Persons who live and work outside of California, including employment attorneys and the most seasoned of human resources personnel, are often confounded when they first learn about California’s Private Attorneys General Act (“PAGA”).  And, for many, the first they learn about PAGA is when a PAGA lawsuit has been filed against their company.

The same series of questions and answers often follow:

A single individual can file a lawsuit against an employer alleging that all employees were subjected to certain violations of the California Labor Code?

Yes.

Even if there are thousands of employees?

Yes.

And the employee doesn’t need to get a class certified to proceed?

Correct, because PAGA claims are considered “representative claims,” not “class claims.” (Although courts are beginning to rule more and more that PAGA claims cannot proceed to trial if they are “unmanageable.”)

And each employee can recover up to $200 per pay period for each Labor Code violation?

Yes.  They can get up to $100 for the first pay period, and $200 for each subsequent pay period.

So, hypothetically, if there were five different violations per pay period, each employee could recover up to $1000 per pay period?

Yes.

But 75% of what employees recover must then be returned to the state?

Generally, yes. It must go to the Labor and Workforce Development Agency (“LWDA”).

Why?

Because it’s part of the statute – 75% goes back to the LWDA.

But a plaintiff must arbitrate PAGA claims if he or she signed an arbitration agreement, right?

Generally, no.

But PAGA claims are covered by class action waivers, right?

To date, the courts have held that they are not covered by class action waivers.

Can PAGA lawsuits be removed to federal court under the Class Action Fairness Act?

Generally, no, because PAGA claims aren’t “class actions” per se.  They’re “representative actions.” However, if PAGA claims are filed as part of a complainat that contains class claims, they could still wind up in federal court if the class claims are removable.

Little by little, the courts have answered these and other PAGA-related questions. But at least one major question has remained – are PAGA plaintiffs entitled to a jury trial?

While the appellate courts have yet to weigh in on this issue, the trial courts are doing so as more and more PAGA cases are being filed and as they approach trial. And, to date, they all appear to conclude that a PAGA plaintiff is not entitled to a jury trial. Several of these decisions are in cases we have handled, and we are not at liberty to discuss them. However, another trial court has recently reached the same conclusion. In Espinosa v. Bodycote Thermal Processing, Inc., Judge John Shepard Wiley concluded that PAGA plaintiffs are not entitled to a jury trial because PAGA claims are equitable in nature.

While Judge Wiley’s conclusion is consistent with the other courts that have reviewed the issue, only time will tell whether the California Courts of Appeal agree when the issue is inevitably presented to them. For now, employers with operations in California should take some comfort in knowing that PAGA claims are likely to be tried to a judge and not to a jury.

by Michael Kun

As we have mentioned previously on thisblog, the latest wave of wage-hour class actions to hit California employers is based on a claim that employees were not provided "suitable seating" under an obscure provision of California’s Wage Orders.  To avoid having these cases removed to federal court,and to avoid the burden of establishing the elements for class certification, many plaintiffs’ counsel have taken to filing these lawsuits not as class actions, but as representative actions under California’s Private Attorneys General Act ("PAGA").

PAGA — sometimes referred to as the "Bounty Hunter Law" or the "Sue Your Boss Law" — allows a single employee to pursue claims on behalf of all "aggrieved employees," with potential recovery of up to $100 per employee for the first violation and $200 per employee for each subsequent violation.  The potential recovery can be enormous, and a plaintiff need not certify a class.

The constitutionality of PAGA has long been a matter of concern and dispute.  We and other defense counsel often raise constitutionality defenses to PAGA claims and raise those arguments at various stages of the cases.  Unfortunately, judges rarely take interest.

Los Angeles Superior Court Judge Daniel Buckley apparently has seized on this issue and has articulated his intention to dismiss a PAGA seating case against Whole Foods Market on the grounds that PAGA is unconstitutional.  He appears to be one of the first judges, if not the first, to make such a ruling about PAGA. 

Assuming that Judge Buckley issues that ruling, it is all but certain that plaintiff’s counsel will appeal.  The case will bear watching because a ruling by the Court of Appeal or, eventually, the California Supreme Court striking down PAGA on constitutionality grounds could shut down all claims under PAGA.  While that would not spell the end of wage-hour class actions, it would close off one of the avenues often relied upon by plaitniffs’ counsel to increase the potential exposure in a case for settlement purposes.  And it may force plaitniffs to bring wage-hour claims as potential class actions, which would not only increase the likelihood of removal to federal court, but require plaintiffs to carry a significant burden in convincing a court to certify a class.

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.