Discretion: The Better Part of Valor in Defending Against California PAGA Claims
Since the Supreme Court’s decision in Viking River Cruises v. Moriana, California employers have been implementing and enforcing arbitration agreements requiring employees to arbitrate their individual Private Attorneys’ General Act (“PAGA”) claims. But what happens to the representative PAGA claim once the employee’s individual PAGA claim has been severed and sent to arbitration? The U.S. Supreme Court held in Viking River that the representative PAGA claim had to be dismissed from court because of the mandatory arbitration agreement. But, Justice Sonia Sotomayor’s concurring opinion in that case left the last word on standing to California courts and the California legislature.
Since Viking River, California courts have issued mixed and inconsistent rulings regarding what to do with the representative PAGA claim once the employee’s individual claims are compelled to arbitration. Some courts have dismissed the representative claims. Others have stayed the representative claim while the arbitration of individual claims proceeds.
Last week, the California Supreme Court considered that question during oral argument in Adolph v. Uber (Supreme Court Case No. S274671). A decision is expected to be issued in Adolph within 90 days. In the meantime, let’s review the key elements from the oral argument.
The Justices peppered counsel for both sides with questions during oral argument. A number of Justices seems skeptical that staying the representative action made sense as they aggressively questioned whether a plaintiff has sufficient “skin in the game” to prosecute the representative PAGA claim after their individual PAGA claim is already resolved in arbitration. Another key issue discussed during oral argument was whether a representative PAGA claim should be stayed during the arbitration of individual claims. Adolph Counsel’s argument that a stay of a representative PAGA claim may not always be required – while conceding that Uber’s arbitration agreement expressly required a stay – was also met with skepticism by the Court. A plaintiff’s standing to bring a PAGA claim will be decided as part of the arbitration and the potential for inconsistent findings between the arbitrator and the court is precisely the type of situation in which a stay is typically granted.
Prior PAGA decisions allow a plaintiff with minimal standing (i.e., skin in the game) to proceed with representative PAGA claims. For example, in Kim v. Reins Int’l Cal., a PAGA plaintiff who settled his individual claims in arbitration in which the settlement agreement expressly carved out settlement of the PAGA claim on a representative basis) was held to have preserved standing to prosecute the representative PAGA claim in court. In Huff v. Securitas Sec. Servs., the court held that a PAGA plaintiff has standing to bring claims on behalf of others for alleged Labor Code violations that they themselves never suffered, as long as the plaintiff suffered at least one Labor Code violation. If these prior cases providing for a minimal standing requirement and the stated legislative goal of ensuring compliance with the Labor Code are given deference by the California Supreme Court, it is likely that the Court will allow and even encourage representative PAGA claims to remain stayed in court until the resolution of the arbitration of a plaintiff’s individual claims. However, if the Court looks to formulate a more politically based solution, then a different conclusion will be drawn in the final Adolph opnion.
In the meantime, what strategies should employers consider in defending against PAGA cases?
- Cure alleged violations, if possible. PAGA allows employers to cure certain violations. If the initial LWDA exhaustion letter alleges claims that can be cured, employers should act quickly since they only have 33 days from the postmark date of the LWDA exhaustion letter to cure the alleged violation. A plaintiff cannot pursue PAGA claims if they have been timely cured. So, early evaluation of initial LWDA exhaustion letters is key.
- Evaluate whether to compel arbitration. If there is an arbitration agreement with employees providing for individual arbitration of claims, including individual PAGA claims, consider whether it is best to proceed in arbitration or not.
If California employers that are faced with PAGA claims by employees who have signed mandatory arbitration agreements proceed in individual arbitration and the PAGA representative claim is stayed (or later refiled) and the plaintiff is successful in arbitration, then employers may face an uphill battle with respect to those claims on the representative PAGA claim, although the employer could raise factual and legal defenses as to how any alleged violation suffered by the PAGA representative was not suffered by all or most of the “aggrieved employees” s/he seeks to represent. However, California employers should consider and weigh the heightened exposure because the number of pay periods upon which PAGA penalties can be imposed will likely increase during the time the case was stayed pending the arbitration. So, in those cases where a plaintiff can demonstrate a clear violation and individual defenses may be challenging, it actually may be in the employer’s best and most economical interest to proceed to early resolution rather than delay the process by compelling individual arbitration.
If an evaluation of a plaintiff’s allegations, timecards, and pay records does not establish a clear violation, then compelling arbitration while the representative PAGA claim is stayed is likely the most cost effective way of resolving whether plaintiff has standing, while at the same time avoiding broad and expensive discovery as to other employees.
In short, just because an employer can compel arbitration doesn’t necessarily mean they should. PAGA litigation is complex. Although a thorough and early evaluation of claims can be costly, it often helps save significant litigation costs in the long run.
California Court of Appeal Holds No Right to Jury Trial in PAGA Cases and Affirms Suitable Seating Win for Employer
On February 18, 2022, the California Court of Appeal, Second District, held there is no right to a jury trial in a Private Attorneys General Act (PAGA) action for civil penalties. In that same decision the Court of Appeal affirmed a trial court’s judgment in favor of Ralphs Grocery Company after a bench trial in which the trial court found the company’s decision not to provide seats to cashiers did not violate workplace suitable seating requirements under the applicable Industrial Wage Commission (IWC) wage order.
Background on PAGA
Under PAGA, the State of California deputizes “aggrieved employees” to sue employers to recover civil penalties as a mechanism to enforce provisions of the Labor Code. An aggrieved employee is a person who was employed by the defendant employer and against whom one or more of the alleged Labor Code violations occurred. Under PAGA, the plaintiff-employee pursues civil penalties for Labor Code violations the employer allegedly committed against all aggrieved employees (not just the plaintiff). The employee who brings a PAGA action acts as an agent of the state enforcement agencies; therefore the action is considered a dispute between the employer and the state, as opposed to a suit for damages. If the employee prevails in the litigation, 75 percent of the civil penalties go to the state, and the remaining 25 percent go to the aggrieved employees. Prevailing PAGA plaintiffs are also entitled to recover reasonable attorneys’ fees and costs.
California’s “Suitable Seating” Requirements
For decades, California’s IWC wage orders have required most employers to provide “suitable seats” to their employees “when the nature of the work reasonably permits the use of seats.” When the nature of employees’ work requires standing and the employees are not actively engaged in those duties, the wage orders require employers to provide their employees seats when using seats “does not interfere with the performance of their duties.”
These “suitable seating” requirements were little noticed until after the enactment of PAGA in 2004. Although the suitable seating requirement does not appear within the Labor Code itself, section 1198 of the Labor Code makes it unlawful to employ any employee under conditions prohibited by an IWC wage order. The result is that a violation of any IWC wage order is also a violation of Section 1198, which gives rise to a PAGA claim. Under PAGA, the civil penalty for a violation of Section 1198 is $100 for each aggrieved employee per pay period for the initial violation, and $200 for each aggrieved employee per pay period for each subsequent violation. It doesn’t require a calculator to see how PAGA provided the financial incentive behind the explosive growth of suitable seating litigation.
LaFace v. Ralphs Grocery Co.
Ralphs Grocery Company employed Jill LaFace as a cashier. She brought a PAGA action against Ralphs on behalf of herself and other current and former Ralphs cashiers, alleging Ralphs violated an IWC wage order requiring the company to provide suitable seating when the nature of the work reasonably permitted the use of seats, or, for a job where standing was required, to provide seating for employees to use when their use did not interfere with their duties.
The trial court set a jury trial but later granted Ralphs’s motion for a bench trial after finding PAGA actions are equitable in nature and are therefore not triable to a jury. After a bench trial the trial court found Ralphs had not violated the wage order because the evidence showed even when cashiers were not functioning in their primary roles as cashiers, they were required to move about the store fulfilling other tasks. LaFace appealed the judgment, contending she was entitled to a jury trial on her PAGA claim.
On appeal, LaFace and Ralphs agreed that PAGA itself does not confer a right to a jury trial, so the Court of Appeal limited its inquiry to whether the California Constitution’s guarantee of a right to a jury trial applies to PAGA actions. Surveying the line of cases examining the reach of the state constitutional right to a jury trial, the Court of Appeal determined the issue turned on whether a PAGA action is of “like nature” or “of the same class as a pre-1850 common law right of action” that the constitutional provision was designed to protect.
Examining the nature of a PAGA action, the Court of Appeal concluded there is no right to a jury trial in PAGA actions for four reasons. First, notwithstanding the fact that a PAGA action’s designated forum is the trial courts which technically makes it a civil action, PAGA plaintiffs act as mere proxies for the state, bringing on behalf of the state what would otherwise be an administrative regulatory enforcement action. Second, PAGA’s penalty provisions are subject to a variety of equitable factors that call for a qualitative evaluation and the weighing of a variety of factors that is typically undertaken by a court, not a jury. Third, the Labor Code proscribes a wide range of conduct that was unknown at common law, including suitable seating requirements among others. Fourth, although the penalty assessment portion of a PAGA action could be severed from the liability portion, with a jury deciding liability and the court deciding penalties, as noted above many PAGA violations are based on newly created rights that did not exist at common law, with the result that a PAGA action typically does not have a pre-1850 analog that would call for the right to a jury trial under the California Constitution.
After addressing the constitutional issue, the Court of Appeal next turned to the merits of LaFace’s suitable seating claim. On appeal, LaFace did not argue the nature of her cashier duties reasonably permitted the use of seats; her appeal was limited to her contention that she was entitled to a seat during the brief periods of time when she was on the clock but not checking out customers. LaFace and Ralphs generally agreed the evidence, including the testimony of longtime cashiers and expert witnesses, showed that when cashiers were not checking out customers, Ralphs expected them to be performing other tasks that required standing, to include cleaning, restocking, and looking for customers ready to check out.
The parties disagreed, however, whether Ralphs’s expectation about these secondary tasks required Ralphs to provide seats. LaFace contended that notwithstanding Ralphs’ expectation that cashiers would perform these secondary tasks when they were not checking out customers, the “reality” was that cashiers would often remain at their checkstands, talking to other employees or using their mobile phones. Ralphs argued that because cashiers were expected to be active and busy at all times, no seating was required, and “rogue employees” should not be able to create an entitlement to seats by shirking their job duties. The Court of Appeal sided with Ralphs and affirmed the trial court’s judgment, holding an objective inquiry into whether using a seat would interfere with an employee’s performance of job duties properly takes into account an employer’s reasonable expectations regarding customer service and acknowledges an employer’s role in setting job duties. “An expectation that employees work while on the clock, rather than look at their phones or do nothing, seems objectively reasonable.”
While the bulk of suitable seating litigation has been brought by cashiers and other customer service employees who deal directly with the public, any California employer can be the target of a suitable seating claim. Employers are therefore well advised to periodically review job duties and provide suitable seats where warranted. When an employer concludes a seat is not warranted by an employee’s job duties, those duties should be clearly defined to make it clear an employee should not be sitting while on the clock.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Supreme Court Rules Unpaid Wages Not Recoverable Under PAGA Law
Today the California Supreme Court ruled that employees cannot recover unpaid wages in actions brought under the California Labor Code Private Attorneys General Act (PAGA). As a result of today’s decision, unpaid wages can only be recovered in actions brought under other Labor Code provisions that, unlike PAGA, can be subjected to mandatory employment arbitration agreements, including agreements that require employees to waive the right to bring claims on a class or collective basis.
Since 2004, the PAGA law has allowed employees to act as “private attorneys general” by bringing claims in court to recover “civil penalties” for violations of California Labor Code provisions. PAGA allows employees to bring claims on behalf of themselves and on behalf of other “aggrieved employees.” Before PAGA took effect, these “civil penalties” were recoverable only by the state’s labor law enforcement agencies.
In the fifteen years since the PAGA law took effect, the United States Supreme Court has issued a series of decisions upholding the enforcement of arbitration agreements, including agreements between employers and employees. The U.S. Supreme Court has also repeatedly held that employment arbitration agreements may include provisions prohibiting employees from arbitrating claims on a class or collective basis, effectively requiring employees to arbitrate only individual claims. As a result of these court decisions, many employers now encourage or require their employees to enter into arbitration agreements that include class and collective action waivers.
However, in 2014 the California Supreme Court ruled that employment arbitration agreements cannot prohibit employees from bringing PAGA claims in court on behalf of themselves and other “aggrieved employees.” As a result, even where an employee subject to an employment arbitration agreement is barred from bringing claims on a class or collective basis in court or in arbitration, the employee may still bring a “PAGA-only” claim in court, forcing the employer to litigate claims for alleged violations affecting not only the plaintiff-employee, but other “aggrieved employees” as well.
Most of the Labor Code provisions providing for civil penalties recoverable under the PAGA law assess penalty amounts (typically $50 or $100) for each aggrieved employee affected by the violation, for each pay period in which a violation occurs. But Labor Code section 558, which provides for civil penalties when an employer violates provisions of the Labor Code requiring employers to provide meal periods and overtime pay, is different. Section 558 provides for a civil penalty of $50 for each underpaid employee for each pay period in which the employee was underpaid for an initial violation, and $100 for each under paid employee for each pay period in which the employee was underpaid for a subsequent violation, “in addition to an amount sufficient to recover underpaid wages.”
In recent years different districts of the California Court of Appeal have reached different conclusions about how to interpret Section 558’s language, with one district concluding that claims for underpaid wages under Section 558 are subject to arbitration, and other districts concluding they are not. Despite their disagreements, however, all districts agreed that under the language of Section 558, the “underpaid wages” sought under Section 558 are part of a “civil penalty” recoverable under the PAGA law.
But today the California Supreme Court reached a different conclusion, confirming that the $50/$100 for each underpaid employee for each pay period is a civil penalty recoverable under the PAGA law, but holding that an employee’s underpaid wages are not part of that civil penalty, and are therefore not recoverable under the PAGA law.
As a result of today’s decision, plaintiff-employees cannot recover unpaid wages in PAGA-only cases. Although employees may bring claims for unpaid wages under other, non-PAGA Labor Code provisions, those non-PAGA claims are subject to employment arbitration agreements that may require employees to arbitrate claims on an individual basis only.
This means employment arbitration agreements that include class and collective action waivers now provide more protection to employers than they did before today’s decision. Employers that already make use of arbitration agreements should consult with counsel about whether their existing agreements are sufficient, or should be revised. Employers that do not have arbitration agreements with their employees should consult with counsel about whether to adopt an arbitration program.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Supreme Court Rules PAGA Plaintiffs Are Presumptively Entitled to Contact Information of Defendant’s Employees Statewide
Last week in a unanimous decision, the California Supreme Court ruled that representative plaintiffs in Private Attorneys General Act (PAGA) cases are presumptively entitled to discover the names and contact information of other allegedly “aggrieved employees” statewide at the outset of litigation, without the need to show good cause.
Enacted in 2004, PAGA allows allegedly “aggrieved employees” to sue employers on behalf of the state of California to recover civil penalties on behalf of the state for violations of the state Labor Code, and to keep for themselves and other aggrieved employees 25 percent of any civil penalties recovered, with the remaining 75 percent going to the state. PAGA also provides for the recovery of attorneys’ fees.
Michael Williams was employed by Marshalls of CA, LLC, at the company’s store in Costa Mesa, California. He sued Marshalls under PAGA, asserting various wage and hour violations. Early in the case, Williams sought to discover the names and contact information of fellow Marshalls employees throughout California, and offered to use a so-called “Belaire-West notice,” a discovery mechanism whereby non-party employees are notified of a plaintiff’s request to discover their names and contact information, and are given an opportunity to opt out of having their information produced. Marshalls objected on several grounds, including burdensomeness and the privacy rights of its employees. The trial court granted Williams’ motion to compel Marshalls to produce employee contact information, but only as to employees who worked at the Costa Mesa store where Williams worked.
The Court of Appeal affirmed, holding discovery of contact information for employees statewide was premature, and that Williams had failed to show good cause for the production of contact information statewide, given that he had not shown knowledge of unlawful practices at any store other than the Costa Mesa location, or facts putting any uniform statewide practice at issue.
The California Supreme Court reversed, finding the trial court abused its discretion in denying Williams’ motion to discover statewide contact information because the California Code of Civil Procedure does not include a “good cause” standard for discovery, and discovery rules for PAGA actions are no different from the rules governing discovery in putative class actions. Although defendants may object to discovery requests on various grounds (as did Marshalls) and trial courts retain broad discretion to manage discovery, when it opposed the motion the company presented no evidence showing the production of statewide contact information would be unduly burdensome, and the well-established Belaire-West notice procedure provided sufficient privacy protections.
This decision confirms that in a class, collective or PAGA action litigated in a California state court, the names and contact information of non-party employees are presumptively discoverable simply upon the filing of a complaint. Instead of placing the burden on plaintiffs to show good cause for the discovery, the burden is on defendants to show why discovery should be limited. The court found Marshalls failed to do so, but the opinion leaves open the possibility that other employers may be able to limit discovery under the right circumstances.
Paul, Plevin, Sullivan & Connaughton LLP
San Diego, CA
Ninth Circuit Adopts California Supreme Court’s Iskanian Rule Prohibiting Enforcement of PAGA Waivers
Last week the Ninth Circuit Court of Appeals held that waivers of the right to bring representative actions under the California Labor Code Private Attorneys General Act of 2004 (PAGA) are unenforceable, essentially adopting the rule established in June 2014 by the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC. Prior to the Ninth Circuit’s decision, district courts in California had been divided on the issue, but most district courts deciding the issue had rejected the Iskanian rule.
The Ninth Circuit’s decision was in Sakkab v. Luxottica Retail North America, Inc., No. 13-55184 (9th Cir. Sep. 28, 2015). In that case, Shukri Sakkab filed a putative class action for unpaid overtime and inaccurate wage statements against his former employer, Luxottica Retail North America, Inc. After Luxottica answered and removed the case to federal court, Sakkab filed an amended complaint adding a representative claim for civil penalties under the PAGA. Luxottica then filed a motion to compel arbitration under the dispute resolution agreement contained in its Retail Associate Guide. The agreement purported to prohibit Sakkab from filing or participating in any “class-based” lawsuit or arbitration, “including any collective action” or “collective arbitration.” The district court granted the motion, holding Sakkab had waived his right to bring a class action or representative PAGA action, and ordering him to arbitrate his individual claims.
After the district court granted Luxottica’s motion and entered judgment, the California Supreme Court issued its Iskanian decision, ruling that PAGA waivers are unenforceable under California law.
On appeal, Luxottica argued the Federal Arbitration Act (FAA) preempts the Iskanian rule. In a 2-1 decision, the Ninth Circuit panel rejected the preemption argument. In reaching its decision, the panel majority explained that the Iskanian rule is a generally applicable contract defense that is not limited to arbitration agreements, and therefore falls within the FAA’s savings clause, which preserves generally applicable contract defenses providing they do not conflict with the FAA’s purposes. Next, the majority determined the rule does not conflict with the FAA’s purposes of (1) overcoming judicial hostility to arbitration and (2) ensuring enforcement of the terms of arbitration agreements, because PAGA claims can be arbitrated, and the Iskanian rule merely prohibits waivers of the right to bring representative PAGA claims in any forum.
In a lengthy dissent, Justice N. Randy Smith stated his view that the FAA does preempt the Iskanian rule, relying on a line of United States Supreme Court cases including AT&T Mobility LLC v. Concepcion, in which the nation’s high court held that class and representative action waivers in consumer contracts were enforceable, reversing a previous Ninth Circuit decision to the contrary.
For the time being, PAGA representative action waivers are not enforceable in either the state or federal district courts in California. But the issue isn’t entirely settled. Luxottica may seek en banc review in the Ninth Circuit, or seek review by the United States Supreme Court. In the meantime, employers should review their arbitration agreements with counsel and make adjustments if necessary.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA