The Division of Labor Standards Enforcement of the Department of Industrial Relations is generally charged with enforcing employment statutes and regulations, either in administrative actions or through litigation. Under existing law, an employer may face administrative sanctions, civil fines and penalties, and criminal penalties for violations of employment statutes or regulations.

This bill would permit a person to raise as an affirmative defense that, at the time of an alleged violation of statute or regulation in a judicial or administrative proceeding, the person was acting in good faith, had sought, relied upon, and conformed with a published opinion letter or enforcement policy of the division, and had provided true and correct information to the division in seeking the opinion letter or enforcement policy. The bill would require any person who asserts the affirmative defense to post a bond as prescribed. These provisions would be repealed on January 1, 2024.

The Division of Labor Standards Enforcement of the Department of Industrial Relations is generally charged with enforcing employment statutes and regulations, either in administrative actions or through litigation. Under existing law, an employer may face administrative sanctions, civil fines and penalties, and criminal penalties for violations of employment statutes or regulations.

This bill would permit a person to raise as an affirmative defense that, at the time of an alleged violation of statute or regulation in a judicial or administrative proceeding, the person was acting in good faith, had sought, relied upon, and conformed with a published opinion letter or enforcement policy of the division, and had provided true and correct information to the division in seeking the opinion letter or enforcement policy. The bill would require any person who asserts the affirmative defense to post a bond as prescribed.

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: SB 524 Hearing Date: April 26, 2017

Subject: Employment: violations: good faith defense

KEY ISSUE

Should the Legislature provide employers with a defense against prosecution for alleged violations of certain labor laws, so long as those employers attempted to follow relevant guidance issued to them in an opinion letter by the Division of Labor Standards Enforcement?

ANALYSIS

Existing law

1. Establishes the Division of Labor Standards Enforcement (DLSE) within the Department of Industrial Relations and generally charges the DLSE with enforcing employment statutes and regulations, either in administrative actions or through litigation under which an employer may face administrative sanctions, civil fines and penalties, and criminal penalties for violations of employment statutes or regulations. (Labor Code §79-107)
2. Imposes penalties on employers only if they willfully fail to pay any final wages owed to an employee who is discharged or who quits. (Labor Code §203)
3. Allows employers who fail to pay the minimum wage to avoid paying penalties if they demonstrate that the failure was in good faith and that the employers had reasonable grounds for believing that they had not violated of any provision of the Labor Code relating to minimum wage, or an order of the Industrial Welfare Commission. (Labor Code §1194.2)
4. States that an employer, who fails to provide a wage statement to an employee, either semi-monthly or at the time of payment of wages, is subject to paying damages to that employee if they suffer injury as a result of a knowing and intentional failure by an employer to do so. (Labor Code §226[a] and [e])

Existing Federal Law

1. States that an employer shall not be subject to any liability or punishment for failure to pay minimum wages or overtime compensation under the Fair Labor Standards Act if they plead and prove that the failure was in good faith in conformity with and in reliance on any relevant administrative regulation, order, ruling, approval, or interpretation, of any agency of the United States, or any administrative practice or enforcement policy of any such agency. This defense remains valid even if the relevant administrative regulation, order, ruling, approval, interpretation, practice, or enforcement policy is modified, rescinded, or invalidated by a judicial authority. (29 United States Code §258-259)

This Bill

1. Provides that any person who complies with a published opinion letter issued to that person by the DLSE shall not be liable for costs or subject to punishment, except for payment of unpaid wages, in any prosecution by the DLSE in a judicial or administrative proceeding for a violation of statute or regulation if the person proves that, at the time the alleged violation occurred, the person acted in “good faith”, by doing all of the following:
   1. Seeking an applicable opinion letter from the DLSE prior to the complaint, dispute, or commencement of an investigation.
   2. Conforming to the opinion letter’s contents.
   3. Providing true and complete information to the DLSE regarding all pertinent facts and circumstances in seeking the opinion letter.
2. States that this defense against prosecution shall apply even if, after the alleged violation occurred, the applicable opinion letter is modified or rescinded by the DLSE, or invalidated by a judicial authority.
3. Further states that there is no defense against prosecution if the alleged violation occurred after the applicable opinion letter is modified or rescinded by the DLSE, or invalidated by a judicial authority.
4. Requires any person who relies upon an opinion letter in this way to post either a bond or a cash deposit that covers the amount of any alleged unpaid wages, as determined by the court or administrative body. The person must provide written notification of the posting to all parties involved.
5. Stipulates that the posting shall be on the condition that, if any judgment is in favor of the employee, the person shall pay the amount owed pursuant to the judgment. If the person prevails or the case is dismissed, withdrawn, or settled, the court or administrative body shall return the bond or deposit to the person within 10 business days.
6. Declares that nothing in this bill gives any greater legal weight to an opinion letter than it would otherwise have without the provisions of this bill.
7. Likewise declares that this bill does not require the DLSE to issue an order, ruling, approval, interpretation, or enforcement policy, nor does it prevent the DLSE from modifying or rescinding an order, ruling, approval, interpretation or enforcement policy.
8. Also declares that this bill does not authorize the DLSE to issue an order, ruling, approval, interpretation, or enforcement policy that is contrary to statute or regulation, or prevent the DLSE from modifying or rescinding an order, ruling, approval, interpretation or enforcement policy that is contrary to statute or regulation.

COMMENTS

1. Need for this bill?

According to the author, as part of the DLSE’s effort to fulfill its responsibility to enforce wage, hour, and working condition labor laws, the DLSE issues opinion letters on various related topics, as well as an enforcement manual that sets forth its interpretations and positions on these issues. Currently, employers are encouraged to refer to the DLSE’s written materials for guidance on these topics when there is no published, on-point case available.

However, the author believes that employers are not provided with certainty that they will be shielded from liability if they comply in good faith with the DLSE’s written opinions or interpretations. Consequently, the author states that this bill would eliminate this problem and provide businesses in California with the security of knowing that they can rely on advice from the DLSE regarding how to comply with the law. Specifically, the author believes that this bill would prevent an employer from being financially penalized if the employer relies in good faith on a written opinion letter from the DLSE, and a court ultimately overrules the DLSE’s advice.

2. Proponent Arguments:

Proponents state that California has burdensome labor and employment laws and that small business lack the financial resources to hire a human resources department or outside counsel to advise them on how to comply with these laws. Instead, proponents feel that they only have the DLSE for guidance. As a result, they believe that SB 524 helps small businesses by encouraging them to seek out and rely upon the advice they receive from the DLSE regarding how to comply with the law.

Proponents go on to assert that a bad actor operating in the underground economy is not going to seek out advice voluntarily from the regulatory agency from which it is trying to hide. Moreover, they believe that a bad actor will not be able to satisfy any of the safeguards in SB 524. Consequently, they state that this bill ensures that only the good actor who actively seeks out advice and conforms to it will be able to avoid penalties and fines.

Proponents state that since 1947, the federal government has provided a complete defense against liability for employers who rely in good faith upon the advice, opinion letters, and guidance of the Department of Labor regarding the Fair Labor Standards Act. Proponents argue that uncertainty for employers regarding the correct application of California’s numerous labor and employment laws detrimentally impacts the state’s economy as well as its employees. As such, proponents believe that providing certainty through SB 524 will assist all employers in their efforts to comply with the law, thereby producing a better business environment, growth in the economy, and an improved work environment for employees.

3. Opponent Arguments:

The California Labor Federation states that SB 524 would undermine the enforcement of California labor law by granting employers blanket immunity with no regard for the actual harm to workers. They go on to state that this bill would allow state agencies to make sweeping and even politically-driven decisions through DLSE opinion letters, that can be relied upon as a good faith defense, that would harm employees and undermine labor law compliance. The Labor Federation argues that during the Schwarzenegger Administration, certain actions issued in opinion letters contradicted statute and were later invalidated by the courts or withdrawn because of intense public opposition.

The California Employment Lawyers Association (CELA) states that SB 524 would give businesses a nearly limitless opportunity to claim that they relied on the word of a bureaucrat instead of abiding by the decisions of judges constitutionally-charged with interpreting the state’s laws. CELA argues that this bill would usurp the constitutional power of the judiciary to interpret California law by vesting that authority with the DLSE, which is responsible for adjudicating wage claims, and enforcing the Labor Code and Industrial Welfare Commission Wage Orders, not issuing opinions that can be treated as law.

CELA further contends that opinion letters typically arise out a limited set of facts presented by employers often as part of a hypothetical situation, and always without an actual body of evidence to consider. CELA claims that opinion letters are, by definition, meant to be instructive and not binding precisely because the information upon which they are based is sparse and often hypothetical. These factors, among others, including CELA’s position that many good faith defense protections already exist in the Labor Code, lead CELA to believe that SB 524 is bad public policy and contrary to California’s long history of workers’ rights.

4. Double Referral:

This bill has been double-referred and, if approved by this committee, will be sent to the Senate Judiciary Committee for a hearing.

5. Prior Legislation:

AB 2688 (Brown) of 2014, Died in the Assembly Labor and Employment Committee – this bill is nearly identical to SB 524, with the exception that AB 2688 included a sunset date of January 1, 2019.

SUPPORT

American Fire Sprinkler Association

American Petroleum and Convenience Store Association

Associated Builders and Contractors – San Diego Chapter

Associated General Contractors

BizFed

California Ambulance Association

California Association for Health Services at Home

California Association of Joint Powers Authorities

California Association of Winegrape Growers

California Business Properties Association

California Chamber of Commerce

California Construction and Industrial Materials Association

California Employment Law Council

California Grocers Association

California League of Food Processors

California Manufacturers and Technology Association

California Retailers Association

California State Council of SHRM

Construction Employers’ Association

Fresno Chamber of Commerce

Independent Roofing Contractors of California, Inc.

National Federation of Independent Business

Plumbing-Heating-Cooling Contractors Association of California

Western Electrical Contractors Association

Wine Institute

OPPOSITION

CA Conference Board of the Amalgamated Transit Union

CA Conference of Machinists

California Employment Lawyers Association

California Labor Federation, AFL-CIO

California Nurses Association

California Teamsters Public Affairs Council

Consumer Attorneys of California

Engineers & Scientists of CA, IFPTE Local 21, AFL-CIO

International Longshore & Warehouse Union

National Nurses United

Professional & Technical Engineers, IFPTE Local 21, AFL-CIO

State Building and Construction Trades Council

UNITE-HERE, AFL-CIO

Utility Workers Union of America, AFL-CIO

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