Walmart Howls at California Labor Law Fines

San Jose, CA “This case is about Walmart’s practice of routinely violating the California Labor Code.” The first sentence of plaintiff’s’ brief to the Ninth Circuit in Magadia v. Wal-Mart Associates, Inc. neatly sums up the workers’ argument. Walmart, on the other hand, argues that this is all very unfair, the alleged violations of law (if they happened) were inadvertent -- mere technicalities anyway, and certainly did not merit a $102 million judgment. 

As Mom and Dad throw plates, workers need to know what their rights are and how to protect them. Here’s what to do -- but first, the messy tale.

Roderick Magadia’s story

Between June 17, 2008 and September 12, 2016, Roderick Magadia worked at a Wal-Mart retail store in San Jose, California. He stocked shelves and pushed carts out of the parking lot. He got fired for excessive absenteeism. When he got his final pay information, he filed this California labor lawsuit claiming, among other things, that the statement did not reveal the information required by California labor law. His lawsuit was certified as a class action covering several thousand Walmart employees.

The United States District Court for the Northern District of California ultimately decided that the statements violated California Labor Code section 226 because the information provided did not allow employees to apply "simple math" to determine their underlying rate of pay. This Labor Code violation triggered penalties under California’s Private Attorney General Act (PAGA). The Court awarded the plaintiffs $48 million in statutory penalties under the California Labor Code and $54 million in civil penalties under PAGA. The $102 million judgment against Walmart has been controversial ever since. Now it has been appealed to the Ninth Circuit.

How PAGA works

The effectiveness of California’s wage-and-overtime laws depends on employees and the Division of Labor Standards Enforcement (DLSE) being able to determine exactly how much an employer has paid for each hour worked. The Labor Code, consequently, requires employers to provide employees with a pay stub containing an accurate itemized statement of wages.

The goal is transparency, so that an employee can verify proper payment. Employees are harmed when they cannot promptly and easily determine, from the wage statement alone, whether this is the case.

California’s enforcement agencies are authorized to assess and collect civil penalties for specified violations of the Labor Code. But because those agencies often lack the resources to pursue enforcement, the California legislature enacted the Private Attorneys General Act as an alternative to public enforcement.

Under PAGA, an aggrieved employee may file a representative action on behalf of himself or herself and other current or former employees to recover civil penalties for violations of the Labor Code that otherwise would be collected by the state. When a plaintiff recovers civil penalties under PAGA, 75 percent goes to the state, leaving the remaining 25 percent for the aggrieved employees.

PAGA penalties can be steep, since they are calculated on a per employee, per pay period basis. With a very large class of plaintiffs and violations that continue for a long period of time, the dollars can add up. The $54 million in civil penalties assessed in Magadia was less than the maximum that the Court could have ordered.

Does PAGA work to deter employers from California Labor Code violations?

This, of course, is an entirely different question. On one hand, workers forego their right to seek individual damages for wage and hour violations when they file a PAGA action. Twenty-five percent of the civil penalty assessed may actually be considerably less than the maximum they might have recovered in damages.

There is also an equity argument. Hourly workers who are cheated of wages or, in this case, information about wages due, are likely to notice the problem more quickly that the DLSE. However, it seems odd for a government agency to delegate the task of enforcing the law to hourly workers who are likely to have even fewer financial and informational resources. Crowdsourcing law enforcement is an inherently dubious proposition.

The long-range benefit for workers is the hope that employers will be so stunned by the penalty that they will devote greater time and effort to ensuring that they comply with California wage and hour laws. But does it work?

in 2019, California reportedly collected more than $88 million in PAGA penalties. Whether a given penalty in a given case deterred that employer from future violations clearly depends on many things, including the size of the penalty. In Magadia, the $54 million penalty seems to have gotten Walmart’s attention.

What must workers do to protect their wage and hour protections?

The first step is to know what their rights are. A number of very good, brief summaries are available.  The second step is for workers to make sure that they get and review pay stubs. This may be the first indication that something is amiss. Finally, it is essential that workers who have questions reach out to labor organizations and lawyers to ask if they have concerns.