PAGA, ANYONE?

Our great State of California often sets the national standard on various social, economic and political fronts. One example of this is California’s Private Attorneys General Act (PAGA) (Cal. Lab. Code, §2698 et seq.) However, since its adoption in 2004, questions have repeatedly been raised about PAGA’s purpose, use and effectiveness.

So you ask, what is PAGA?

PAGA deputizes private citizens and allows them to act on behalf of California’s Labor & Workforce Development Agency (LWDA) in seeking civil penalties for Labor Code violations. PAGA authorizes employees to bring a lawsuit “on behalf of themselves and others” on any violation of the California Labor Code, regardless of how small, technical, or short-lived the alleged violation.

Now that’s a lot for anyone to swallow. Keep reading to digest it further.  (Pun intended.)

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 can seek to collect that penalty for themselves and on behalf of other aggrieved employees. 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. (Cal. Lab. Code §2699(f)(1)-(2).) It is easy to see how the addition of a PAGA claim to a one-plaintiff lawsuit can exponentially increase the employer’s exposure to monetary liability. The law also provides for attorneys’ fees and costs if the employee wins the case. (Cal. Lab. Code §2699(g).)

An incentive? Now this is getting interesting.

PAGA provides that any monetary penalties won as a result of a PAGA claim are to be split, with LWDA receiving seventy-five percent of the proceeds, and the private citizen and aggrieved employees taking a pro-rata portion of the remaining twenty-five percent. (Cal. Lab. Code §2699(a), (i).) The stated rationale for splitting the award was to fund the then—and likely still—cash-strapped California government agency. However, what often happens is that court-approved settlements of PAGA claims allocate only a nominal amount to the PAGA claim, with a greater portion of the settlement money going to aggrieved parties and to plaintiff’s attorney; the LWDA winds up getting very little.

However, all is not lost.

There are some defenses available to employers in a PAGA claim. PAGA requires employees to notify the LWDA (and the employer) describing the “specific provisions…alleged to have been violated, including the facts and theories to support the alleged violation.”  Only if LWDA does not pursue a Labor Code violation claim or issue a citation against the offending employer, is the employee then allowed to proceed with the PAGA claim. 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 statutory period, they can say hasta la vista, PAGA. (Cal. Code of Civ. Proc. §340(a).) Additionally, although no 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.

According to the LWDA, claims under PAGA have significantly increased since its inception, nearly quadrupling from 759 PAGA claims filed in 2005 to over 3,000 in 2013. As courts and parties explore the implications of PAGA, one thing is certain: the rise in PAGA claims has focused attention on the statute.

Recently, much of the discussion has focused on whether PAGA claims can be maintained if the employee has waived the right to participate in class actions in an employment arbitration agreement. On June 23, 2014, the California Supreme Court put this issue to rest, at least for now, when it issued its decision in the long-awaited Iskanian case. The court held that PAGA representative action waivers in arbitration agreements are not enforceable. Thus, although employers can effectively prevent class-action claims alleging wage and hour Labor Code violations, they cannot similarly prevent these claims brought under the PAGA. (Iskanian v. CLS Transportation Los Angeles LLC, 2014 WL 2808963.)

Another thing that is settled in California is that the nonparty employees, as well as the government, are bound by judgments in PAGA claims. (See Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993.) This means that at least an employer does not have to worry about subsequent PAGA claims by other employees who were covered in the first PAGA claim. Just another reason that PAGA may—intentionally or unintentionally—encourage employers to settle PAGA claims.

An employer’s best defense in avoiding significant exposure under a PAGA claim is to regularly review and update internal policies, handbooks and procedures, in order to bring their business practices into compliance with the ever-changing labyrinth of California employment and labor laws.

For additional information regarding this article or for inquiries regarding your company’s compliance with California’s labor and employment laws, please visit our website at www.brownlawgroup.com for more information and contact any of the lawyers at Brown Law Group.

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