California Courts Continue Gifting the Plaintiff’s Bar With PAGA Interpretations That Maximize the Ability to Shakedown Employers
This week, California courts issued two more harmful PAGA decisions, continuing the trend of worsening the effects of the already-abused statute against California employers. “PAGA” of course refers to the Private Attorneys General Act, a statute passed, in my opinion, as a parting gift to plaintiffs’ lawyers from the then-departing Governor, Gray Davis, back in 2004. Dubbed the “sue your boss” law, PAGA allows an employee who has allegedly suffered a Labor Code violation to sue the employer on behalf of all other aggrieved employees and seek to recover penalties of $100-$200 per pay period per employee, along with attorneys’ fees. Since 2004, PAGA has become the favorite tool in the toolbox of plaintiffs’ lawyers, thanks in significant part to the manner in which the statute has been harmfully interpreted by state courts.
These harmful interpretations include the following:
- In 2005 and 2006, two courts held that the penalties available under PAGA are different than the statutory penalties set forth in various Labor Code provisions and that, as a result, a plaintiff alleging Labor Code violations can recover both PAGA penalties and statutory penalties (often equally steep) available under the governing Labor Code provisions. See Caliber Bodyworks, Inc. v Superior Court, 134 Cal.App.4th 365 (2005); Dunlap v. Superior Court, 142 Cal.App.4th 330 (2006). These decisions effectively allow plaintiffs to stack penalties for the same violation, greatly expanding the employer’s monetary exposure on a given claim.
- In 2009, the California Supreme Court ruled in Arias v. Superior Court, 46 Cal.4th 469 (2014), that a PAGA plaintiff need not meet class certification requirements in order to pursue a representative claim on behalf of all aggrieved employees.
- In 2014, the California Supreme Court ruled in Iskanian v. CLS Transportation, 59 Cal.4th 348 (2014), that an arbitration agreement requiring an employee to arbitrate his or her claims individually and to waive the right to bring a representative (PAGA) claim in court or in arbitration is contrary to public policy and unenforceable. Other California Courts of Appeal later issued opinions holding that a PAGA claim is a claim between the state (with the employee standing in the shoes of the state) and the employer and, as a result, there cannot be a valid agreement to arbitrate a PAGA claim between an employee and an employer (because the state is not a party to the agreement and did not agree to arbitrate anything). See, e.g., Tanguilig v. Bloomingdale’s, 5 Cal.App.5th 665 (2016). As a result, employers cannot rely on a class action waiver provision in an arbitration agreement to preclude a representative PAGA action. This reasoning has also been used to prevent employers from compelling arbitration of the individual plaintiff’s PAGA claim prior to litigation of the “representative” PAGA claim.
- Recently, a California Court of Appeal held in Lopez v. Friant & Associates, that a PAGA plaintiff need not prove that the employer “knowingly and intentionally” violated California’s wage statement requirements (elements required to recover on a direct claim for violation of the wage statement law, Labor Code 226) in order to recover PAGA penalties for a violation.
Collectively, these and other unfavorable court decisions have led to a massive proliferation of PAGA filings against California employers in the last several years. The filing of a representative PAGA action places immense settlement pressure on an employer because of the magnitude of monetary exposure associated with potential penalties and attorneys’ fees – often involving a claim based on a very minor technical violation. For example, there have been countless cases filed over wage statements where the employer’s name is abbreviated instead of reflecting the full official name (with plaintiffs’ attorneys arguing, as absurd as it sounds, that an abbreviated name violated the wage statement law’s requirement that the wage statement list the name of the employer). Rather obviously, this type of hyper-technical violation injures not a single employee, but plaintiffs’ attorneys seize on this and other similar technicalities to file PAGA suits, knowing they have a shot at extracting a beneficial settlement from the employer based on the cost of defense and penalty exposure.
Well, this week, two California courts continued the trend, issuing two more unfavorable PAGA decisions. The first, and most significant, is Huff v. Securitas Security Services USA, Inc., in which the court held that a PAGA plaintiff who allegedly suffers a single Labor Code violation can sue the employer on a representative basis and seek to recover penalties not only for that violation but for all other Labor Code violations allegedly suffered by other employees (even though not suffered by the plaintiff himself). This is wholly contrary to traditional rules of standing (which require a plaintiff to actually be injured by the alleged violation upon which they are suing) and is just another example of how absurd the PAGA landscape in California has gotten.
In the second case, Raines v. Coastal Pacific Food Distributors, the court held (similar to the earlier Lopez v. Friant & Associates case) that a PAGA plaintiff alleging wage statement violations does not need to prove injury or a knowing and intentional violation in order to recover PAGA penalties for the violation, even though these are both elements required to prevail on a claim for a wage statement violation under the wage statement law itself (Labor Code 226).
In issuing these unfavorable decisions, some of these courts have acknowledged that employers raise valid unfairness arguments and/or policy arguments for why PAGA should not operate the way that it does. However, these courts note that these are issues for the legislature, not the courts. To that end, however, there have been countless bills introduced to reform PAGA in the California legislature. Each year, these bills are killed in committee, seemingly due to opposition from big labor and plaintiffs’ attorneys. As a result, until the legislature decides to do the right thing and reform PAGA, California employers will have to continue fighting shakedown PAGA lawsuits, while employers throughout the rest of the country, who aren’t burdened by litigation-fueling laws like PAGA, look on with justifiable relief that they don’t have operations in the Golden State.