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in this issue:DECEMBER 2005

Class Claims Dismissed by Courtof Appeals for Failing to Complywith California's Private AttorneysGeneral Act Notice Requirements.

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Court Clarifies Circumstances Under Which Employee“Bounty Hunters” May Collect Penalties for Employer’sViolation of Labor Code Provisions By Marlene Muraco

In the first significant case interpreting thenotice and exhaustion requirements of thestate’s Private Attorneys General Act (PAGA), aCalifornia Court of Appeal has dismissedclass action claims seeking civil penalties forviolations of various statutory recordkeepingrequirements and minimum wage andovertime payment obligations. Although theplaintiffs’ complaint made no mention of thePAGA and did not purport to bring a claimunder that Act, the court in Caliber Bodyworksv. Superior Court, No. B184120 (Cal. Ct. ofAppeal, 2nd Dist. Nov. 23, 2005), dismissedthe plaintiffs’ claims for penalties relating toCaliber’s alleged failure to properly maintainemployee records, issue payment on regularpaydays and provide appropriate mealperiods, holding that those claims seekingonly civil penalties could not be collected viaa private right of action. In so doing, the courtprovided some needed guidance on the scopeof the PAGA.

BackgroundCalifornia’s Labor and WorkforceDevelopment Agency (LWDA) is authorized toassess and collect civil penalties againstemployers that violate certain specifiedprovisions of the California Labor Code. Onthe theory that the LWDA lacked sufficientresources to fully enforce the Labor Code, theCalifornia Legislature enacted the PrivateAttorneys General Act (PAGA), which tookeffect on January 1, 2004. The PAGA, whichsoon became known as the “bounty hunterlaw,” established a civil penalty for everyprovision of the California Labor Code thatdid not previously have one and alsoauthorized employees to sue to recover civilpenalties on behalf of themselves and other

current or former employees without theneed to comply with the formalities of classaction procedures.

The new law touched off a spate of frivolouslawsuits and, as a result, the PAGA wasamended in August 2004 to somewhat curtailemployees’ ability to bring costly lawsuitsbased upon technical labor law violations. Inaddition, the amendment added section2699.3 to the Labor Code, which establishescertain procedures that must be followedbefore an employee can file suit under thePAGA. Specifically, an aggrieved employee isrequired to give written notice by certifiedmail to both the LWDA and the employer ofthe specific provisions of the Labor Codealleged to have been violated, including thefacts and theories to support the allegedviolation. The LWDA has 30 days to decidewhether it is going to investigate the claim. Ifthe agency either declines to investigate, ordoes investigate but fails to issue a citation,the employee is then free to file arepresentative lawsuit under the PAGA. Insome instances, the employee is required togive the employer notice and an opportunityto cure the alleged Labor Code violation priorto filing suit.

The administrative procedures established byLabor Code section 2699.3 apply to actions torecover civil penalties for the alleged violation ofany of the dozens of Labor Code provisionsspecifically identified in Labor Code section2699.5, including Labor Code sections 201

(wages upon discharge), 203 (statutory penaltiesfor failure to timely pay wages at termination),226 (duty to provide itemized wage statements),226.7 (mandated meal and rest periods), 510

(overtime compensation), 1174 (duty to

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maintain employment records), 1197 (minimumwage), 1198 (maximum hours of work) and 2802

(indemnification for employee’s expenses andlosses in discharging duties).

The penalties imposed as a result of a claimbrought under the PAGA are distributedbetween the employee and the LWDA, with75% going to the agency and just 25% to theemployee. Because of this and the requirementthat administrative remedies be exhaustedbefore filing suit, plaintiffs have understandablyshown a desire to sue for penalties availableunder the Labor Code provisions identified in Section 2699.5 without bringing their claimunder the PAGA. The question of whether, andto what extent, this was possible was somethingof an open question until the issuance of theCaliber Bodyworks decision.

The CaseThe plaintiffs in Caliber Bodyworks were threeformer employees of Caliber who alleged thatthe company had violated the Labor Code byfailing to pay minimum wages, failing toitemize deductions from their wages, failing topay overtime, failing to pay earned wages attermination, failing to provide required mealand rest periods, failing to properly payemployees for working split shifts, and failingto maintain required time records. All but oneof the plaintiffs’ thirteen causes of actionsought penalties for the alleged violations andsome sought damages in addition to penalties.However, the complaint made no mention ofthe PAGA and did not claim to be seekingremedies under that Act.

The issue presented to the court of appeal waswhether the plaintiffs, who were seekingpenalties for violations of Labor Codeprovisions enumerated in the PAGA, couldpursue their claims without first exhaustingtheir administrative remedies. The plaintiffsargued that the PAGA’s administrativeprerequisites to filing suit did not apply tothem because their class action did not seekcivil penalties, or include claims or make anyallegations at all under the Act. Nothing in thePAGA, they argued, modifies or restricts theright of an employee to remedy wage-and-hour violations of the Labor Code through aclass action lawsuit against his or her employerwhen the employee is not suing under the Actitself. Caliber, in contrast, argued that the

entire complaint had to be dismissed becauseeach of the plaintiffs’ causes of action soughtpenalties for violations of statutes listed inLabor Code section 2699.5.

The court of appeal took a middle ground —holding that an employee is required toexhaust administrative remedies under thePAGA only as to causes of action that: (1) allegea violation of one of the Labor Code provisionslisted in Labor Code section 2699.5; and (2)seek recovery of a “civil penalty” which, priorto passage of the PAGA, was previouslyenforceable only by the state’s labor lawenforcement agencies. Causes of action thatseek statutory penalties provided by the LaborCode for employer wage-and-hour violationsthat were recoverable directly by employeesbefore the PAGA was enacted are not subject tothe Act’s exhaustion requirement — evenwhere the Labor Code provision the employerallegedly violated is one of the ones listed inSection 2699.5.

Applying this standard, the court ruled that theplaintiffs’ claims for violation of Labor Codesections 1174 (failure to properly maintainemployee records), 204 (payment of wages onregular paydays) and 512 (provision of mealperiods) were all subject to dismissal becauseeach of those Labor Code sections is listed inSection 2699.5 and the only remedy plaintiffssought for the alleged violations was theimposition of statutory penalties that, prior tothe PAGA, were recoverable only by the LaborCommissioner. Thus, the plaintiffs’ failure toexhaust their administrative remedies as tothose alleged violations was fatal to their claims.

Three of the plaintiffs’ causes of action werehybrid claims that sought unpaid wages,statutory penalties and civil penalties —specifically, their claims for violation of LaborCode sections 1197 (payment of less thanminimum wage) and 1198 (failure to payovertime and failure to compensate for allhours worked). Even though Labor Codesections 1197 and 1198 are listed in section2699.5, that fact did not impinge upon theplaintiffs’ ability to either damages or statutorypenalties for the alleged violations. Theplaintiffs were, however, precluded frompursuing civil penalties for the violations that,prior to enactment of the PAGA, would havebeen recoverable only by the LaborCommissioner. Thus, the court struck the

plaintiffs’ requests for civil penalties on thethree hybrid causes of action.

The remainder of the plaintiffs’ causes of actionsought unpaid wages or statutory penalties orboth, but did not include either an expressrequest for civil penalties (i.e., penaltiespreviously payable only to the LaborCommissioner) or citation to any provision ofthe Labor Code imposing civil penalties. As aresult, the court held that those claims did notimplicate the PAGA and the plaintiffs were notobligated to comply with the Act’s prerequisitesto filing suit before pursuing them.

ConclusionThe Caliber Bodyworks decision is welcomenews in that it holds that employees may not bypass the administrative exhaustionrequirements of the PAGA simply by artfullypleading their complaints to avoid reference tothe PAGA. However, the decision also makesclear that an employee need not exhaust his orher administrative remedies for every claimagainst an employer for alleged violations ofthe numerous Labor Code provisions listed inLabor Code section 2699.5. Damages for LaborCode violations will continue to be availablewithout first having to submit the claim to theLWDA for certain Labor Code provisions, aswill claims for statutory penalties. Employeeswill, however, be required to comply with thePAGA’s administrative scheme before they canrecover civil penalties for an alleged violationof any of the Labor Code provisions listed insection 2699.5 as to which statutory penaltieswere only recoverable by the LaborCommissioner prior to the PAGA.

Marlene Muraco is a Shareholder in LittlerMendelson’s San Jose office. If you would likefurther information, please contact your Littlerattorney at 1.888.Littler, info@littler.com orMs. Muraco at mmuraco@littler.com.

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ASAP™ is published by Littler Mendelson in order to review the latest developments in employment law. ASAP™ is designed to provide accurate and informative information and should not be considered legal advice.

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