California Enacts Harsh Changes to the Labor Code to Further Combat Wage Theft  |  By: Catherine A. Veeneman

Employment Law Reporter
Photo of California Enacts Harsh Changes to the Labor Code to Further Combat Wage Theft  |  By: Catherine A. Veeneman

In an effort to curtail widespread wage theft in low-wage industries, Governor Newsom has signed a bill expanding public prosecutors’ authority to independently prosecute certain violations of the California Labor Code which deal with wage and hour or employee classification provisions.  Assembly Bill 594 seeks to combat wage theft by unscrupulous employers by making multiple amendments to the Labor Code.

AB 594 stems from the California Legislature’s determination that instances of wage theft have become so prevalent in the state that the Division of Labor Standards Enforcement can no longer adequately police and address the problem on its own.  The bill provides relief by adding an “alternate enforcement” provision as sections 180 thru 182 of the Labor Code which grants “public prosecutors” (defined as the Attorney General, district attorney, city counsel, or any other city or county prosecutor) the authority to bring an action, either civil or criminal, against an employer for violation of specified provisions of the Labor Code that concern wage and hour or employee/independent contractor classification matters.  Before a public prosecutor can proceed with an action, however, they will first provide a 14-day notice to the DLSE, so that the Labor Commissioner may intervene in the action, should it wish to do so.  Nevertheless, the failure to provide such a notice does not constitute a defense to the action.

In addition to unpaid wages, interest and penalties, the court may award a prevailing plaintiff in the action its reasonable attorney’s fees and costs, including expert witness fees and costs.  Any money recovered through one of these actions will first be put towards making affected employees whole.  Civil penalties are to be contributed to the state General Fund.  Employers hoping to avoid this alternative enforcement provision through private arbitration agreements will be disappointed as the bill states that arbitration agreements between the employer and employee will have no effect on the authority of a public prosecutor to bring an action against the employer under this provision.  

With respect to employers that willfully misclassify employees as independent contractors, AB 594 amends section 226.8 of the Labor Code to add stricter punishments.  Under the revised law, an employer will be fined for either willfully misclassifying an individual as an independent contractor or depriving the misclassified individual of owed compensation, whether through charging a fee or making deductions from the individual’s compensation.  An employer faces a fine of anywhere between $5,000-$15,000 for each violation.  However, if it is determined that the employer has engaged in a pattern or practice of these violations, the fine is increased to $10,000-$25,000 for each violation. 

In addition to monetary fines, the new law requires any employer found by a court to have violated the revised provision to prominently display for one year, either on its website or at a physical location, a notice stating: that the employer has been found in violation of the misclassification provision; that the employer has changed its business practices to avoid further violations; that any employee who believes they may have been misclassified as an independent contractor should contact the Labor Workforce Development Agency at the address, phone and email provided; and a statement that the notice has been posted pursuant to a state order.  

AB 594 also grants the Labor Commissioner the power to enforce Labor Code section 226.8.  Further, the revised provision also extends liability to any any successor corporation, owner, or business entity that (1) has one or more of the same principals as the employer subject to penalty, and (2) is engaged in the same or similar business as the employer subject to the penalty.

The changes that AB 594 makes to the Labor Code have significant potential implications for all employers operating in California.  There are now several entities with standing to commence litigation against an employer for violation for several Labor Code provisions.  Considering that these same violations could serve as grounds for a criminal action against an employer, this increase in the number of potential prosecutors should not be taken lightly.  That being said, given the high volume of cases these public prosecutors already contend with on a daily basis, the extent to which any will actually take advantage of this new power is not yet clear.  Moreover, they will only have a limited time to do so, as Labor Code sections 180 thru 182 will only remain in effect until January 1, 2029.  Regardless, employers should consider this legislation as an opportunity to review their policies to ensure they are in compliance with state wage and hour and classification laws.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.



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