No Punitive Damages for Labor Code Violations
By Connor Moyle
The Court of Appeal for the Fourth Appellate District issued a decision last week clarifying that punitive damages are not available for violations of the California Labor Code statutes regulating meal and rest breaks, pay stubs, and minimum wage laws. In Brewer v. Premier Golf Properties, the court reversed a jury’s award of $195,000 in punitive damages (subsequently reduced to $75,000 by the trial court’s conditional new trial order) based on the jury’s determination that the employer acted with malice in relation to its alleged Labor Code violations.
Brewer, a waitress at a golf course restaurant, sued her employer (“Cottonwood”) alleging age discrimination, meal and rest break violations, and other violations of the Labor Code including failure to pay the minimum wage and failure to provide accurate itemized wage statements. After a bifurcated trial, the jury found for the defendant on Brewer’s age discrimination claim. However, during the same phase of trial, the jury returned a verdict in favor of the plaintiff on her Labor Code claims, finding that Cottonwood (1) failed to provide meal and rest periods as required by law, (2) failed to pay wages at the required minimum rate, and (3) failed to provide accurate itemized wage statements. When the jury also returned a finding that Cottonwood had acted with “oppression, fraud or malice,” the court submitted a supplemental special verdict to the jury that sought to determine whether the jury found malice based on conduct relating to (1) the age discrimination on which Cottonwood prevailed or (2) the Labor Code violations on which Brewer prevailed. The jury’s supplemental special verdict clarified that its malice conclusion stemmed from conduct related to the Labor Code violations.
Based on the verdicts, the court entered a judgment awarding $956.10 in unpaid wages and $195,000 in punitive damages. The judgment also included approximately $6,000 in wages due for meal and rest period violations, $4,000 as penalties relating to the missed meal and rest periods, and $15,300 in penalties pursuant to Labor Code § 1197.1. Brewer later accepted a reduction of the punitive damages to $75,000 on the court’s order that Cottonwood’s motion for a new trial based due to excessive damages would be granted absent such a reduction.
Both parties raised various purported errors on appeal. Most notably, Cottonwood challenged the jury’s award of punitive damages on several grounds, including that such damages were simply unavailable for the pleaded Labor Code violations. In the published portion of its opinion, the court agreed with Cottonwood, stating its holding as follows: "We are convinced . . . punitive damages are not recoverable when liability is premised solely on the employer’s violation of the Labor Code statutes that regulate meal and rest breaks, pay stubs, and minimum wage laws."
The court provided two distinct justifications for its determination that Brewer could not recover punitive damages on her Labor Code claims. First, the court determined that the “new right-exclusive remedy” doctrine operated as a bar to such recovery. 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.” The court determined that the Labor Code statutes regulating pay stubs (§ 226) and minimum wages (§ 1197.1), as well as the regulations requiring employers to provide meal breaks (§ 512) and rest breaks (Cal. Code Regs., tit. 8, § 11090, sudb. 12(A)), all “create new rights and obligations not previously existing in the common law.” Furthermore, these provisions provide their own remedial schemes, including damages and penalties, and the “new right-exclusive remedy” doctrine therefore applies. The court rejected the plaintiff’s argument that punitive damages should be allowed because some of the relevant Labor Code sections, including section 226.3 and 1197.1, state that the penalties provided are “in addition to any other penalty provided by law.” The court determined that, instead of authorizing punitive damages for Labor Code violations, this language insures that the recovery of civil penalties under the relevant provisions does not function to preclude recovery of other statutory penalties provided in the Labor Code.
Second, the court held that recovery of punitive damages was also prohibited by the more general principle that punitive damages are ordinarily limited to actions for the breach of an obligation not arising from contract. See Cal. Civ. Code § 3294. The court reasoned that “when a statute imposes additional obligations on an underlying contractual relationship, a breach of the statutory obligation is a breach of contract that will not support tort damages beyond those contained in the statute.” Consequently, the court disagreed with Brewer’s position that the alleged Labor Code violations constituted a breach of an obligation not arising from contract. Instead, the court found that the relevant Labor Code requirements were obligations arising from Brewer’s employment contract because those obligations only apply once the parties have entered into an employment contract. The court therefore concluded that the Labor Code violations for which Cottonwood was found liable did not support an award of punitive damages under Civil Code section 3294.
The Brewer decision provides some comfort to employers faced with allegations of Labor Code violations by clarifying that such allegations do not carry with them the large increase in potential exposure that results in any case where punitive damages may be recoverable. As the facts of Brewer indicate, the presence of punitive damages in such claims would greatly increase the amount at risk since a jury may decide to award punitive damages that greatly exceed the amount of any unpaid wages and applicable statutory penalties. However, employers should bear in mind that the Brewer decision’s precise holding is limited to the specific Labor Code violations analyzed in that case (meal and rest periods, minimum wage, and itemized wage statements), and the decision is not clear on the extent to which its reasoning would necessarily apply to other similar Labor Code provisions.