Posts belonging to Category PAGA



United States ex rel. Welch v. My Left Foot Children’s Therapy: 9th Cir. Rules Arb Agreement Does Not Apply in Former Employee’s Whistleblower Lawsuit

In September, the Ninth Circuit Court of Appeals affirmed a ruling that rejected a company’s attempt to force its former employee into arbitration under a very broadly-worded agreement that she had signed at the time of hire. See United States and State of Nevada ex rel. Welch v. My Left Foot Children’s Therapy, LLC, et. al, No. 16-16070 (9th Cir. Sept. 11, 2017) (slip op. available here). Specifically, the court held that the broad arbitration provision did not cover an employee’s claim under the False Claims Act (FCA), because an FCA claim belongs to the government, and in this case, neither the United States nor the state of Nevada had agreed to arbitrate its claims. Id. at 4.

The plaintiff in Welch was an employee working for My Left Foot Children’s Therapy (MLF), who filed a whistleblower complaint in federal court alleging that MLF violated the FCA by presenting fraudulent claims to federal health care programs. See id. at 6. The United States and Nevada declined to intervene, and thus, Welch proceeded with her claim. Id. On October 19, 2015, the defendants moved to compel arbitration of Welch’s FCA claims pursuant to the Federal Arbitration Act (FAA) and the arbitration agreement contained in her employment contract. Id. at 6. The arbitration agreement stated in relevant part:

I agree and acknowledge that the Company and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the Company and I agree that any claim, dispute, and/or controversy that either I may have against the Company . . . or the Company may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment by, or employment or other association with the Company shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.

Id. (emphasis added).

On June 13, 2016, the district court denied the defendants’ motion to compel arbitration on the basis that Welch’s arbitration agreement did not extend to the United States or Nevada, the parties that owned the underlying FCA claims. Following this, on September 11, 2017, the Ninth Circuit affirmed the district court’s decision. Specifically, the Ninth Circuit held that the material terms (“arising out of,” “related to,” and “having any relationship or connection whatsoever”) of the agreement only covered claims directly related to the plaintiff’s employment. Id. at 13-17. The court reasoned that here, the FCA suit had no direct connection with Welch’s employment because even if Welch had never been employed by the defendants, assuming other conditions were met, she would still have been able to sue them for presenting false claims to the government. Id. Thus, her ability to bring this claim did not necessarily arise from her employment and was not covered by the arbitration agreement. Id.

The court also stated that the arbitration agreement only covered claims between Welch and MLF (id. at 15), and did not cover claims brought on behalf of another party—the United States or Nevada. This reasoning has been echoed in other types of qui tam actions such as those brought under the Private Attorneys General Act of 2004 (“PAGA”). Like FCA claims, in a PAGA action, a plaintiff brings the case for violations of the California Labor Code on behalf of the real party in interest—the state of California. As such, the California Supreme Court has also held that such actions are not covered by arbitration agreements to which the real party in interest—the state of California—has not assented. See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 386 (2014).  However, it is important to note that the Ninth Circuit also stated in dicta that, had the parties wanted to agree to arbitrate FCA claims, they were free to have drafted a broader agreement that covers “any lawsuits brought or filed by the employee whatsoever” or “all cases Welch brings against MLF, including those brought on behalf of another party.” See slip op. at 17.

Thus, while this holding is another victory in the fight against adhesive arbitration agreements in qui tam-type actions, it may also provide some guidance to employers wishing to force qui tam actions under the FCA into arbitration.

Authored by:
Ruhandy Glezakos, Associate
CAPSTONE LAW APC

Lopez v. Friant: Neither Intent nor Injury Required for PAGA Wage Statement Claims

In September, the California Court of Appeal reversed a summary judgment ruling that applied the “knowing and intentional” standard of Labor Code section 226(e) to a Private Attorneys General Act (“PAGA”) claim for violation of section 226(a), the provision that requires employers to issue wage statements to employees containing certain information. The court held that PAGA claims based on wage statement violations are not subject to the statutory penalty requirements of section 226(e)(1). See Lopez v. Friant & Assocs., LLC, No. A148849, 15 Cal. App. 5th 773 (1st District Div. 1, Sept. 26, 2017) (slip op. available here). This is helpful clarification for employees seeking redress of wage statement violations through PAGA rather than through a private right of action.

The plaintiff in Lopez sought civil penalties on behalf of himself and other aggrieved employees through PAGA. PAGA affords private individuals, who allege violations of the Labor Code committed by an employer, to step into the shoes of California state labor enforcement agencies to collect civil penalties that otherwise could only be pursued by the state. As explained in Lopez, PAGA was designed to incentivize the enforcement of Labor Code provisions for which there was no private right of action, and to supplement the limited resources of state enforcement agencies. The plaintiff in Lopez’s PAGA claim was based on a violation of Labor Code section 226(a)(7), which requires the issuance of wage statements that include either the last four digits of the employee’s social security number, or some other employee identification number. The defendant moved for summary judgment against that predicate violation, arguing that the employer’s failure to include an identification number was not “knowing and intentional” as required for statutory damages or penalties under section 226(e)(1). The trial court granted summary judgment in favor of the defendant. The plaintiff appealed.

The plaintiff’s primary argument on appeal was that the “knowing and intentional” requirement under section 226(e) does not apply to a PAGA action based on a wage statement violation under section 226(a). The Court of Appeal began by examining the plain language of the relevant statutes, pointing to the “important distinction between the ‘civil penalties’ available under PAGA, and ‘statutory penalties’ recoverable by individual plaintiffs before PAGA was enacted.” Slip op. at 6. The penalties afforded by section 226(e) have always been available in private rights of action, and therefore constitute “statutory” penalties, whereas the penalties sought under PAGA for violations of section 226(a) are civil penalties, which are regulatory and not available to private plaintiffs outside of a PAGA suit, and thus are not bound by the same rules. Id. This interpretation was also supported by the relevant legislative history. Id. at 7-10. Lastly, the Court of Appeal noted that while section 226(a) is enumerated as one of the available predicate violations for a PAGA claim under section 2699.5, section 226(e) is not. Accordingly, the appellate court held: “Because section 226(e)(1) sets forth the elements of a private cause of action for damages and statutory penalties, its requirement that a plaintiff demonstrate “injury” resulting from a “knowing and intentional” violation of section 226(a) is not applicable to a PAGA claim for recovery of civil penalties.” Id. at 16.

In a footnote, the Court of Appeal also teased the issue of which civil penalty should apply to a PAGA claim predicated on a section 226(a) violation. Indeed, “various federal courts have taken different positions on this issue.” Slip op. at 11, n.6. PAGA ordinarily adopts whichever civil penalty is specifically defined by statute, and otherwise uses the default penalty amount under section 2699. And, while section 226.3 defines a civil penalty for wage statement violations, some courts have interpreted it as only providing the civil penalty for a failure to provide any wage statement at all—not one that was only missing some of the nine required elements. So does an incomplete wage statement fail to meet the definition of a “wage statement” provided? Should the section 226.3 civil penalty therefore apply? Or should the default penalty apply? Unfortunately, since that issue was neither directly raised nor sufficiently briefed, the Court of Appeal left the question unanswered.

Though many in the plaintiffs’ bar had already been operating under the interpretation that section 226(e) requirements do not apply to section 226(a) violations in the PAGA context, Lopez now makes this interpretation binding on all California trial courts. And, without the need to satisfy section 226(e), this makes wage statement claims much simpler to prosecute through PAGA than through a regular cause of action.

Authored by:
Jonathan Lee, Associate
CAPSTONE LAW APC

Betancourt v. Prudential Overall Supply: CA Ct. of App. Reiterates that PAGA Claims Cannot Be Arbitrated, Prudential Files Appeal

Complaining that California “leads the field” in circumventing United States Supreme Court’s pro-arbitration precedent Concepcion, Prudential Overall Supply petitioned for certiorari on August 15, 2017, seeking review of California’s Fourth Appellate District’s ruling that claims under California’s Private Attorneys General Act (“PAGA”) cannot be arbitrated. Betancourt v. Prudential Overall Supply, No. E064326 (4th District Div. 2, March 7, 2017) (slip op. available here) (petition for writ of certiorari available here). In April 2015, Betancourt filed a representative action suit solely based on PAGA against his employer, Prudential Overall Supply. Within the single PAGA claim, the plaintiff alleged violations of overtime and minimum wage law, meal and rest period requirements, timely pay and final pay requirements, and recordkeeping and wage statement requirements, among other claims. In a March 7, 2017 decision, the Court of Appeal affirmed the trial court’s denial of Prudential’s motion to compel arbitration of the plaintiff’s claim for penalties under PAGA. Slip op. at 2.

First, Prudential argued that Betancourt had already agreed to arbitrate the PAGA claim and that an arbitrator would decide the scope and application of the agreement. Id. at 10-11. Additionally, Prudential claimed since the “representative claims” portion of the agreement could be severed, Betancourt could be compelled to arbitrate his claims. Id. at 11. Prudential further asserted that if Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 5th 348 (2014), is interpreted as prohibiting arbitration of all PAGA claims, then the state law prohibiting arbitration is preempted by the Federal Arbitration Act (FAA). Id. at 12. Finally, Prudential, citing Sakkab v. Luxottica Retail North America, Inc. (2015 9th Cir.) 803 F.3d 425, contended that California law permits arbitration of PAGA claims. Id. at 12-13. Repeatedly citing Iskanian, the appellate court rejected each of these arguments, holding that Prudential could not “rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state . . .” because “[t]he state is not bound by Betancourt’s predispute agreement to arbitrate.” Id. at 8; see also id. at 9-13 (applying Iskanian in greater detail) (internal citations omitted). Further, the Court of Appeal noted that a state rule prohibiting arbitration of PAGA claims is not preempted by the FAA because it falls outside of the scope of the FAA, as PAGA “is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state . . . .” Slip op. at 10 (citing Iskanian, at 386-87, emphasis in original).

The Court of Appeal also rejected the defendant’s other argument, which was based on an alleged defect in the pleadings. The defendant argued that because Betancourt had sought non-PAGA remedies in the prayer for relief, e.g., for unpaid wages, business expenses, interest, and attorney’s fees, in addition to civil penalties, the action was not actually a PAGA action and that the plaintiff was trying to disguise a standard wage-and-hour action in order to evade arbitration. Slip op. at 4, 8-9. Yet, the trial court had found and the appellate court agreed, such a challenge is a challenge against the pleadings, and should have been brought as a motion to strike—not as a motion to compel arbitration. Id. at 9. As the Court of Appeal aptly noted, “Prudential accuses Betancourt of attempting to make an ‘end run around arbitration’ by incorrectly labeling his claims as a PAGA matter. It appears to this court that Prudential may be attempting to make an ‘end run” around a demurrer or motion to strike . . . .” Id. at 9.

Overall, the Court of Appeal’s Betancourt opinion makes a strong case for PAGA claims being inarbitrable, based on the fact that the state—the real party in interest in every PAGA action—is not a party to an employee’s bilateral agreement to arbitrate his or her employment claims, and thus cannot be bound by that agreement. Whether the United States Supreme Court will break its streak of rejecting cert petitions based on PAGA issues in Betancourt remains to be seen.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

Williams v. Marshalls of CA: PAGA Plaintiffs Entitled to Broad Discovery Rights

On July 13, 2017, in a unanimous opinion, the California Supreme Court affirmed PAGA plaintiffs’ broad rights to discovery under the Civil Discovery Act. Williams v. Marshalls of CA, LLC, No. S227228 __ Cal.5th __ (July 13, 2017) (slip op. available here) (Mr. Williams is represented by Capstone Law APC). In so doing, California’s highest court reversed the trial court’s imposition of additional restrictions on PAGA discovery. The Williams opinion not only reaffirmed that the right to discovery for all plaintiffs in civil litigation is broad, but also that there is no requirement that plaintiffs make a preliminary showing of “good cause” before being able to obtain contact information of fellow employees.

Williams’ lawsuit alleges that he worked for Marshalls at their store in Costa Mesa, California, as a non-exempt, hourly employee, and asserts only a PAGA claim based on various underlying wage-and-hour violations. Slip op. at 2. Early in the action, Williams had propounded discovery requests seeking, among other pieces of information, the names and contact information for all of Marshalls’ California employees. The trial court mostly denied the request, though it ordered Marshalls to produce the names and contact information for the single store where Williams worked. The trial court further conditioned any renewed discovery motion on Williams sitting for a deposition and making a showing of proof as to the merits of the allegations in his complaint.

Williams filed a petition for a writ, on which the Court of Appeal took full briefing and oral argument.  However, the Court of Appeal ultimately denied Williams’ writ petition, and effectively affirmed the trial court order. The Court of Appeal held that the trial court was within its discretion to deny the discovery Williams sought because Williams had failed to establish “good cause” for the non-party aggrieved employees’ contact information. Slip op. at 4. The Court of Appeal alternatively held that the employees’ privacy interests under the California Constitution were implicated and that, therefore, Williams was required to show a “compelling need” for the discovery. Williams then filed a petition for review, which the Supreme Court granted to decide two issues: (1) whether the plaintiff in a PAGA action is entitled to discovery of the names and contact information of other “aggrieved employees” at the start of the proceeding or whether the plaintiff is initially required to show good cause in order to gain access to that information; and (2) in ruling on such a request for employee contact information, should the trial court first determine whether the employees have a protectable privacy interest and, if so, balance that privacy interest against other interests, or is a protectable privacy interest assumed?

In a unanimous decision, the California Supreme Court reversed the lower court entirely, and issued a broad decision affirming the applicability of the Civil Discovery Act to PAGA cases, further cementing PAGA as a robust vehicle for enforcing the Labor Code. In its decision, the state Supreme Court first clarified the moving party’s burden when moving to compel interrogatory responses. Citing the Civil Discovery Act, the court explained that “a litigant[] is entitled to demand answers to its interrogatories[] as a matter of right, and without a prior showing, unless the party on whom those interrogatories are served objects and shows cause why the questions are not within the purview of the code section.” Slip op. at 6-7 (internal citations omitted).  Thus, it is the burden of the party resisting discovery to justify any objection. Id. at 7.

The court then addressed Marshalls’ objections to the discovery in turn, first looking to the relevance of the information sought by the plaintiff: the identities and contact information of other employees. Relying on opinions issued in putative wage-and-hour class actions, the court explained that “Courts of Appeal have . . . uniformly treated such a request as clearly within the scope of discovery permitted under Code of Civil Procedure section 2017.010.[,]” “an essential first step to prosecution of any representative action.” Slip op. at 9, 11. Marshalls had argued that these principles are not applicable to PAGA actions, relying both on the text of the PAGA statute and on differences between class actions and PAGA actions.  But the state Supreme Court held that there is nothing in the PAGA statute that supports a “heightened preliminary proof requirement,” a requirement which would undermine PAGA’s legislative purpose of advancing the state’s public policy of protecting employees against Labor Code violations in their workplaces. Id. at 13. The court also rejected the argument that the nature of a PAGA action, as opposed to a class action, supports conditioning discovery on a showing of proof. While there are procedural differences between class actions and PAGA actions, the two types of suits also bear some similarities, including overlapping policy considerations such as the robust protection of workers’ rights, which support an equally broad right to discovery. Slip op. at 15.

The California Supreme Court also rejected Marshalls’ objection of “undue burden.” The Code of Civil Procedure does not authorize the trial court to require a showing of proof before ordering discovery “in the absence of any evidence of the burden responding would entail.” Slip op. at 19. Marshalls made no showing of the burden of responding beyond stating the number of employees whose names and contact information were sought. And while the Court of Appeal had “justified the trial court’s good cause requirement” by referring to the rules governing inspection demands, the discovery at issue below were interrogatories, which do not include such a requirement under the Discovery Act. Id. at 19-20. Finally, examining the non-party employees’ constitutional privacy interests, the court explained that the relevant test for evaluating Marshalls’ privacy objection was the Hill test initially applied to the wage-and-hour class action context in Belaire-West Landscape, Inc. v. Superior Court, 149 Cal.App.4th 554. This three-part test requires: (1) a legally recognized privacy interest, (2) a reasonable expectation of privacy in the circumstances, and (3) a serious invasion of privacy. Hill v. National Collegiate Athletic Assn., 7 Cal.4th 1 (1994). If all requirements are met, the court moves on to a balancing test. Here, the court concluded that the second and third requirements were not met. Slip op. at 25-26.

Additionally, the court disapproved of the Court of Appeal’s reliance on other appellate cases that “stand for the proposition that whenever discovery of facially private information is sought, the party seeking discovery must demonstrate a ‘compelling state interest.’” Slip op. at 27. The court explained that a compelling interest is only required to justify “an obvious invasion of an interest fundamental to personal autonomy,” not to lesser interests. Id. at 28. The California Supreme Court disapproved of a long line of cases “to the extent they assume, without conducting the inquiry Hill requires, that a compelling interest or compelling need automatically is required.” Id. at 29, n.8.

The California Supreme Court also disagreed with certain considerations it deemed relevant to the balancing test it performed. The Court of Appeal had bizarrely found the potential for an employer illegally to retaliate against an employee for participating in the lawsuit as weighing against discovery, but the California Supreme Court instead found this to weigh in favor of discovery and in favor of “facilitating collective action so that individuals need not run the risk of individual suits.” Slip op. at 30-31. Further, the Supreme Court disagreed with the Court of Appeal’s indication that discovery should be contingent on a showing of a uniform, companywide policy, explaining that a uniform policy is not a condition for discovery—nor even for eventual success—in a PAGA action, although the court did note that Williams had, in fact, submitted documents purporting to describe the company’s uniform, unlawful statewide meal and rest period policies. Id. at 32, n.9.

With the Williams ruling, PAGA plaintiffs’ broad rights to discovery have been affirmed. The California Supreme Court also emphasized that the “facts and theories” that must be included in PAGA notice letters to the LWDA need only satisfy a low bar of “nonfrivolousness,” a minimal threshold that exists merely to afford the LWDA an opportunity to decide whether to allocate its resources to investigating the claims and the employer a chance to submit a response to the agency.

Authored by:
Katherine Kehr, Senior Counsel
CAPSTONE LAW APC