Beware of California’s Wage and Hour Penalty Multiplier (Part 3 of 5)

This is the third part of our five-part series on Why You Should Treat Wage and Hour Compliance Like Safety in California. Part 1 | Part 2 | Part 3 (this is it!) | Part 4 | Part 5.

In Part 1 of this series, we discussed how businesses all over the state have learned to manage the risk of violating California’s workplace health and safety laws. From Cal/OSHA to elaborate safety training and prevention programs, a well-established infrastructure exists to minimize health and safety violations and manage exposure to health and safety lawsuits. We contrasted this with the threat of wage and hour lawsuits, which present a greater threat to California employers due to a lack of administrative or preventative infrastructure.

In Part 2 of this series, we shared one reason why wage and hour lawsuits in California can be so devastating to employers compared to health and safety violations. The reason? Health and safety risks often involve a limited number of employees, inherently limiting their potential costs. Wage and hour exposure, however, often involves all your California hourly (non-exempt) employees. Class actions cover every current and former employee for four years or more. PAGA claims go back around a year but have a higher penalty structure.

That’s not the only reason why California employers’ exposure to wage and hour lawsuits often dwarfs the liability from serious safety violations. There are three more.

The next thing employers should be alarmed about is astronomically driving up the costs of wage and hour lawsuits. It is California’s wage and hour penalty multiplier (DUN DUN DUNNNNN!!! Cue scary music).

Here’s How Wage and Hour Penalties Add Up So Quickly for California Employers

California’s aggressive wage and hour penalty and remedy laws drive up the potential exposure in wage and hour lawsuits far higher than any safety violation ever will. This is because of the California wage and hour penalty multiplier. California laws are structured to penalize employers by assessing a penalty for each potential wage and hour violation and sometimes stacking penalties upon penalties for the same type of violation for a period that can go back as far as four years.

For example, a single missed, late, or short meal period can trigger the requirement to pay:

(1)    The employee one hour of meal period premium pay;

(2)    A separate penalty of up to $50 per pay period;

(3)    Potential derivative penalties for wage records not being accurate due to the meal period violation; and

(4)    The employee’s attorneys’ fees for recovering these penalties.

In this way, a single meal period infraction can result in $50, $60, or sometimes even $100 of potential exposure per meal period! When facing a class or PAGA action involving hundreds of employees, a single compliance issue with a meal period can become multi-million-dollar exposure. Let’s run the numbers on a few real-world examples showing how the wage and hour penalty multiplier works (these are conservative and not extreme examples):

Class Action Example

200 employees per year x 50 weeks per year x 4 years x 1 hour of pay @ $15 x 1 meal period violation per week = $600,000 + potential stacking penalties of $200,000 + derivative wage statement penalties of $200,000 + employee’s attorneys’ fees of $200,000 = $1,200,000.

PAGA Example

400 employees x 26 pay periods x $50 per pay period x 1 violation = $520,000 + employee’s attorneys’ fees of $200,000 = $720,000.

Here’s how this plays out in a real-life example:

Case Study: Inaccurate Wage Statements Costs McDonald’s Restaurants of California, Inc. $2 Million

In 2022, a California federal judge approved a $2 million settlement and conditionally certified a class of 5,400 workers in a lawsuit accusing McDonald’s Restaurants of California Inc. of issuing inaccurate wage statements.

The lawsuit, filed by a former McDonald’s employee in 2020, alleged the company failed to properly identify overtime rates of pay and hours on employee wage statements. According to California Labor Code section 226, employers are required to provide accurate, itemized wage statements to their hourly non-exempt employees showing gross and net wages, deductions, the date range of the pay period, and hourly rates and hours worked. Employers must give these wage statements to employees every two weeks or on each payday, and they must keep them for three years. The full text of the statute can be found here.

The settlement against McDonald’s Restaurants of California, Inc. secured final approval from a federal judge in California in September of 2022. The settlement resulted in an average payout per class member of $216.05, a service payment of $10,000 for the lead plaintiff, and up to 33.33% of the $2 million settlement fund for class counsel.

The lawsuit followed on the heels of another, much larger settlement in 2020, in which McDonald’s Restaurants of California, Inc. was accused of using a timekeeping system that cheated workers out of overtime, barred workers from taking rest breaks during their shifts, and forced workers to clean and iron their uniforms out-of-pocket. The lead plaintiff, Maria Sanchez, claimed that McDonald’s failed to pay overtime to employees who worked more than eight hours during a 24-hour period. Managers were also accused of adjusting time records to erase some employee hours worked, disallowing meal breaks during busy periods, and requiring unpaid work outside of their shifts.

The Happy Meal hawker paid out $26 million to settle those wage theft class action claims involving roughly 38,000 cashiers and cooks in California dating back to January of 2009 (the lawsuit was filed in 2013).

It’s Time to Take Wage and Hour Compliance Seriously in California

If you need more examples of California’s wage and hour penalty multiplier, check out SHRM’s Top 10 Wage and Hour Class Actions Cost Nearly $500M from 2019 (yes, the numbers are far worse now in 2024).

If California employers want to avoid being on similar top wage and hour class action lists, they need to be aware of their exposure to wage and hour lawsuits and start implementing best practices to mitigate their exposure. If you have already been sued in a wage and hour lawsuit, you understand how expensive they can be. If you have not been sued, it’s only a matter of time. Employers must prioritize wage and hour compliance and develop comprehensive, balanced compliance strategies to mitigate the risks associated with wage and hour violations. An excellent place to start? Implement a California compliance plan and start training your employees in wage and hour policies and best practices (just like you probably already do for safety).

Without a good compliance strategy, employers will be easy prey on the rolling plains of the California legal landscape, where PAGA Enforcers are on the Prowl (the next article in our series).