Legally Speaking Archive

Recent court decisions are applying state unfair-competition laws in new ways that expose California employers to much costlier penalties than in the past for violating wage and hour rules. Lawsuits brought on behalf of hundreds of employees have yielded back pay awards of $25 million to $60 million against companies who wrongly classified workers as exempt from overtime pay.

California has long had some of the nation’s most stringent wage and hour laws, but these rules have been poorly enforced in recent decades.

In the 1960s, the State Department of Industrial Relations actively investigated worker complaints of underpayment, sending agents to workplaces to audit time cards and payrolls, and order payment of wages due. But in the mid-1970s, policy changes obligated the individual employee to prove claims for underpaid wages. Hourly employees were often outmaneuvered by employers familiar with administrative hearings, and rampant wage and hour violations plagued some industries. Because the amount of wages due to individual workers tended to be relatively small, attorneys rarely took such cases.

Creative lawyering and recent court decisions have drastically changed this picture, and upped the ante for employers who persist in underpaying wages.

In Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, the California Supreme Court announced loud and clear that an employer who fails to accurately pay wages can be sued under the state’s legendary unfair competition laws. These laws, found in Business and Professions Code sections 17200 and 17500, are dreaded because of their wide application and stinging penalties. Most formidably, a successful plaintiff in an unfair competition case can force the wrongdoer to disgorge and restore to the rightful owner any profits obtained through an unfair business practice.

Virtually any act that violates a law provides the basis for a claim under the unfair competition law. Even practices that are not strictly illegal can be considered unfair and grounds for a lawsuit. In the wage and hour context, this means failure to pay wages due can draw a private lawsuit that will force the employer to repay all underpaid wages, plus other costs. And when attorneys represent hundreds of underpaid workers instead of one at a time, the prospect of hitting it big makes it easier for workers to find willing lawyers.

A San Diego law firm won a $25 million overtime pay settlement for Rite Aid Corp. employees. In the San Francisco area, a trial court ordered Farmers Insurance to pay $90 million in back overtime pay to insurance adjusters it wrongly classified as exempt. Other companies hit by unfair competition wage lawsuits include Denny’s, Blockbuster and Neiman Marcus.

In Cortez v. Purolator, the high court ordered Purolator to restore to the suing employee her unpaid overtime wages, interest, waiting time penalties and attorney fees. In addition, Purolator was ordered to pay wages due to any other shortchanged employees. This decision overruled earlier appellate opinions that refused to award back wages under the state’s unfair competition laws.

The state Supreme Court confirmed the unfair competition law gives the courts the power to make orders “as may be necessary to restore to any person ... any money ... acquired by means of such unfair competition. ... Earned wages ... are as much the property of the employee who has given his or her labor to the employer in exchange for that property as is property a person surrenders through an unfair business practice.”

In a concurring opinion, Justice Kathryn Werdegar discouraged trial courts from caving in to employers who claim they made an honest mistake. “As between a person who is enriched as the result of his or her violation of the law, and a person intended to be protected by the law who is harmed by its violation, for the violator to retain the benefit would be unjust,” Werdegar observed.

Merely calling an employee “salaried” instead of “hourly” does not immunize an employer from wage claims. Rather, the work actually performed by that employee must fit within complicated state criteria to be exempt from overtime requirements. An employer can also inadvertently become liable for overtime by improperly docking salaried employees for absences. Other possible grounds for labor-related unfair competition lawsuits include failure to pay mandated prevailing wages, failure to pay laundry allowances to uniformed employees, failure to provide legally mandated break periods and virtually any other violation of state labor laws.

These legal developments mean employers have a greater incentive to properly classify exempt and non-exempt workers, and stay in compliance with state labor laws.

Pamela Lawton Wilson is a civil litigator at the Downtown law firm of Sullivan, Wertz, McDade & Wallace, where she represents clients in litigation matters, ADA, prevailing wage and political law compliance, and writs and appeals.