Why California Employers can actually Benefit by Violating State Labor Laws

The California class action lawsuit statute entices employers to commit Labor Code violations in two respects. Foremost, businesses can benefit from paying improper wages and taxes and trounce liability all together without ever arguing whether or not a violation was indeed committed. To achieve certification under California’s class action statute, the following requirements must be satisfied: (1) the parties must be numerous; (2) there must be an ascertainable class; (3) there must be a well-defined "community of interest" in the questions of law or fact affecting the parties to be represented; and (4) class treatment of employees' claims must be superior to other available methods for the fair and efficient adjudication of the controversy. The “community of interest” requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. The law requires employees to move for class certification before the action proceeds on the merits.

Employers have developed many effective techniques to manipulate these requirements to beat class certification. One approach employer’s use is to focus the court's attention on the credibility and sufficiency of the evidence. For example, employers often proffer individual anecdotal stories of liability, reshape the employees' theory of the case, and then claim that individual issues predominate. Moreover, opponents to certification use the “bait and switch” technique to confuse the trial court as to the issues of the case. In one case, for instance, the employer successfully convinced the court to deny class certification since the work of employees varied week by week and assignment to assignment. Moreover, employers can defeat class certification even where employees meet the numerosity, typicality, commonality, and adequate representation requirements. 

The second incentive to commit Labor Code violations is that losing the certification battle does not mean the employer loses the lawsuit. Conversely, employers can still benefit since a class settlement, absent the assessment of civil penalties, can be a discount on labor received. California courts presume settlements are fair. Class counsel often persuades the class to settle due to the fact that it generally takes the case on a contingent fee and hopes to cash in on the investment. Since discovery with respect to certification is limited, attorney’s fees are not too costly at this point in the litigation. Thus, employers can pay the representative employees and attorneys handsomely to agree to the settlement, but pay the class members quarters on the dollar. 

This means that even when they lose the certification battle and decide to settle, employers still benefit financially. Employers are aware of this economic advantage of operating in the underground economy without being subject to civil penalties, as can be seen from the huge percentage of businesses that operate in violation of the Labor Code. In fact, employers even flout the fact that they violate California wage and hour laws and have been able to get away with the violations for such a long time.