HOW DOES PAGA EFFECT EMPLOYERS IN CALIFORNIA?

Introduction

This article provides guidance to employers in understanding and defending against claims brought under California’s Private Attorneys General Act of 2004 (“PAGA), Labor Code § 2699 et seq. Under PAGA, aggrieved employees are allowed to step into the State’s shoes, specifically California’s Labor & Workforce Development Agency (LWDA), to bring legal actions against employers for alleged violations of California Labor Code that would otherwise, absent this statute, be limited to the LWDA. It is a unique mechanism through which employees can file suit on behalf of other similarly situated “aggrieved” employees without bringing claims as class actions, which can be a very unwieldy and difficult legal process.

PAGA Claims and Penalties

The potential recovery in a PAGA claim can be mindboggling. PAGA divides Labor Code violations into three categories: 1) Serious Labor Code Violations; 2) Health and Safety Violations; and 3) Other Labor Code Violations. If the Labor Code provision underlying the PAGA claim already provides for a civil penalty, then an employee may seek to collect that penalty for themselves and, on behalf of other aggrieved employees. In cases where the underlying Labor Code section does not already provide a civil penalty, the PAGA penalty is equal to $100 for each employee per pay period for the initial violation, and $200 for each employee per pay period for each subsequent violation, of which an aggrieved employee may keep 25% of the penalties recovered.

Moreover, PAGA provides for the recovery of costs and attorney’s fees, which are often a significant percentage of a judgment in such cases, so there is an incentive to settle such claims promptly if they have any merit. While the statute of limitations period is only one year, that merely dictates what the timeline for filing suit is, and doesn’t limit the damages, which continue to run for any violation that is continuing after suit is filed. In other words, if a wage and hour violation continues to run throughout the course of the litigation, then the recovery will be based on the full period starting from when the violation began to when the finding on behalf of the plaintiff is entered. See Williams v. Superior Court of Los Angeles, CASC, DAR p. 6879.

The legislative intent behind the law is to allow employees to bring to light blatant and broad violations of labor laws by unscrupulous employers. The result though has been to punish employers who may not be aware of their requirements under California Labor Code and regardless of how small, technical, or short-lived the alleged violation. All hope, however, is not lost as there are some technical, in addition to factual, defenses available to employers in a PAGA claim.

Defenses to PAGA Claims

Over and above any factual defense the employer may have, PAGA requires employees to notify the LWDA (and the employer) describing the specific provision alleged to have been violated, including the facts and theories to support the alleged violation.  Then, only if LWDA chooses not to pursue a Labor Code violation claim, or issue a citation against the offending employer, is the employee allowed to proceed with the PAGA suit. Because the notice is required before bringing the PAGA claim to court, a PAGA claim can be dismissed outright if the notice is deficient. In other words, if an employee fails to provide proper notice to the LWDA or fails to file the PAGA claim within the one-year statute of limitation period, then the PAGA case will fail. Additionally, although no specific defenses to this statute are set forth in the law itself, normal defenses to claims of underlying alleged violations of the Labor Code are available. Click here for the notice requirements.

Unfortunately, both the California Supreme Court and the Ninth Circuit Court of Appeals have ruled that PAGA claims may not be waived as a part of an employment arbitration agreement. See Smigelski v. PennyMac Financial Services, Inc., CA3. On the positive side, it is settled in the California courts that the nonparty employees who were included as other “aggrieved” employees, as well as the State (LWDA), are bound by judgments in PAGA claims. In other words, if the original plaintiff settles or obtains a judgement, or there is a dismissal with prejudice, the facts may not be re-litigated by any of the parties. See Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal. 4th 993.

Conclusion

It is imperative, though, that an employer consult our experienced Employment Litigation Defense Attorneys if they have any questions about compliance with California Labor Code or if they receive notice of a PAGA claim in any form. By far, an employer’s best defense in avoiding significant exposure under a PAGA claim is to regularly review and update internal policies, handbooks and procedures, to ensure their business practices comply with the ever-changing California employment and labor laws. The sooner our experienced Attorneys at Gehres Law Group get involved, the more likely we will be successful in assisting your Company in avoiding the worst possible outcome. Contact us today for a complimentary consultation.

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