California's Unfair Competition Law And Consumers Legal Remedies Act - 2023 Overview

• Published date: 27 March 2024
• Law Firm: Steptoe LLP
• Author: Ms Julia Strickland, Stephen Newman, Christopher Fredrich and Andrew Owens

In California, plaintiffs' lawyers and state and local prosecutors wield two powerful tools: the Unfair Competition Law (UCL)¹ and the Consumers Legal Remedies Act (CLRA).²The UCL forbids "unlawful, unfair or fraudulent" conduct in connection with virtually any type of business activity.³ With its sweeping liability standards and broad equitable remedies, the UCL is often the weapon of choice for plaintiffs' lawyers and is almost uniformly invoked by prosecutors in consumer cases. The CLRA is more defined in structure, but no less potent. The CLRA applies to any "consumer" transaction involving the "sale or lease of goods or services"⁴ and authorizes recovery of actual, statutory and punitive damages.⁵ While the UCL broadly prohibits any "unfair" practice, CLRA liability depends upon proof of a violation of one of its expressly stated prohibitions, organized into 30 main categories as of July 1, 2024. The CLRA also provides for streamlined class certification and dispositive motion proceedings; the UCL lacks similar provisions.

2023 involved significant activity on the legislative, executive and judicial fronts. The California Legislature amended the UCL to give prosecutors express authority to seek disgorgement of profits in UCL cases, in addition to civil penalties.⁶Money obtained by way of the new disgorgement power is to be deposited into a new Victims of Consumer Fraud Restitution Fund.⁷Under the new statute, the attorney general is to promulgate regulations governing how victims are to be compensated from the fund.⁸ Notably, this additional power given to state prosecutors comes at a time when judicial action has limited the ability of the Federal Trade Commission to seek disgorgement.⁹This new legislation, in combination with authority previously conferred by the California Supreme Court to allow local prosecutors to seek statewide relief,¹⁰ now arguably gives individual county district attorneys more power than federal trade regulators. It remains to be seen whether the new statute will be construed in this fashion. Another open question is whether entry of a disgorgement award in favor of the government (whether by litigated judgment or in connection with a settlement) will cut off consumer disgorgement and restitution claims asserted in parallel or subsequent litigation, pursuant to principles like res judicata.

Other UCL-related legislation pertains to new efforts to restrict the scope of noncompetition agreements in the employment setting. New section 16600.1 of the Business and Professions Code both forbids use of such agreements (unless a statutory exception applies) and requires notice both to current and former employees (if they had been employed after January 1, 2022) that any prior agreement is void. A violation of section 16600.1 is deemed as a matter of law to be a violation of the UCL.¹¹ As such, both workers and public prosecutors may seek UCL remedies if a violation occurs. With public prosecutors now having disgorgement power in addition to the ability to seek civil penalties (of up to $2,500 per violation), companies should expect active enforcement in this area.

The CLRA also was amended substantially in response to President Biden's call, during his February 2023 State of the Union address, for companies to eliminate "junk" fees and other allegedly unfair pricing schemes such as "drip pricing" whereby, particularly with online purchases, all fees and charges related to the purchase are not stated when the customer begins shopping.¹² New section 1770(a)(29)(A) to the Civil Code will forbid, as of July 1, 2024, "Advertising, displaying or offering a price for a good or service that does not include all mandatory fees or charges" other than government-imposed taxes or fees, and postage and shipping fees. However, postage and shipping fees may be imposed (if not initially advertised, displayed or offered) only if they "will be reasonably and actually incurred to ship the physical good to the consumer."¹³ The new "drip pricing" rule exempts certain products and services, such as bundled broadband internet access provided by an entity regulated by the Federal Communications Commission,¹⁴and financial products that are independently subject to federal or state disclosure statutes or rules.¹⁵Litigation and enforcement activity can be expected with respect to what sort of fees and charges are "mandatory," and as such must be immediately disclosed to the consumer. Similarly, it remains to be seen how broadly the courts will construe the term "displaying"; arguably, any display that mentions any price must also disclose all other...