In a major defeat for employers, on January 18, the California Supreme Court resolved a split of authority among California jurisdictions and decided that trial courts do not have inherent authority to dismiss or narrow employee lawsuits filed under California’s Private Attorneys General Act (i.e., “PAGA”) on manageability grounds. A lower court of appeal had held, in Wesson v. Staples the Office Superstore, LLC (2021) 68 CA5th 746, that trial courts had inherent authority to strike PAGA claims as unmanageable.
This major ruling will continue to permit Plaintiffs lawyers to use the threat of a PAGA lawsuit to bring broad and unrelated wage-and-hour claims to put pressure on employers to settle companion class action lawsuits, which are governed by manageability requirements that require plaintiffs to prove an employer consistently imposed a uniform policy or de facto practice that dominates over individualized issues. The California Supreme Court refused to adopt the same manageability requirements on PAGA claims. The Supreme Court held that trial courts have “numerous tools” to manage PAGA claims, such as limiting the presentation of evidence at trial and encouraging plaintiffs to be “prudent in their approach to PAGA claims,” and that trial courts have discretion to reduce civil penalties that “may help to lessen the manageability concerns inherent with these [PAGA] actions.” However, these “tools” are not a substitute for a trial court’s ability to dismiss a PAGA lawsuit where the plaintiffs cannot prove a uniform policy or practice of violating the Labor Code.
The purpose of PAGA was to increase enforcement of the Labor Code by “deputizing” employees to act as private attorneys general by allowing them to pursue civil penalties on behalf of the state of California for Labor Code violations. This private enforcement mechanism was intended to help the State’s labor enforcement agencies. The most consequential provision of PAGA is Section 2699(c), which broadly defines an “aggrieved employee” as any current or former employee “against whom one or more of the alleged violations was committed.” Unfortunately, a PAGA plaintiff who is affected by only one labor code violation may pursue PAGA claims for other violations that did not affect that plaintiff directly.
Plaintiffs are now filing complaints alleging a wide variety of Labor Code violations under PAGA even if they have not or could not have personally suffered a violation of each provision. There is nothing to stop one disgruntled employee from filing a PAGA action alleging any number of labor code violations for all other employees (who may not be disgruntled and who would never sue the company). Most PAGA lawsuits involve the failure to provide a half-hour lunch break for non-exempt employees; failure to provide regular rest breaks; improper overtime calculations; paying below the minimum wage; and not including fixed bonuses in the calculation of overtime.
A PAGA claim is of little direct monetary value to an “aggrieved” employee because s/he must pay to the State of California 75 percent of any penalties awarded to her/him. (Lab. Code, § 2699.) The only real value of the PAGA claim is to plaintiffs’ attorneys who can obtain attorneys’ fees.
With no reasonable basis to expect the California Supreme Court or the Legislature to reform PAGA, California employers are now relying directly on California voters to adopt the “California Fair Pay and Employer Accountability Act,” an initiative that qualified for California’s 2024 statewide ballot. The ballot measure is expected to substantially reduce the number of lawsuits by eliminating the financial incentive to plaintiffs lawyers who use PAGA to extort millions of dollars from employers. Material provisions of the 2024 ballot measure:
- Replacing PAGA’s bounty hunter provision with alternative enforcement mechanism through the state’s Labor Commissioner: Only the Labor Commissioner could file an enforcement action to collect penalties under PAGA, and workers would not be able to hire a private attorney.
- Require the Legislature to provide funding for enforcement.
- Allow employers to correct identified Labor Code violations without penalties.
- Ensure that 100% of penalties for uncorrected violations go to workers.
- Doubling penalties if employers willfully violate the law.
In the meantime, to minimize a PAGA claim risk, employers are recommended to review their policies about all of the following:
- Proper classification of workers as independent contractors.
- Proper classification of exempt (from overtime) and non-exempt employees.
- Maintain compliant meal- and rest-period policies, including keeping accurate records of all meal breaks.
Questions
If you have any questions regarding this Legal Alert, please contact the following attorneys from our office or the attorney with whom you typically consult.
Bruce Scheidt
bscheidt@kmtg.com | 916.321.4502
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