Bernstein Is Not the Big Win Employers Think It Is

On February 23, 2021, the Ninth Circuit held in Bernstein v. Virgin America, Inc. (Case No. 19-15382) that employers are not subject to heightened penalties for subsequent violations of the Labor Code until they have been “notified” of the violation. The decision goes on to explain that, in Bernstein, the employer had not been notified of a violation for purposes of assessing penalties, until the district court partially granted the Plaintiffs’ summary judgment motion, and as such, could not be subject to heightened penalties for violations committed before that point.


Employers now cite Bernstein for the proposition that notice of a violation can only be achieved through an administrative decision or court ruling that establishes a violation—not so. Other means of notice such as the employer’s receipt of a Private Attorneys General Act (PAGA) Notice or civil complaint can suffice, absent a “good faith dispute” that the employer is required to comply with the particular law it is alleged to have violated. Bernstein, 990 F.3d 1157, 1172–73 (9th Cir. 2021). So in truth, Bernstein is not the big win for employers it may first appear to be.


Background


PAGA allows individuals to sue their employers to recover civil penalties for violations of the Labor Code. For Labor Code sections where no penalty amount is specified, PAGA establishes a default penalty of $100 “for each aggrieved employee per pay period for the initial violation” and $200 “for each aggrieved employee per pay period for each subsequent violation.” Labor Code Section 2699(f). Bernstein addresses, in part, when the “subsequent” violation rate kicks in.


Bernstein Decision and Implications


Citing the California First District Court of Appeal’s 2008 decision in Amaral v. Cintas Corp. (163 Cal.App.4th 1157), the Ninth Circuit held in Bernstein that an employer cannot be presumed to be aware of its Labor Code violations such that it may be assessed heightened penalties until it has been “notified” of its violations. Bernstein, at 1173.


In determining when the employer in Bernstein, Virgin America Inc., had been placed on notice of its violations, the Court stated:


“Virgin was not notified by the Labor Commissioner or any court that it was subject to the California Labor Code until the district court partially granted Plaintiffs’ motion for summary judgment. On this basis, we reverse the district court’s holding that Virgin is subject to heightened penalties for any labor code violation that occurred prior to that point.” Id.


Employers now cite the Court’s language above to support the notion that notice can only be achieved through an administrative decision or court ruling establishing a violation. This interpretation, however, fails to take into account the unique circumstances in Bernstein that rendered the disagreement between the parties as to the existence of any violations, a “good faith dispute,” precluding the imposition of heightened penalties until a formal assessment could be made by an administrative or judicial body.


The “good faith dispute” in Bernstein arose from an unsettled question of law stemming from the employer’s reasonable preemption defense that, if successful, would have precluded any recovery by the employee. Specifically, Virgin had argued that as an interstate employer, it was not subject to the California Labor Code, which, as state law, should be preempted by the federal dormant Commerce Clause—a law nullifying state regulations that substantially burden interstate commerce. The Bernstein court rejected Virgin’s argument, finding that the dormant Commerce Clause did not bar application of the Labor Code in the context of this case. Id. at 1164. Virgin was thus subject to the California Labor Code and PAGA penalties for its violations thereof, though heightened penalties did not begin accruing until the district court’s partial grant of Plaintiff’s summary judgment motion, which put Virgin on notice of its violations. Id. at 1173.


Bernstein involved a particularly unique set of circumstances and unsettled question of federal law not present in most PAGA cases involving California employers. Its holding, therefore, is limited to those exceptional situations, where, arguably, an unsettled question about federal preemption of the Labor Code can be held to preclude the effectiveness of notice under Amaral.


Alternatively, at minimum, absent such circumstances where a defense is considered reasonable because it is predicated on any unsettled legal question, a dispute between the employee and employer as to the existence of a violation is unlikely to rise to the level of a “good faith dispute” sufficient to delay the accrual of subsequent violation penalties.


Takeaway


Labor Code Section 2699(f), establishing the default civil penalties under PAGA for Labor Code violations, states that penalties accrue in relation to the occurrence of initial and subsequent violations. Bernstein affirms that “subsequent” violation penalties do not accrue until the employer is notified of its violations, but it does not redefine notice to mean “citation” or “judicial finding.” Notice can and does take many forms. Bernstein does not give employers authority to bury their heads in the sand to avoid accrual of subsequent violation penalties until a formal ruling establishing a violation has been handed down.

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