safety Violations, and Other Labor Code violations. For any violation, the employee must first notify the employer and the state agency of the alleged violation. All time limits then run from the postmark date of this notice. When reviewing each category, take note of the time limits which vary depending on the nature of the alleged violation.

1. Serious Labor Code Violations

   This category includes approximately 150 Labor Code sections, enumerated in the bill, which that relate to:

   • Setting and paying wages and salaries;
   • Regulating hours of work, meals and rest breaks;
   • Employment of minors;
   • Employment under state and public works contracts;
   • Protection of whistleblowers; and
   • Other specified sections regulating conditions of employment.

   An employee alleging a violation of one of these sections must notify his or her employer and the Labor and Workforce Development Agency (LWDA). The LWDA must then notify the employer and employee within 33 calendar days regarding whether it intends to investigate the alleged violation. If the LWDA advises it will not investigate, or if no notice is provided within 33 calendar days, the employee may file a lawsuit under Section 2699.

   If the LWDA notifies the employer and employee within 33 calendar days that it will investigate, then the LWDA has 120 calendar days to complete its investigation. The employee may file a lawsuit if:

   1) The LWDA decides not to cite the employer, in which case the LWDA will notify the employer and employee within 5 working days of its decision; OR

   2) The LWDA fails to issue a citation against the employer within 158 calendar days.

2. Health and Safety Violations
   
   

   The next category includes all violations of Labor Code Division 5, which regulates occupational health and safety (Cal-OSHA), except for Labor Code Sections 6310, 6311, 6399.7, which are included in the first category. An employee alleging a violation of one of these sections must notify the employer and the Division of Occupational Health and Safety (DOSH) and also copy the LWDA.

   After receiving notice of an alleged violation, DOSH must inspect or investigate as required by law. If it issues a citation, no lawsuit may be filed. DOSH must notify the employer and employee within 14 calendar days of certifying that the violation has been corrected.

   If DOSH does not issue a citation within the inspection deadline, the employee may then challenge that decision in court. If the court directs DOSH to issue a citation, the employee may not file a lawsuit.

   If DOSH fails to inspect or investigate, the employee may proceed as with other third category claims (discussed below).

   In addition, no private lawsuits may be filed where the employer and DOSH have an existing agreement for long-term abatement of conditions, or where they have previously entered into a consultation agreement with regard to a condition at a particular work site. However, a consultation agreement entered into after the employee's notice of a violation may prevent this process from continuing.

3. Other Labor Code Violations

   The last category is a catch-all for all other alleged Labor Code violations, as well as failure of DOSH to inspect or investigate. Here, after an employee notifies the employer and state agency, the employer has 33 days to cure the alleged violation and notify the employee and state agency of the actions taken.

   Under the new reforms, to "cure" means to come into compliance and make whole any aggrieved employee. If the employer's actions do not timely cure the violation, the employee may then file a private action.

   If the employee believes that the employer's actions did not cure the violation, the employee may notify the state agency. The agency can then take up to 17 days to investigate, and grant the employer three additional business days to cure the violation. If the state agency determines that the alleged violation has not been cured, the employee may then file suit. If the state agency determines that the alleged violation has been cured, but the employee disagrees, the employee may appeal the state agency's decisions.

   The LWDA or any of its subdivisions are authorized to create regulations and to implement new law.

B. Judicial Discretion Over Award Amounts

While penalties enumerated under original law were mandatory, the new reforms enable a judge to reduce civil penalties where appropriate. Under SB 1809, a court is authorized to award a lesser amount than the maximum civil penalty amount allowed if to do so would otherwise result in an award that is "unjust, arbitrary and oppressive, or confiscatory."

C. Exemption for Minor Violations

The reforms also provide that a Section 2699 action cannot be brought for any violation of a posting, notice, agency reporting, or filing requirement except where the requirement involves mandatory payroll or workplace injury reporting.

D. Revised Sharing of Penalties

SB 1809 has also changed the distribution of recoverable penalties as a result of a successful employee lawsuit. Originally, under Section 2699(h), any penalty was split up 50% to the General Fund, 25% to the LWDA, and 25% to the aggrieved employee.

Now, 75% is given to the LWDA specifically designated for enforcement and education of employers and employees of their rights and obligations under the Labor Code. The aggrieved employee can still recover the remaining 25%, plus attorney's fees.

E. Prohibition on Retaliation

To protect employees from retaliation or discrimination for notifying the LWDA or the employer of an alleged violation, the reforms amended Labor Code Section 98.6. Specifically, an employer is prohibited from retaliating against any employee who brings a civil action under Section 2699 in the form of discharge or any other manner of discrimination including: threat of discharge, demotion, suspension, any adverse terms and conditions of employment, and training opportunities.

F. Employment Applications

Another feature of SB 1809 is the repeal of Labor Code Section 431, which previously required employers to file a sample of their employment application(s) with the Division of Labor Standards Enforcement.

IV. Calculating Potential Employer Liability

Even after the new reforms, the potential implications of Section 2699 can be staggering if the employee ultimately brings suit and prevails. The statute still imposes penalties on a per employee, per pay period basis, which are calculated based on a $100 penalty for the first violation and $200 for each subsequent violation. The following examples illustrate how a seemingly innocuous violation could result in the imposition of significant penalties.

Example #1: Employer A has an Employee Handbook which contains the following provision: "Any employee who reveals or discusses his or her wages with another employee is subject to discipline up to and including discharge." The policy has been effect for the past 3 years (after 1/1/2004). An employee alleges that this policy violates Labor Code Section 232. [Note: Section 232 falls under the category 1: Serious Labor Code Violations, see procedural steps above.] Each of Employer A's 75 employees has a signed statement that he or she has received a copy of the Handbook and will abide by these rules. Employer A pays its employees on a semi-monthly basis.

For the initial violation, Employer A would be penalized $100 x 75 employees = $7,500. For subsequent violations, Employer A's liability is calculated as follows: $200 x 75 employees x 71 pay-periods = $1,065,000. Employer A could face $1,072,500 in civil penalties alone. Under the new reforms, a court has discretion to reduce this award if the judge finds the penalty to be "unjust, arbitrary and oppressive, or confiscatory."

Example #2: For five months, Employer B mistakenly omits required information on its pay stubs, in violation of Labor Code Section 226 [another Serious Labor Code Violation]. Employer B pays its 225 employees twice per month.

For the initial violation, Employer B would be penalized $100 x 225 employees = $22,500. For subsequent violations, Employer B's liability is calculated as follows: $200 x 225 employees x 9 pay-periods = $405,000. Unless a court reduces the award, Employer B could face $427,500 in civil penalties alone.

In addition to these penalties, employees may recover attorneys' fees and costs, further increasing an employer's potential liability. The new reforms do not alter this. Moreover, although prevailing employees are entitled to recover attorneys' fees, the statute does not authorize this for prevailing employers.

V. Employer's Response

As a result of Section 2699, California employers may be exposed to class action lawsuits over virtually any alleged Labor Code violation. Even with the new reforms, California employers should take immediate, preventative measures, to avoid a potentially dramatic increase in costly litigation. To reduce the risk of liability for penalties under the bill, employers should consider the following suggestions:

1. Remain aware of the unique requirements of California law as well as any recent changes in the law.
2. Apply California law where it is more favorable to the employee that its federal counterpart.
3. Audit your human resources, personnel, and payroll practices to ensure that the organization is in compliance with applicable legal requirements.
4. Document human resources decisions and maintain accurate, complete and organized personnel and payroll records.
5. Consult an employment attorney regarding developments in the law and periodically update company policies to reflect these changes in the law. For example, employers should review and amend employee handbooks and anti-harassment policies to reflect the changes in sexual harassment law impacted by SB 76, which concerns employer liability for sexual harassment by non-employees, and AB 196, which prohibits gender identity discrimination. These two bills took effect on January 1, 2004.
6. Hold training sessions to educate your managers and supervisors, to keep them up to date about Labor Code requirements.

Accordingly, proactive employers should consult with an experienced employment law attorney to assure that their company is free of even minor violations of the California Labor Code.

VI. Conclusion

Section 2699, also known as the "bounty-hunter law," provides employees with financial incentives to file suit against their employers for alleged violations of virtually any provision of the California Labor Code. Senate Bill 1809 reforms the bounty hunter law by modifying compliance with the pre-lawsuit procedures. Although the new reforms attempt to allay the harsh effects of Section 2699, employers could still face complaints alleging technical violations, which would require them to "cure" these violations within a short time frame, a potentially burdensome task. Further, because penalties are still assessed on a per-employee, per-pay period basis, liability could be substantial. Recently filed complaints illustrate that even the most innocuous and hyper-technical Labor Code provisions can result in the imposition of significant penalties, if employers action do not cure the violations.

To protect against liability, proactive employers should be extremely vigilant about compliance with all of the requirements in the Labor Code and IWC Orders. In light of Section 2699, employers should consult with an employment attorney to update their policies, educate their managers, and stay abreast of changes in employment law.

For more information, please contact employment attorneys Holly Sutton at 415.954.4476 or hsutton@fbm.com, or Chrysty Esperanza at 415.954.4419 or at cesperanza@fbm.com.