Magana v. Zara USA, Inc.: Release in Wage-And-Hour Case No Bar to Subsequent Suitable Seating PAGA Action, Says 9th Cir.

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The unpublished opinion in Melissa Magana v. Zara USA, Inc. (9th Cir. Feb. 2, 2021) (“Magana”) (slip op. available here), highlights a notable concern when bringing an action under the Private Attorneys General Act (“PAGA”). If the PAGA representative was an unnamed class member in a prior wage-and-hour class action that settled, is he or she barred from maintaining a later action under PAGA?

In Magana, the plaintiff filed a lawsuit seeking PAGA penalties based on suitable seating violations under the California Labor Code. The defendant Zara moved to dismiss. The district court held that the PAGA action was not contractually barred by the terms of the prior settlement, but was barred under the doctrine of claim preclusion. The Ninth Circuit reversed.

On the first issue, the defendant argued that the plaintiff’s PAGA action based on suitable seating violations was barred because the settlement agreement defined “PAGA Settlement Amount” as constituting “full satisfaction of all claims for PAGA civil penalties under the California Labor Code, Wage Orders, regulations, and/or other provisions of law alleged to have been violated with respect to the settlement class.” Slip op. at 2-3. The majority of the court disagreed. The Release of Claims in the prior action applied only to “claims for relief based on the facts alleged in [the complaint].” Id. at 3. Those claims included unpaid overtime, unpaid minimum wages, noncompliant wage statements, failure to provide meal and rest breaks, and the untimely payment of wages in violation of the California Labor Code, as well as a derivative claim for PAGA penalties. However, the complaint did not allege any facts relating to seating. Id. at 4.

The panel’s conclusion was not unanimous. Justice VanDyke argued in a dissent that the prior release did bar the later action because the “all claims for PAGA civil penalties” language in the definition of the PAGA Settlement Amount “is pretty clear,” while the “based on facts alleged” language of the Release of Claims is ambiguous. Slip op., VanDyke, J., dissenting at 1-2. The dissenting justice concluded, “I would not use an ambiguous phrase to limit a clear one.” Id.

On the second issue, the majority of the court held that claim preclusion did not apply to bar the plaintiff’s suitable seating claim because the “primary rights” at issue in the earlier action did not implicate the same primary rights as the plaintiff’s suitable seating claim. Slip op. at 5. The justices reasoned that it makes sense to draw a distinction between wage-related claims such as those in the earlier action, and non-wage claims such as Magana’s suitable seating claim. Id. at 6. The court stated that the harm at the center of the earlier case was “nonpayment of wages,” while “the harm of a suitable seating violation is much more abstract and cannot be redressed via the payment of wages.” Id. at 9. However, the court’s reasoning in this unpublished case is not unequivocal. It stated, “[w]e recognize that the resolution of the primary-rights question ultimately boils down to a question of framing: does the suitable seating claim narrowly implicate the right to seating, or does it implicate a broader right to a minimum guaranteed standard of labor?” Id. at 6.

Magana underscores that California citizens who plan to file actions under PAGA need to take care if they were class members in a prior class action against the employer that has settled. Even if the prior class action involved facially different Labor Code violations, broad language in a settlement agreement, or similar “primary rights,” could bar a subsequent PAGA action.

Authored by:
Robert Friedl, Senior Counsel