California Prosecutors Pile-On Shock-and-Awe Penalties

Date: February 12, 2018

The California Supreme Court issued a troubling decision in Solus Industrial Innovations LLC v. Superior Court. In this case, the Orange County District Attorney’s office brought unfair competition and consumer protection claims against a business that violated health and safety standards in the amount of $2,500 per day for each employee—on top of major penalties imposed by the California Department of Industrial Relations (Cal. OSHA). As Luke Wake of the NFIB Small Business Legal Center said in a recent San Francisco Chronical article: This is a disappointing decision because it “exposes small business owners to shock-and-awe penalties above and beyond anything contemplated in California’s state plan for enforcing health and safety workplace standards.”

The violations were serious and tragically resulted in two fatalities. But Cal. OSHA was already imposing heavy penalties before the Orange County District Attorney filed unfair competition and consumer protection claims for the very same health and safety violations. Simply put, the District Attorney was looking to pile-on penalties on top of what Cal. OSHA imposed for the same regulatory violation.

Penalties Should Not Be Stacked

First, when the Legislature enacts a law imposing regulatory standards and proscribing specific penalties it is only reasonable to assume that the Legislature intended those specified penalties to represent the full force of the state’s sanctions. If unfair competition and consumer protection statutes can be invoked to stack on additional penalties for every regulatory violation, then there would be little point in the Legislature spelling out specific penalties for specific regulatory violations.

Second, every regulatory violation does not give a business an unfair advantage so as to warrant imposition of penalties under unfair competition and consumer protection statutes. In the absence of concrete facts establishing a meaningful nexus between a regulatory violation and consumer deception, the government should not be allowed to stack-on penalties under consumer protection statutes.

Federal Law Preempts State Regulation of Health and Safety Standards

Another problem is that the federal Occupational Safety & Health Act preempts states from imposing more burdensome health and safety standards than are required under federal law, except in so far as a State has obtained express approval from the Secretary of Labor to enforce a state plan. And while California has been granted authority from U.S. DOL to enforce its own health and safety standards and penalties, California’s approved state plan makes no mention of the possibility of employers facing additional penalties for violation of California’s unfair competition and consumer protection laws. Accordingly, the NFIB Legal Center argued, as amicus curiae, that federal law preempts the state from piling-on penalties for health and safety violations beyond those penalties expressly approved by the Secretary of Labor with California’s formal state enforcement plan.

Unfortunately, the California Supreme Court disagreed. The Solus decision held that there is no federal preemption in California because the State has an approved state plan, which the Court found preempts federal law. Moreover, the Court ruled that the OSH Act preserves common law actions that may be predicated upon violations of health and safety standards. In sum, the Solus decision now opens the door for prosecutors to bring unfair competition and consumer protection claims against any business that violates health and safety standards—regardless of whether the violation results in any harm to anyone.

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