March 11, 2014

California Court of Appeal Rejects Punitive Damages for Labor Code Violations that Regulate Meal and Rest Breaks, Pay Stubs, and Minimum Wage Laws

Background Facts

Plaintiff Christine Brewer (“Plaintiff”), a waitress at the Cottonwood Golf Course Restaurant (“Cottonwood”), filed suit against Cottonwood, alleging age discrimination and Labor Code violations related to meal breaks, rest breaks, pay stubs, and minimum wage. The jury returned a verdict in favor of Cottonwood on the age discrimination claim, but found in favor of Plaintiff on most of the Labor Code violations. Most notably, the jury returned a punitive damages award of $195,000 finding that Cottonwood had acted with “fraud, oppression, or malice” toward Plaintiff.

On appeal, Cottonwood challenged the punitive damages award arguing that such damages are not available for the pleaded violations of the Labor Code.

California Punitive Damages Law

In determining the appropriateness of the jury’s punitive damages award, the Court of Appeal applied two principles of California punitive damages law. First, punitive damages are ordinarily recoverable only if the following elements are met: (1) the action is for breach of an obligation not arising from contract; and (2) culpable conduct is also present. Second, for claims that involve statutorily imposed obligations, the availability of punitive damages may also be limited by the “new right-exclusive remedy” doctrine. This doctrine provides that “[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate.” De Anza Santa Cruz Mobile Estates Homeowners Assn. v. De Anza Santa Cruz Mobile Estates, 94 Cal. App. 4th 890, 912 (2001) (emphasis in original).

Court of Appeal Decision

The Court of Appeal reversed the $195,000 punitive damages award, ruling that both the “new right-exclusive remedy” doctrine and general punitive damages principals bar an award of punitive damages. Specifically, the Labor Code statutes regulating pay stubs and minimum wages created new rights and obligations not previously existing in the common law, with express statutory remedies, and penalties for violation of those statutes that are punitive in nature. (Cal. Lab. Code §§ 226 and 1197.1.) Similarly, the regulations requiring employers to provide meal breaks and rest breaks also create new rights and obligations not previously existing in the common law. The Irvine Las Vegas Los Angeles San Francisco 2 statutory scheme provides “a comprehensive and detailed remedial scheme for its enforcement,” including liquidated damages, injunctive relief, and potential statutory penalties. (Cal. Lab. Code §§ 512 and 226.7.)

Moreover, the court emphasized that even if the remedies provided by the statutory scheme did not provide the exclusive remedies for the new rights, punitive damages would nevertheless be unavailable. In explaining its reasoning, the court stated that punitive damages are ordinarily limited to actions “for the breach of an obligation not arising from contract,” and Plaintiff’s claims for unpaid wages and unprovided meal/rest breaks arose from rights based on an employment contract.

The Brewer Decision’s Implications for California Employers

While the Brewer decision is promising news for employers, it does not affect an employer’s ultimate liability for violating the Labor Code, including exposure for attorneys’ fees incurred by employees. Indeed, driving much of today’s wage-and-hour litigation, and the expanding number and size of class actions, is the employee’s right to recover attorneys’ fees and costs, as the Fair Labor Standards Act (“FLSA”) and California Labor Code require an award of attorneys’ fees and costs to the employee if the employee prevails on his or her claims.

Wage-and-hour litigation in California continues to be costly, and employers should remain vigilant in their adherence to the law. Employers should consider conducting frequent internal audits to assure compliance with both state and federal wage-and-hour laws.