Yesterday, California Governor Jerry Brown signed SB 588, known as the “California Fair Day’s Pay Act.” This new law, which takes effect on January 1, 2016, aims to crack down on “wage theft” in California by giving the Labor Commissioner tough new enforcement rights against employers who steal employees’ wages.
What is Wage Theft?
Wage theft is the illegal withholding of wages by an employer that are lawfully owed to an employee. An employer engage in wage theft in a variety of ways, such as failing to pay overtime owed to an employee, failing to pay the required minimum wage, making unlawful deductions in employee pay, forcing employee to work off the clock, or not paying an employees for all hours worked. Wage theft disproportionately impacts low-wage and immigrant workers who may not be aware of their rights or who may be afraid to confront their employers.
To combat wage theft, Governor Brown signed California’s “Wage Theft Prevention Law” back in 2011. That law, which went into effect on January 1, 2012 required private employers in California to provide written notice to all non-exempt new hires of critical employment information, including the employer’s legal name, physical address, payroll dates, and workers’ compensation carrier, as well the wage rate and basis of pay for the new employee. I blogged about that new law, and its impact, here.
How SB 588 Changes Existing Law?
Even with this new law on the books, wage theft continues to be a problem in California. One study has shown that California workers lose up to $1.5 billion each year due to wage theft. Another study showed that, even when an employee prevails on a wage theft claim, only 13% of those successful employees ever recover any money from their employers.
SB 588 seeks to crack down on wage theft by giving the California Labor Commissioner the right to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment. In other words, if an employee brings a successful wage claim against an employer, the Labor Commissioner can now place a lien on the employer’s property or levy on the business’ bank accounts and/or accounts receivable. If the aggrieved employee incurred attorneys’ fees, then the Labor Commissioner can include those attorneys’ fees in the lien or levy.
In addition, SB 588 prevents an employer from closing down its business and re-opening under a new name in order to avoid their debts to workers. Under SB 588, any new business that is “similar in operation and ownership” to the guilty employer is also liable for the wages owed. SB 588 specifically states that a new business will be considered the “same employer” for purposes of liability if (1) the employees of the successor employer are engaged in “substantially the same work in substantially the same working conditions under substantially the same supervisors,”or (2) the new entity has “substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers.”
Under SB 588, an aggrieved employee can now bring wage theft claims against the owners of the employing entity as well as anyone else who acts “on behalf of” the employer. This, in effect, creates individual liability in California for wage and hour violations. As a result of SB 588, the Labor Commissioner can now seize the personal property and bank accounts of individual owners and others who violate California wage and hour laws.
Moreover, once an employer is found to have engaged in wage theft, SB 588 allows the Labor Commissioner to require that employer to post a bond in order to continue to do business in the state. The bond amount ranges from $50,000 to $150,000 depending on the amount of wages found owing. Employers who fail to post the required bond can have their business license revoked by the Labor Commissioner.
Finally, SB 588 authorizes civil penalties for wage theft violations. These are owed in addition to any wages and attorneys’ fees owed to the employee. Under SB 588, the penalty is $2,500 for the first offense and $100 for each calendar day the employer continues to do business in violation of the law (up to $100,000).
You can read the full text of SB 588 here.
What Should California Employers Do?
Starting in 2016, SB 588 adds serious and costly new liabilities for employers — and business owners — who fail to follow California’s complicated wage and hour laws. All employers should re-familiarize themselves with California’s existing wage theft law, a summary of which can be found here as well as in my prior blog post. In addition, employers should consult all applicable Wage Orders that apply to their industry and/or to specific occupations within their industry. Those Wage Orders, which can be found here, recite the basic wage and hour laws with which an employer must comply. Other governing wage and hour laws can be found in the California Labor Code, which is here. Employers who have questions or need further guidance should consult competent employment counsel.