California Appeals Court Interprets Bounty Hunter Amendments

The Private Attorneys General Act of 2004 is more commonly known as the "Bounty Hunter law" or "PAGA" - depending on whom you ask. This is the law that authorized employees to sue in court for "civil penalties," previously recoverable only by the state Labor Commissioner. PAGA also includes a "catch all" penalty to make sure most every provision of the Labor Code is associated with a penalty for non-compliance. One important catch is that employees suing under PAGA must share penalties recovered with the state.

Shortly after its passage, employees and their lawyers brought countless class actions for every conceivable violation of the Labor Code. In one of the more frequently cited examples, an employee sought tens of millions in penalties under PAGA because a poster was printed in the wrong font size.

The abuse of this law was so rampant, the Legislature amended the law just a few months after it became effective. The amendments were passed as "urgency" legislation that took effect immediately upon its passage. The amendments created a "safe harbor," requiring employees to notify the Division of Labor Standards Enforcement and the employer of perceived violations, so they might be corrected before a lawsuit was filed.

So much for the safe harbor. In Dunlap v. Superior Court (Bank of Am.), the Court of Appeal decided that a plaintiff may seek "statutory penalties" that were available under the Labor Code pre-PAGA, without complying with PAGA's notice requirement. Dunlap brought a class action for a pu-pu platter of Labor Code violations, including failure to pay overtime, failure to keep payroll records, meal and break violations, and failure to pay wages timely. Bank of America moved to strike, alleging Dunlap did not follow PAGA's notification prerequisites. Dunlap argued that he was suing for "statutory penalties," authorized by Lab. Code section 218, which existed long before the passage of PAGA.

The Court of Appeal decided Dunlap was correct. Even though PAGA specifically requires employees to follow its notice requirements for violations of the substantive laws Dunlap included in his Complaint, the Court of Appeal decided Lab. Code section 218 permitted a separate civil action without following PAGA. The Court distinguished between "statutory penalties" available to employees before PAGA and "civil penalties" recoverable only after meeting PAGA's exhaustion requirements.

This case cuts a huge loophole into PAGA. Why would an employee take the time to follow PAGA's exhaustion requirements and then divvy penalties with the state when the employee can bring his or her own action under section 218? (Yes, Virginia, that's a rhetorical question). PAGA will be used only for the obscure violations subject to penalties that previously could be recovered only by the Labor Commissioner, or the new catch-all penalty.

The Court of Appeal invited the Legislature to clarify PAGA again if its interpretation was incorrect. The PAGA"s notice provisions give employers a chance to comply with the many Labor Code mandates before facing huge liabilities for penalties. If the Labor Code is meant to protect employees, rather than create hundreds of opportunities for "gotcha" lawsuits, the Legislature should make whatever clarification is necessary to overturn Dunlap.

DGV