California’s wage and hour laws are among the broadest and strictest in the nation. They enumerate the specific rules related to payment of wages, minimum wage, commissions, overtime pay, rest breaks, meal periods, business related expenses, itemized wage statements and numerous other areas of employee compensation. The laws also specify what damages employees could recover if they prove violations.
While damages in the form of unpaid wages can be costly for employers, these days employers must also be concerned about how the 4 Ps - Penalties, Plaintiff’s Attorney’s Fees, Personal Liability and PAGA – significantly increases their liability exposure.
In addition to recovering unpaid wages, California law allows employees to recover penalties, specifically waiting time penalties, when the employer willfully fails to pay all wages due at the conclusion of the employment relationship. Labor Code § 203. This means that if an employee prevails in a claim against his/her employer for failure to pay minimum wage, overtime and/or all accrued wages in the final paycheck, then the employer can be liable for waiting time penalties. Waiting time penalties are measured by the employee’s regular daily wage for each day the final payment is late, for up to 30 days.
Here is an example of how it can add up:
An office manager is terminated on January 15, 2016, and successfully proves he was not paid all of his earned wages due until March 1, 2016, 45 days later. He regularly worked 40 hours/week. At the time of his termination, the employee was earning $30.00/hour.
Waiting Time Calculation
40 hours/week ÷ 5 days/week = 8 hours/day
8 hours/day x $30/hour = $240/day (daily wage)
$240/daily wage x 30 days (maximum penalty days) = $7,200 in waiting time penalties
Plaintiff’s Attorneys’ Fees
Employees prevailing in certain wage and hour claims can recover the attorneys’ fees they incurred. Labor Code § 1194 provides a “one-way fee shifting statute” that allows prevailing employees – but not prevailing employers - to collect attorneys’ fees and costs on minimum wage and overtime claims.
For other wage and hour claims, Labor Code § 218.5 applies; this is a “two-way fee shifting statute” which provides for an award of attorneys’ fees and costs to the prevailing party. However, in 2013 the law was amended, and now prevailing employers can only recover attorneys’ fees and costs if they prove the employee filed the action in bad faith.
California’s law on reimbursement of business-related expenses, such as for mileage, cell phones, and other out-of-pocket expenditures, entitles employees to collect attorney’s fees incurred in the enforcement of these rights. Labor Code § 2802. PAGA actions (discussed below) also allow for plaintiff’s to recover attorneys’ fees.
Plaintiffs’ attorneys’ fees can be staggering, and significantly surmount the actual damage award to the plaintiff. In Yoo v. Song, Case No. B256229 (2d Dist., Div. 7 Feb. 17, 2015) (unpublished), the court awarded the plaintiff only $4,000 for her wage and hour claims, but still awarded her $41,500 in attorneys’ fees.
California law now makes the owners, directors, officers, and managing agents of employers personally liable for willful violations of wage and hour laws. Labor Code § 558.1. The “Fair Day’s Pay Act”, which went into effect on January 1, 2016, expanded the definition of “employer” beyond the corporate entity to include these natural persons and authorized the Labor Commissioner to hold them liable for California’s the following wage and hour violations: unpaid overtime, unpaid minimum wage, denial of meal/rest breaks, untimely termination pay, inadequate wage statements, and failure to reimburse business-related expenses. And as discussed above, the liability exposure for these of type of wage and hour claims can be very steep in light of penalties and plaintiffs’ attorney’s fees.
It should be noted that this new law is currently applicable only to wage and hour claims brought before the Labor Commissioner, and does not allow for private right of actions against natural persons for wage and hour violations.
California’s Private Attorneys General Act (“PAGA”) allows an “aggrieved employee” to bring a lawsuit on behalf of him/herself and other current and former employees for Labor Code violations including those related to wage and hour. The Act permits the employee to act as the private attorney general in the place of the Labor and Workforce Development Agency (LWDA) and to initiate a representative action to collect penalties for labor code violations.
If the Labor Code provision underlying the PAGA claim states a penalty, then an employee can seek to collect that specified penalty on behalf of all the aggrieved employees. When the underlying Labor Code does not already provide a penalty, the PAGA penalty is $100 for each employee per pay period for the initial violation and $200 for each employee per pay period for each subsequent violation. The employee who brought the action collects 25% of the total penalties and the remaining 75% are distributed to the LWDA. In addition, employees can recover attorneys’ fees as well as unpaid wages.
Here is an example of how it can add up:
One administrative assistant claims her employer denied her overtime. She brings a PAGA action on behalf of 20 current administrative employees and an additional 15 former administrative employees who worked for the employer in the past year (the statute of limitations is 1 year), alleging they were all denied overtime.
The overtime statute provides a penalty for unpaid overtime for the first violation at $50 per employee per pay period (26 in a year), and $100 for subsequent violations.
$50/penalty for first violation x 35/aggrieved former and current employees x 1/first pay period = $1,750.
$100/ penalty for subsequent violations x 35/aggrieved former and current employees x 25/subsequent pay periods = $87,500.
$1,750 + $87,500 = $89,250 in Total PAGA Penalties
The Act does allow the court to reduce penalties that are “unjust, arbitrary and oppressive, or confiscatory”. Labor Code § 2699(e)(2). Further, if the employer can show a lack of willfulness in the violations, it can argue that only the lower, initial penalty amount should be assessed.
Our Approach to Avoiding the 4 P’s:
Shivani Sutaria Law Offices has a Three-Step Approach to helping our employer-clients mitigate the risks of wage and hour claims, which in turn, reduces their likelihood of being faced with the 4 P’s:
1. Education: First, we educate employers on the intricacies of California’s wage and hour laws, especially on the big six: overtime, minimum wage, meal and rest breaks, termination pay, wage statements, and business-related expenses.
2. Compliance: Second, we develop policies and recommend practices that ensure our employer-clients are complying with California’s myriad of wage and hour laws.
3. Assessments & Audits: Third, we perform periodic audits that allow us to assess our clients’ ongoing compliance, address their needs and concerns as it relates to wage and hour issues, and recommend best policies and practices as the law evolves.