Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By Michael Kun and Matthew A. Goodin

California employers are celebrating a new California Supreme Court decision that effectively prevents unions from filing suit under the Labor Code Private Attorneys General Act ("PAGA") and the Unfair Competition Law ("UCL").

 There is no reason to celebrate.

What appears to be a major victory for employers is, in fact, no victory at all once one considers the practicalities of litigation.

On June 29, 2009, the same day that it issued its highly anticipated opinion in Arias v. Supreme Court, holding that employees need not bring representative actions under the PAGA as class actions, the California Supreme Court also affirmed the Court of Appeal’s decision in Amalgamated Transit Union, Local 1756, AFLCIO v. Superior Court (First Transit, Inc.). In Amalgamated Transit, the Court concluded that a labor union that had not suffered actual injury under California’s UCL and that was not an “aggrieved employee” under PAGA could not bring a representative action under either of those laws.

Cause to celebrate, right?

Wrong.

While the decision would seem to suggest that there will be fewer UCL and PAGA lawsuits because unions may not bring them, the practicalities are very different. Instead of bringing UCL or PAGA claims themselves, it would seem that unions need only find a single employee to act as the named plaintiff in such actions in order to proceed with identical claims.

Think a union is going to have difficulty finding that one person?

Think again.

As such, an apparent victory for employers may not be any victory at all.

Case Overview

California’s UCL allows a private party to bring an unfair competition action on behalf of others, but only if the person “has suffered injury in fact and has lost money or property as a result of the unfair competition.” Similarly, PAGA provides that an “aggrieved employee” may bring an action to recover civil penalties for violations of the Labor Code “on behalf of himself or herself and other current or former employees … .”

Amalgamated Transit presented the question whether a labor union that has not suffered actual injury under the UCL and is not an “aggrieved employee” under PAGA may nevertheless bring a representative action under those laws either as the assignee of employees who have suffered an actual injury and who are aggrieved employees, or as an association whose members have suffered actual injury and are aggrieved employees. The California Supreme Court has confirmed that a union may not do so.

The UCL prohibits “any unlawful, unfair or fraudulent business act or practice … .” Before 2004, the UCL allowed “any person acting for the interests of itself, its members or the general public” to seek restitution or injunctive relief against unfair acts or practices. But California voters changed the law in 2004 by passing Proposition 64. The law now requires that a representative claim seeking relief on behalf of others may be brought only by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”

In Amalgamated Transit, the union conceded that it did not suffer any actual injury, but instead contended that employees who had suffered an actual injury could assign their claims to the union. The Court reasoned that allowing employees to assign such claims to a labor union would defeat the entire purpose of Proposition 64, which was specifically amended to require that a person asserting an unfair competition claim must have suffered an actual injury or have lost money as a result of the alleged unfair competition.

In September 2003, California’s Legislature enacted PAGA. PAGA permits a civil action “by an aggrieved employee on behalf of himself or herself and other current or former employees” to recover civil penalties for violations of other provisions of the Labor Code. An “‘aggrieved employee’” is “any person who was employed by the alleged violator and against whom one or more of the alleged violations was [sic] committed.” Again, the union conceded that it was not an “aggrieved employee,” but argued that an aggrieved employee’s claim could be assigned to the union. The Court noted that an individual may assign a legal claim to another only when the claim arises out of a legal obligation or a violation of a property right. The court observed that PAGA does not create property rights or any other substantive rights. Rather, it is simply a procedural statute allowing an aggrieved employee to recover civil penalties for Labor Code violations that otherwise would be sought by state labor law enforcement agencies. Under existing case law, the right to recover a statutory penalty may not be assigned.

The union next argued that unions may maintain the actions as entities in their own right based on the legal concept of associational standing. Under this concept, an association, such as a labor union, may bring an action on behalf of its members when the association itself would not otherwise have standing. Associational standing exists when: (a) the association’s members would otherwise have standing to sue in their own right; (b) the interests the association seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. The Court reiterated, however, that a plaintiff has standing to bring an UCL action only if the plaintiff has suffered “injury in fact” and a plaintiff has standing to bring an action under the PAGA only if the plaintiff is an “aggrieved employee” The court concluded that associations suing under either law are not exempt from these express requirements.

Looking Ahead: What Does This Case Mean To Employers?

While many may believe Amalgamated Transit to be a major victory for employers, the practicalities may be otherwise. While unions may not bring UCL or PAGA lawsuits themselves, it may not be difficult for them to find employees willing to act as the named plaintiffs in such actions.

By Michael S. Kun and Aaron Olsen

You probably remember the scene in Jaws when Roy Scheider's character first sees the shark that he and his crew have been pursuing.

And you probably remember what he says: "We need a bigger boat."

Well, after the California Supreme Court's latest ruling, California employers may need a bigger boat.

Already besieged by wage-and-hour class actions, California employers now need to brace themselves for a new wave of representative actions under California’s Private Attorneys General Act ("PAGA") after the California Supreme Court has made it easier than ever for employees to pursue such claims.

In Arias v. Superior Court of San Joaquin County (Angelo Dairy), No. S155965 (June 29, 2009), the California Supreme Court concluded that representative actions for alleged Labor Code violations brought under PAGA, often referred to as the "Bounty Hunter" or "Sue Your Boss" law, need not be brought as class actions. Instead, a single employee may proceed with an action on behalf of all aggrieved employees without the need to comply with class action requirements. Although the Court also held that representative actions brought under California’s Unfair Competition Law ("UCL") must be brought as class actions, the ruling on the PAGA issue will likely lead to more employees and their counsel bringing PAGA lawsuits because they will not have to comply with the procedural burdens inherent in class actions.

That's right. Largely because the legislature left out a few words here or there in their haste to pass PAGA, the Supreme Court has held that employees may pursue the equivalent of a class action without having to actually get a class certified.

Making matters worse, employers could be forced to defend a series of individual actions alleging violations of the Labor Code that would be difficult to settle on a global basis. Although the California Supreme Court determined that, with respect to civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under PAGA, the Court made it clear that different plaintiffs could bring a series of individual lawsuits seeking other remedies. A proliferation of coordinated individual actions would be difficult to settle because the parties would not have the benefits of the class action settlement process. While class action settlements can oftentimes be complicated, the process is fairly well established. Class action settlements generally provide a procedure by which class members either "opt-in" to the lawsuit or "opt-out," leaving the parties with a great deal of certainty as to whom a settlement involves. That would not appear to be the case in a non-class action representative claim under PAGA.

Will the legislature step in to correct this matter?

That seems unlikely.

Will employees and their counsel start filing new PAGA lawsuits tomorrow?

Of course.

Employers need to brace themselves by auditing their employment practices even more vigilantly than they already were.

 By Michael Kun

     The wage hour class action epidemic that has plagued California employers for the last decade or so appears to have no end.

    If anyone tells you otherwise, they are not paying enough attention. 

    And if they tell you the California Supreme Court is about to put an end to the epidemic, they are mistaken about that, too. 

    The California Supreme Court couldn't put an end to it even if it wanted to, at least not with the issues now before it.  And who is to say that they want to do that anyway?

    As in recent years, employers and their counsel are awaiting several important rulings from the California Supreme Court that relate to these wage hour class actions.   

    In Brinker v. Superior Court and Brinkley v. Superior Court, the Supreme Court should finally clarify whether employers must "ensure" that meal and rest periods be taken, or merely make them "available" to employees.

    In Arias v. Superior Court, the Supreme Court should finally clarify whether claims brought under the Private Attorneys General Act ("PAGA") for alleged Labor Code violations must be brought as a class action and satisfy the requirements for class treatment, or whether an employee can represent a group of employees merely by filing suit under PAGA. 

    And in Pineda v. Superior Court, the Supreme Court should finally clarify whether California's Unfair Competition Law allows employees restitutionary recovery of "waiting time" penalties.

    More than a few commentators are predicting victories for employers in all four cases. 

    Hopefully, no one is placing any bets.  Predicting what the California Supreme Court will do is, respectfully, a fool's game. 

    At the beginning of the decade, many predicted an employer friendly ruling from the Supreme Court in Sav-On v. Superior Court, anticipating that the Supreme Court would hold that wage-hour claims were not appropriate for class treatment, killing the epidemic early.  Those predictions, of course, were wrong.  Very wrong. 

    Little more than two years ago, most commentators predicted that the Supreme Court would rule that premiums for missed meal and rest breaks were "penalties," rather than "wages," and hold that they were subject to a one-year limitations period, rather than three (or four) years.  The ruling in Murphy v. Kenneth Cole, of course, was otherwise, surprising virtually everyone.  And, unless there's a signed and dated document to prove it, anyone who tells you that he or she expected that the Supreme Court was going to rule that premiums for missed breaks were somehow "wages," not "penalties," just isn't being candid with you.   

    So, what should employers expect the Court to do in Brinker, Brinkley, Arias and Pineda?

    No predictions here.

    But, reading the cases, the applicable statutes and their legislative history would suggest that employer friendly decisions should be rendered in Brinker, Brinkley and Pineda -- and, unfortunately, an employee friendly decision in Arias (largely because of missing verbiage in the statute specifiying that PAGA claims are to be brought as class claims). 

    But there's an enormous difference between should and will.

    Based on the Supreme Court's recent history in employment cases -- particularly Sav-On and Murphy --  it would seem prudent for employers to adopt the same conservative, New England-ish approach that, until recently, fans of the Boston Red Sox favored for years-- expect the worst, and be pleasantly surprised if something better arrives. 

    That said, anyone who believes that even employer friendly decisions will put an end to the wage hour class action epidemic in California is mistaken.

    These cases make far too much money for plaintiffs' lawyers, and they are not going to walk away from them without finding ways to get around any unfavorable Supreme Court decision. 

    And getting around them may not be too difficult. 

    If, for instance, the Supreme Court rules that meal and rest periods need only be made "available," not "ensured," you can be certain that plaintiff's counsel will simply change the boilerplate allegations in their complaints to say that meal and rest periods were not made "available." 

    In the few seconds it takes to make a global change in a document, even an employer friendly Supreme Court decision could effectively be undone. 

    And in the few seconds it takes to pick up the phone, calls will be placed to legislators throughout the state demanding that the laws be rewritten to provide that breaks must be "ensured," which would completely undo that Supreme Court decision.  

    Such is the life of the employer who does business in California.

    Even a victory can be taken away.