California Reforms Labor Code Private Attorneys General Act of 2004; Revised Law Is More Employer-Friendly

KM&M attorneys have been warning our California clients since the beginning of the year about the Labor Code Private Attorneys General Act of 2004, codified at Labor Code section 2699. This legislation created hefty new penalties for violations of any provision of the Labor Code, and thereby gave employees and plaintiffs’ lawyers significant incentives to sue employers for even minor technical violations of the law. The bill was signed into law by former Gov. Gray Davis in the waning days of his administration, after the recall vote.

Gov. Arnold Schwarzenegger vowed reform, and announced in late July that agreement had been reached to amend the Labor Code Private Attorneys General Act as part of the negotiations over the state budget. On August 11, 2004, the Governor signed the reform bill S.B. 1809 into law. The bill takes effect immediately and is retroactive to January 1, 2004.

The revisions took aim at the portions of the Act that employers felt offered the greatest possibility for abuse, without gutting or repealing the law entirely. Employees still can sue their employers on a representative basis for violations of the rights of current and former employees, and the potential penalties are still enormous. But employers no longer need worry that minor transgressions (such as posting notices in a smaller typeface than specified by statute) will drive them into bankruptcy.

Major provisions of the revised Act include:

• Elimination of minor violations of the Labor Code as the basis for private lawsuits.
• New administrative procedure requiring written notice to the employer and to the state Labor and Workforce Development Agency before a civil action may be brought in court. The state agency will have an opportunity to investigate violations, and the employer will have an opportunity to cure violations—and no lawsuit can be brought if the violation has been cured. However, if the agency declines to investigate, the employee may still bring a private action.
• New nondiscrimination language prohibiting employers from firing or otherwise discriminating against employees who take action or provide notice of violations under the Labor Code Private Attorneys General Act.
• New language authorizing courts to impose less than the maximum civil penalty in appropriate cases, if the court finds that the award would be “unjust, arbitrary and oppressive, or confiscatory.”
• All settlements of lawsuits brought under Labor Code section 2699 must be approved by a judge of the superior court.
• Labor Code section 431 is repealed. This statute required employers to file with the Division of Labor Standards Enforcement a copy of the form of any employment application that employees or applicants were required to sign.

The enactment of S.B. 1809’s reforms will be welcome relief to California employers worried about exposure to liability for violations of laws they never even knew existed. But the Act still has teeth, and the new administrative scheme requiring notice of violations to the state enforcement agency virtually assures stepped-up enforcement.

Employers who have not already done so should review their compliance with the Labor Code’s myriad requirements, particularly payroll and safety issues. If you have concerns or questions, please contact any of the attorneys in our San Francisco office.