Access flooding information on Disaster Resources.

May 11, 2018

Small Compliance Errors Can Become Large Liabilities

By Jonathan A. Siegel, ESQ.  of Jackson Lewis P.C.

Employers managing for success should foster a culture of workplace compliance now more than ever. As operations expand, systems supporting the business should grow with it. Additionally, employers should consider reviewing their operations to ensure there are not systematic compliance issues which have not been previously identified or addressed.

In light of recent decisions that have made it more difficult to bring a class action against an employer for wage and hour issues, especially if the employer maintains arbitration agreements, and the procedural hurdles in bringing a class action, plaintiff lawyers are turning to the California Private Attorney General Act (Labor Code Section 2698 et seq.), known as “PAGA,” at an increased rate.

An employer who is proactive in workplace compliance will have more options to address the issues and may be able to be more creative in fashioning solutions than if responding to a PAGA lawsuit. When navigating the minefield of workplace compliance issues, it is important to “look under the hood” from time to time before something breaks. The fact an employer has not been subject to past litigation should not lull the employer into a false sense of security.

In California, small compliance issues can grow into significant liabilities under PAGA. Before January 1, 2004, when PAGA became effective, only several agencies in California had the authority to enforce most provisions of the Labor Code, and to recover civil penalties for violations. Under PAGA, employees themselves not only are able to sue employers for violations if a state agency has not already acted, but they may do so on behalf of all other employees. Under the statute, plaintiff lawyers and employees can gain substantial financial rewards for bringing such claims against employers.

Before doing so, the aggrieved employees must comply with administrative procedures and provide written notice of the intent to pursue a PAGA case by providing notice of the claim to the California Labor and Workforce Development Agency (“LWDA”) and the employer. The employee must state, “the specific provisions of [the Labor Code] alleged to have been violated, including the facts and theories to support the alleged violation.” By giving notice, the employee provides the LWDA with an opportunity to determine whether to investigate the claim further and likewise provides the employer with an opportunity to cure the alleged violations. If an employer receives a letter addressed to the LWDA alleging Labor Code violations, it is important to immediately consult legal counsel since there may be opportunities to cure violations.


Under PAGA, Penalties Can Grow Quickly

Employers not in compliance with California’s wage and hour laws regarding minimum wage, piece rate, off the clock work, overtime pay, meal and rest periods, accurate time keeping records, itemized wage statements or other Labor Code provisions, such as recordkeeping and posting requirements, could face potential exposure from one violation.

Why? PAGA provides for the imposition of potentially harsh penalties in the event of a violation. If no penalty for a particular Labor Code violation is specified, the statute provides:


If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.”


The “aggrieved employees” are entitled to retain 25% of the civil penalties recovered under PAGA. The remainder is distributed as follows: (a) 50% to the General Fund; and (b) 25% to the Department of Labor and Workforce Development for programs aimed at the education of employers and employees about their responsibilities and rights under the Labor Code.

Some plaintiff’s lawyers have tried to argue that the penalties should be “stacked” which could lead to even greater exposure. For example, if it is alleged the employer failed to provide rest periods, meal periods and failed to properly pay overtime, PAGA could provide $100 to each aggrieved employee per pay period for the initial violations and $200 for each subsequent pay period which would cover all three allegations. By arguing the penalties should be stacked, the plaintiff’s lawyers are arguing there should be PAGA penalties for each violation, multiplying exposure by three times what it should be. We disagree with this argument but it is the type of litigation which employers could face.

There also have been some recent cases which employers should try to take advantage of in defending PAGA cases and related wage and hour claims. In Kim v. Reins International California, Inc. (B278642, Cal. Ct. App., December 29, 2017), the Court of Appeal for the Second Appellate District held an employee-plaintiff, who had settled and dismissed his individual claims under the Labor Code, was not able to maintain a PAGA claim on behalf of other “aggrieved employees.” The Court held that because of the settlement and dismissal of his individual claims, the employee-plaintiff was no longer an “aggrieved employee.”


Cost of Solutions vs. Possible Exposure

In some cases, the cost of avoiding such claims may be incredibly minor versus the potential exposure. For example, increasing the number of time clocks at an employer’s entrance, and also having time clocks at the employer’s break room, may avoid or minimize certain type of wage and hour claims.

If an employer has only one time clock at the entrance to its facility and 100 employees who must clock in and out at shift change, there may be a concern the employees must wait in line for five to seven minutes to clock in. It could be alleged the employees are at the control of the employer while working and the employees should be paid for the unusually long wait time. A plaintiff lawyer may allege the employees should have been paid for the time and could also try to allege related claims like unpaid overtime, incorrect itemized wage statements and, for former employees, violations of Labor Code section 203 dealing with not paying all wages upon end of employment. Here, the employer may consider adding four or more additional time clocks at the entrance and the break room so the employees are not subject to any wait time or minimal wait time to clock in. The cost of these clocks is minor in compared to the possible exposure.


Culture of Compliance Can Be a Profit Center

We recommend employers invest in their Human Resource function, payroll and time and attendance systems. Employers should consider preventive wage and hour audits to review their systems. It is also helpful to invest in your management team by training and educating members of management regarding the importance of wage and hour compliance and the most common mistakes front line supervisors can make. While changing workplace culture can be difficult, this is one area where the employer will see a return on investment.

California employers will likely be faced with wage and hour claims at some point so why not be proactive in compliance initiatives? An employer who is proactive in wage and hour compliance is turning an area of possible exposure into a profit center.


Jonathan A. Siegel is a principal at Jackson Lewis P.C., a national law firm with 5 offices throughout California and more than 56 offices across the country dedicated to representing employers with respect to workplace law.