Legal Brief

Wage and Hour Law Update for California Special Districts

By Ryan Quadrel, Attorney, Slovak Baron Empey Murphy & Pinkney LLP

California’s onerous wage and hour laws have long been a thorn in the side of private employers. The plaintiffs’ bar continues to rake in profits from lawsuits filed under employer-sided “sue your boss” legislation (e.g., the California PAGA). These laws are not only burdensome and expensive to defend, but they typically provide a oneway shifting of attorneys’ fees. Hence, employees’ attorneys have even more of an incentive to pursue these “bet the business” lawsuits.

Fortunately for California special districts, many of these notorious provisions of the Labor Code are inapplicable to public employees. The general rule is that the California Labor Code does not apply to public agencies unless it specifically says that it does. Instead, public employees are mostly governed by the requirements of the federal Fair Labor Standards Act (FLSA), which are relaxed by comparison.

Public agencies can take some reprieve but must still tread lightly when it comes to setting compensation policies and practices for employees. California is, after all, one of the most litigious states in the nation and consistently ranks highest in judgment awards and settlement values.

Notably, public employees are still subject to California’s minimum wage, which is one of the highest in the country. For 2022, the minimum wage for smaller employers (fewer than 26) is $14 per hour and for larger employers the hourly minimum wage is $15. On January 1, 2023, the rate goes up again to $15.50 for all employers, regardless of size.

Additionally, many wage and hour claims brought by public employees are not subject to the Government Claims Act. Claims for wages or other expenses and allowances are expressly exempt from the requirement to submit a claim within 6 months to avoid forfeiture. This means that a claim for unpaid wages may be brought up to 2-3 years later under the applicable statutes of limitation.

However, special districts do get a “break” from California laws that mandate stringent overtime and meal break requirements, which are governed by the FLSA. Nevertheless, misclassification of employees as “exempt” is a common error that we see in our employment litigation practice. Even under the more relaxed FLSA standard, it is important that public agencies regularly audit job descriptions and ensure that they list primary duties that are considered exempt under one of the legal “tests” for executive, professional, administrative, outside sales or computer systems employees.

Payroll audits are also recommended to ensure that exempt employees are consistently earning at least the standard salary level set by the Department of Labor (DOL). As of January 1, 2020, the minimum salary for exempt employees is $684 per week ($35,568 annually). The DOL also raised the minimum salary threshold for “highly compensated employees” from $100,000 to $107,432 per year.

Misclassification claims can become costly because they permit employees to recover years of backpay for unpaid overtime. If several employees are misclassified, it can also provide a basis for employees to bring a class action or collective action under California’s Private Attorneys General Act (PAGA) to aggregate their claims.

By design, the PAGA deputizes private citizens to step into the shoes of the Labor Commissioner and collect civil penalties owed to the State for violations of the Labor Code. In practice, PAGA actions are commonly used to conduct fishing expeditions with the hope of uncovering technical violations

or typographical errors on wage statements. The average PAGA case aggregates in 7-figure liability, even if the violations were inadvertent and the plaintiffs themselves were not actually harmed.

Private employers have been plagued by the PAGA for the past 18 years but its applicability to public agencies has been a question that California courts have routinely declined to address. Recently, two judicial decisions have shed some light on this question. The answer suggests that public agencies should have the PAGA on their compliance radar.

In the first case, Sargent v. Board of Trustees of California State University (Sargent), the Court determined that public agencies are not categorically immune from PAGA claims and could be liable for certain penalties. However, liability is limited to a certain type of penalty that is specified in the Labor Code, and not the type that is provided as the PAGA’s “default” penalty for labor laws that do not themselves provide a penalty.

Since these “default” or “gap-filler” penalties are the most common category

It is important that special districts consider their policy on employment arbitration agreements.

alleged in PAGA litigation, the Sargent decision serves to insulate public agencies from penalties that typically have the broadest application. This is counterbalanced, however, with the Court’s finding that public agencies are not generally immune from the PAGA, which may have paved the road for more public employees to file PAGA claims. A Cal/OSHA regulatory violation is one example of a labor law that provides for penalties and, under Sargent, is now recognized as a violation that a public employee can seek to recover under the PAGA.

In the second case, Viking River Cruises, Inc. v. Moriana (Viking River), the US Supreme Court held that PAGA claims are not immune from employment arbitration agreements. The high court’s decision unraveled years of employee-friendly precedent and paved a path for both private and public employers to avoid costly PAGA claims with artfully drafted employee arbitration agreements.

Since Sargent has now placed public agencies in the spotlight for PAGA litigation, it is important that special districts consider their policy on employment arbitration agreements. If party to a MOU, consider whether the arbitration requirement properly addresses the handling of PAGA claims. Under Viking River, artfully drafted arbitration agreements could shield public agencies from PAGA litigation permeating from the private sector.

The laws that follow Sargent and Viking River will have a lasting impact on wage and hour litigation involving public agencies. Special districts seeking to remain compliant in California must traverse a minefield of interwoven state and federal laws. Wage and hour laws are no exception and the best way to safely navigate is to work proactively with knowledgeable employment counsel.