A History of the California Labor Code

An examination of the Labor Code's history and infrastructure is necessary to fully understand Arias and its implications. The California Legislature has a wide field of discretion to determine the scope of the employer-employee relationship.  Its goal is to foster peace and order through regulations designed to ensure wholesome conditions of work and freedom from oppression.  To ensure that employers do not develop an extreme position of power over employees, the Legislature permits employees to pursue two remedies, and perhaps a third, in the event that the employer violates the Labor Code.
    First, employees may recover the wages that they earn through performing labor.  The California and federal courts adhere to the principle that wages are not ordinary debts; they are preferred over all other claims due to the economic position of the average worker and his or her dependence on the regular payment of wages for the necessities of life.  In other words, under California law, wages are jealously protected for the benefit of employees.  As such, the second remedy employees may pursue is a statutory penalty that is available in addition to the wages.  Given the high emphasis of protecting employees, the statutory penalty is intended to deter employers from committing wage and hour violations.  Finally, the third remedy is a civil penalty that is assessable by the state.  Historically, only the state, and not employees, could recover civil penalties through an enforcement action initiated by California's Labor Commissioner.  For the Labor Code to function properly, the state needs to have the ability to assess a civil penalty for wage and hour violations because these violations lead less payroll tax money and interest for the state.
    The California Court of Appeal's decision in Caliber Bodyworks  best illustrates how the three remedies in the Labor Code function. An employer is potentially liable for all three remedies for a single Labor Code violation.  For example, suppose an employer discharges an employee. The wages earned and unpaid at the time of discharge are due and payable immediately.  If the employer's failure to pay the wages is deemed to be willful, the employee can recover a statutory penalty in addition to the wages plus interest.  Additionally, the state is permitted to initiate an enforcement action against the employer to recover civil penalties.
     In theory, the imposition of three separate penalties for a single violation of the Labor Code ought to deter employers from operating outside of the law. Nonetheless, practice has proved the Labor Code's triple threat of remedies to be inadequate since California lacks the necessary funding and resources to vigorously pursue civil penalties.  "Although innovative labor law education programs and self-policing efforts by industry watchdog groups may have some success in educating some employers about their obligations under state labor laws, in other cases the only meaningful deterrent to unlawful conduct is the vigorous assessment and collection of civil penalties as provided in the Labor Code."  Absent the fear of civil penalties recoverable by the state in addition to statutory penalties and wages recoverable by employees, employers gain an incentive to operate in California's underground economy.

California's Underground Economy

    Though Lawmakers recognize the positive connotations of mobilizing the underground economy to combat the budget deficit, the underground economy appears to be indestructible. From 1990 to 2003 California exhausted significant resources and time to avert wage and hour violations.  Nevertheless, California's efforts were futile due to the exponential growth of California's workforce and inadequate state funding and resources. In 2003, lawmakers noticed that its failure to deter businesses from violating wage and hour laws set off a minor budget deficit. The deadly combination of the underground economy and budget deficit compelled California to declare, "adequate financing of essential labor law enforcement functions is necessary to achieve maximum compliance with state labor laws in the underground economy and to ensure an effective disincentive for employers to engage in unlawful and anticompetitive business practices."  With insufficient state resources and nowhere else to turn, lawmakers called in the people for reinforcements in the war against the underground economy by enacting the Labor Code Private Attorneys General Act of 2004 ("PAGA").   The PAGA deputizes any "aggrieved employee on behalf of himself or herself and other current or former employees" to initiate actions for wage and hour violations on behalf of California.  Bear in mind that California receives seventy five percent of any judgment in favor of the employees, with twenty five percent going right into the state's general fund.   Still, despite its theoretical brilliance, courts were confused as to whether representative actions initiated under the PAGA had to satisfy conventional class action requirements.   This confusion foiled the PAGA's potential to strike underground employment activity on a grand scale.

Scenarios to Erase California' Whopping Budget Deficit

The most harmonious way to erase California's budget deficit is to exterminate the state's underground economy. Official state reports emphasize that the underground economy causes California to lose a whopping six and a half billion dollars each year just in unreported taxable wage income.  Once California implements an effective program to collect the substantial taxable wage income it loses annually, revenues will be realized directly through additional taxes, penalties and interest, and indirectly through voluntary compliance and the resulting fair competition.   Suppose California had collected that money each year for the past ten years. Despite the national recession, the state would currently enjoy a five billion dollar budget surplus rather than a sixty billion dollar deficit. Furthermore, proper wage and tax payments are linked to fair competition.  The fair competition, in turn, would render California better equipped to manage an economic disaster like a national or a global recession. This option, as opposed to the budget plans dangerous tax hikes and spending cuts, is preferable in that it kills two birds with one stone; that is, it mobilizes California's silent but deadly underground economy to combat the more recent and imminent budget deficit.

California Overtime Implications

 The California Supreme Court's decision in Arias v. Superior Court  has profound implications on California's employment market and economy. Currently, two related enemies lay siege on California, threatening not only the state's future prosperity, but perhaps overall survival. The first aggressor, spearheading the attack, is the state's enormous budget deficit. Once touted as the world's eighth largest economy, California now faces a sixty billion dollar budget crisis and a series of tax hikes and spending cuts that only further endanger the people. The other, less recognizable aggressor is California's thriving underground economy.  Mainly comprised of businesses that exploit the constant growth of California's workforce to violate wage and hour laws,  the underground economy is responsible for tax evasion, unfair competition, business failures, job losses, and unsafe working conditions.  This threat, though less recognizable than the budget deficit, is arguably more lethal; after all, it is at least partially responsible for the budget deficit's birth.  Then, once the budget deficit arrives to terrorize California and its citizens, margins tighten and more businesses need to violate wage and hour laws to compete. This frustrates California's efforts to erase the budget deficit.   Anyway, regardless of which threat is more striking, taken together, the underground economy and budget deficit are so toxic that some observers rename the Golden State America's first failed state.

California's Economy Relies on Proper Wage Payments

When employers fail to pay their employees overtime wages for working over 8hours in a workday or 40 hours in a workweek, the California economy suffers for the following reasons:

1. Less Jobs
When employers are following overtime laws, more jobs exist because instead of paying a single employee to work 12 hours in a day the employer is likely to hire two employees to work 6 hours each. For example, assume E makes $10/hr. If he works 12 hours he makes $80 for the first 8 hours and $60 for hours 8-12 (1.5x regular $10/hr rate). That is a grand total of $140 for 12 hours.

On the other hand, if two employees work 6 hours each, the employer only has to pay $120 for the 12 hours of labor, rather than $140 as per the example above.

2. Unfair competition

How can I company that follows overtime laws compete with one that does not? It is Understood! 

to a t-shirt company that gets the shirts for 5$/shirt trying to compete with one that gets the shirts for $1/shirt.

Blumenthal, Nordrehaug & Bhowmik is here to help you fight back against your current or former employer and get fully paid for all of the time you work.

California overtime laws

Employees are often required to work off the clock labor for their employers. Sometimes, the employees are required to clock out for a meal or rest break, despite the fact that the employees are in fact not taking a break; rather they are continuing to work without being paid. Other times, employees are required to attend mandatory training, attend mandatory meetings and/or phone conferences, though they are not paid for this work.

Are you spending time preparing for work, but not getting paid for that time?
Are you spending time closing down the store or office even though you have clocked out? Are you paid 1.5x your regular rate of pay for all hours worked in excess of 40hours in a workday or 40 hours in a workweek?

Blumenthal, Nordrehaug & Bhowmik is a premier overtime law firm, with a long history of recovering wages for employees throughout the state of California. Call (858) 551-1223 today if you believe you have been cheated out of money you earned by performing labor for your current and/or former employer.

Employees are entitlted to be paid for ALL of the hours they work, unless the employee can prove otherwise.

The Rainmaker Retreat

A few weeks ago Jon Zacharias from our office attended the Rainmaker Retreat in Las Vegas. The event was transformative and enlightening, he said. But most importantly, he came back with information that will forever change the way our law firm operates.

Rich Strauch from the Rainmaker Institute taught him how to create systems that run the law firm. Technology coupled with the Rainmaker's valuable information makes these systems beyond attractive for law firms. Instead of the people running the law firm, it is possible for a system to keep track of everything. Although our lawyers are smart, they are not smarter and more organized than a computer.

In addition, the Stephen Fairley of the Rainmaker Institute shared his unrivaled knowledge of how to market a law firm. We now know some very effective expensive marketing secrets, as well as some very effective inexpensive marketing secrets.

In short, if you are a small law firm, regardless of whether or not your doing well, you want to go to this retreat. If your struggling, it will take your firm to the next tier. If your doing well,  it will take you to the next tier.