"No Harm, No Foul" : Courts Find Actual Injury Required For Statutory Penalty

Meal and rest breaks are not the only wage and hour issue the California courts are tackling. Several recent decisions have examined what, if any, remedy is available to employees (and a creative class action bar) for purely technical violations of the California Labor Code.

The most recent of these decisions was issued by the California Court of Appeal, Fourth Appellate District, in an opinion certified for publication on December 10, 2008. In that case, Starbucks Corporation v. Superior Court (Case No. G039700), three unsuccessful job applicants sought to represent a class of some 135,000 unsuccessful Starbucks job applicants. The three plaintiffs alleged that the Starbucks employment application included an “illegal question” about prior marijuana convictions and, for that violation, the class was entitled to statutory damages of $200 per applicant (or “a whopping $26 million,” as the court put it).

The court of appeal readily agreed with plaintiffs that the application form failed to satisfy the requirements of Labor Code § 432.8. On one page, the form asked a general question about convictions within the prior seven years.  On the other side of the form, the application included disclaimers for various states, including California, advising applicants of the limitations on their obligation to disclose certain criminal convictions. The court had no problem with the language of the disclaimer, but it found that its placement “at the very end of a 346-word paragraph, with a U.S. disclaimer, followed by a host of irrelevant provisions from states like Maryland and Massachusetts” was not “clear and conspicuous.”

When the court turned its attention to the plaintiffs’ entitlement to statutory damages, it sided with Starbucks. Two of the three named plaintiffs testified that they read the California disclaimer and understood that they did not need to disclose information regarding marijuana convictions more than two years old. Two of the named plaintiffs wrote on the application that they refused to respond. None of the three named plaintiffs had ever been convicted of a marijuana offense (or any other criminal offense). Plaintiffs argued that it did not matter whether they had sustained any injury or loss, the statute provides for an automatic penalty of at least $200 if an employer asks a prohibited question on a job application. The court disagreed, finding that the clear language of the statute indicates that it was intended to protect the class of persons who were stigmatized by a conviction for what is perceived to be a relatively minor form of criminal activity. Plaintiffs were not within this protected class.

Are we starting to see a trend? We have already noted the court of appeal’s decision in Brinker. In Brinkley v. Public Storage, Inc., the court of appeal reached a similar conclusion under Labor Code § 226(e), which establishes a statutory penalty for failure to provide an accurate itemized wage statement. In Brinkley, the court held that the plain language of the statute required that the plaintiff show that the employer “intentionally and knowingly“ failed to provide accurate information on the pay stubs, and that he or other class members suffered injury as a result of the inaccurate information.  In that case, the pay stub erroneously identified certain mileage-related earnings at the rate of $11.20 per hour instead of the actual $0.19 per hour.” The total amount was, however, correctly calculated and, when the employer learned of the error, had it corrected. No “injury,” and therefore, no penalty.

These cases follow a California federal court decision in August 2008, holding that a wage statement that identified the employer as “Spherion Pacific Work, LLC” when the full name is “Spherion Pacific Workforce, LLC” was not a violation of Labor Code § 226(a)’s requirement that the employer’s name and address appear on the check, at least in the absence of any confusion as to the identity of the employer. Beyond that, the court held, as in Brinkley, that the statutory penalty was not available unless the plaintiff suffered injury as a result of the technical violation. See, Elliot v. Spherion Pacific Work, LLC, 572 F.Supp.2d 1169. (C.D. Cal. 2008).

While employers should remain vigilant to the many requirements imposed by the Labor Code, at least they can take some solace that, for these technical violations that do not result in any actual injury to employees, statutory penalties are not automatic. The absence of injury is key; in cases where there was some harm, the courts have not hesitated to impose the statutory penalties. See, for example, Fleming v. Dollar Tree Stores, Inc. (2006) 11 WH Cases 2d 1633 (plaintiffs' allegations were sufficient to withstand a motion to dismiss where wage statement did not identify location within California that would honor paycheck on presentment without fee; plaintiffs established that they were required to pay a fee and in some instances a hold was placed on the out-of-state paycheck).

AnnaMary Gannon authored this blog entry.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.