Ninth Circuit Grounds Imposition of ‘Subsequent’ PAGA Penalties Prior to Court or Labor Commissioner Citation, But Lets Waiting Time Penalties and Other Labor Code Violations Soar for Interstate Employers
In Bernstein v. Virgin America, Inc., on February, 23, 2021, the Ninth Circuit issued a decision that’s a mixed bag for employers. Bernstein v. Virgin Am., Inc., No. 19-15382, 2021 WL 867583 (9th Cir. Feb. 23, 2021).
First, on the positive side, the panel reversed the district court’s ruling that Virgin American, Inc. (“Virgin”) was subject to heightened civil penalties under the Private Attorneys General Act (“PAGA”) for any California Labor Code violation that occurred prior to the district court’s decision. The panel explained that because Virgin was not previously notified by the Labor Commissioner or any court of any California Labor Code violations, there could be no heightened, second-tier penalties for “subsequent violations” of the Labor Code. Under PAGA, the penalty for an initial violation is $100 per pay period, while the penalty for a subsequent penalty doubles to $200 per pay period. These penalties are assessed per employee, per pay period, so they can quickly snowball.
Plaintiffs routinely argue that employers are subject to the heightened “subsequent violation” penalties for any violations that occur after: (i) any prior violation during the limitations period, or (ii) receipt of the PAGA notice letter addressed to the Labor and Workforce Development Agency (“LWDA”) and/or the court-filed complaint. But the Bernstein decision should drastically reduce the frequency of such arguments, as well as the potential for employer liability prior to any citation from the LWDA or any court. At the same time, employers who do receive such citations should act quickly to remediate and reduce the risk of subsequent violations. (It remains to be seen whether this logic regarding the heightened “subsequent violation” for civil penalties also applies to “subsequent violations” for purposes of statutory penalties under Labor Code § 226 for wage statement violations.)
Second, the decision was also a win for employers because the panel followed the California Supreme Court’s decision in Oman v. Delta Air Lines, Inc. in rejecting Plaintiffs’ argument that Virgin failed to pay all minimum wages due under its block-system payment structure. The court reasoned that the fact that pay is not attached to each hour of work did not mean that Virgin violated California law. Compensation systems that offer a guaranteed level of compensation for each duty period and rotation can be permissible so long as they do not promise a particular hourly wage.
Other portions of the decision are not so favorable to employers, particularly those who operate across state lines. As a threshold matter, the panel determined that the dormant Commerce Clause (whose aim is to limit economic protectionism through regulations designed to benefit in-state economic interests by burdening out-of-state competitors) did not bar application of the California Labor Code to interstate employers, and that certain federal statutes did not preempt the California Labor Code’s application to interstate employers operating across state lines. Therefore, interstate employers with workers in California must comply with California law on meal and rest breaks.
Further, interstate employers operating in California will not find shelter in the looser standards set forth in the Federal Aviation Administration Authorization Act or the Airline Deregulation Act because the court found they do not preempt the California Labor Code with respect to meal and rest breaks. On this basis, the panel affirmed the district court’s summary judgment ruling in Plaintiffs’ favor on their meal and rest break claims.
With respect to Plaintiffs’ wage statement claims, the panel relied on the California Supreme Court’s decision in Ward v. United Airlines, Inc. to hold that Labor Code § 226 applied to Virgin’s California flight attendants. Thus, employers with employees who do not perform the majority of their work in any one state, but who are based for work purposes in California, must continue to be mindful of possible obligations to issue California-compliant wage statements to employees working across state lines.
Finally, the panel recognized there is no California Supreme Court case specifically interpreting the reach of California’s waiting time penalty requirements to interstate employers. The panel analogized to Labor Code section 226 (wage statement penalties), which also pertains to a tangible object an employer must provide to employees and is technical in nature, and held that sections 201 and 202 (waiting time penalties) apply to interstate employers as well. (Waiting time penalties, which require payment of a full day’s wages for each day wages are due and owing for a maximum of 30 days, can be some of the most substantial penalties assessed when liability is found for employers.) Thus, this decision significantly expands potential liability for interstate employers with workers in California who may be owed any wages.