Posts belonging to Category PAGA

For years, employers and employees have disagreed on the scope of California’s Private Attorneys General Act of 2004 (“PAGA”). One hotly-disputed issue is whether the named representative plaintiff needs to have experienced the exact Labor Code violation for which she is pursuing a PAGA claim on behalf of the state and other aggrieved employees. The disagreement turns on the aggrieved employee’s standing, defined under the PAGA statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Cal. Lab. Code § 2699(c). Employees construed the “one or more” language to mean that a plaintiff “need not have suffered all PAGA violations for which she seeks to pursue civil penalties” in order to seek civil penalties for those violations under PAGA. Jeske v. Maxim Healthcare Services, Inc., 2012 WL 78242, *13 (E.D. Cal. Jan. 10, 2012). Employers, on the other hand, interpreted the “one or more” language as an acknowledgement that PAGA penalties may be recovered based on more than one type of Labor Code violation, but that plaintiffs “have no standing to bring a PAGA claim” if they did not personally experience the Labor Code violations at issue. Wassink v. Affiliated Computers Services, Inc., 2011 WL 13977358, *3 (C.D. Cal. Dec. 21, 2011). In other words, employers read a Rule 23 “typicality” requirement into PAGA.

On May 23, 2018, the California Court of Appeal, Sixth District, resolved the dispute. In Huff v. Securitas Security Servs. USA, Inc., No. H042852, 233 Cal. Rptr. 3d 502 (2018) (slip op. available here), the Court of Appeal analyzed the plain language of the PAGA statute and the legislative intent underlying PAGA. Id. at 6-16. The court reasoned that the defendant’s “proposition that PAGA allows an employee to pursue penalties only for the type of violation he or she has suffered is directly at odds with the provision that an action may be brought by an employee against whom ‘one or more’ of the alleged violations was committed.” Id. at 7-8. “Had the Legislature intended to limit the recovery of a PAGA plaintiff suing in a representative capacity to only the penalties for employees affected by the same Labor Code violation as the plaintiff, it would have said so in the statute.” Id. at 8.

Unlike the typicality requirements of a class action, “it would be arbitrary to limit the plaintiff’s pursuit of [PAGA] penalties to only those Labor Code violations that affected him or her personally.” Slip op. at 10. Thus, the court’s decision in Huff follows California Supreme Court authority holding that PAGA actions have no typicality requirements, whether an employer argues that a plaintiff be typical of other aggrieved employees in terms of violations committed or typical in terms of job duties assigned. Arias v. Superior Court, 46 Cal.4th 969, 980-81 (2009); accord Baumann v. Chase Invest. Servs., 747 F.3d 1117, 1023 (9th Cir. 2014) (“PAGA contains no requirements of numerosity, commonality, or typicality”).

More importantly, however, the well-reasoned Huff decision is directly in line with the legislature’s purpose in enacting PAGA. PAGA was enacted to solve the problem of inadequate state enforcement resources by allowing private citizens to pursue violations and seek penalties on behalf of the state. Arias, 46 Cal.4th at 980-981; see Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 501 (2011) (“The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code.”). Allowing a plaintiff to enforce Labor Code violations committed by employers against their employees, even when all of those violations may not have been personally suffered by the plaintiff, supports PAGA’s purpose as a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 381 (2014).

Huff resolves a dispute that has vexed trial courts. With the California Supreme Court having recently denied review, Huff will govern this standing issue for PAGA cases going forward, ensuring that an aggrieved employee’s duty to serve as a labor law enforcer is not stymied by onerous requirements manufactured by employers.

Authored By:
Bevin Allen Pike, Senior Counsel
CAPSTONE LAW APC

On December 7, 2017, in a published order, the Ninth Circuit rejected dismissal of an appeal of the denial of class certification by two plaintiff employees who had settled their individual claims and preserved certain class and representative claims for appeal, because the parties’ mutual settlement for consideration did not amount to “sham tactics” to manufacture an appealable final judgment under recent Supreme Court precedent. Brown v. Cinemark USA, Inc., No. 16-15377 (9th Cir. Dec. 7, 2017) (Ms. Brown and Mr. De La Rosa are represented by Capstone Law APC) (order available here). In an unpublished memorandum filed with the order, the panel reversed the denial of class certification and the dismissal of the claim under the Private Attorneys General Act (“PAGA”), finding that the district court had erred in denying class certification based on the pleadings and had erroneously dismissed the PAGA claim for failure to exhaust administrative remedies under Williams v. Superior Court, 3 Cal.5th 531 (2017), a case decided after the district court had issued its order (memorandum available here).

Plaintiffs Brown and De La Rosa were movie theater employees who brought a wage and hour class and representative action against their employer and consolidated their case with another action. The district court denied the plaintiffs’ joint motion for class certification, which, among others, sought to certify a direct wage statement claim under Labor Code section 226(a). The district court’s ruling was based solely on the pleadings, finding the wage statement claims had been pleaded derivatively rather than directly, and provided no Rule 23 class certification analysis. The court also dismissed the direct wage statement PAGA claim for failure to exhaust administrative remedies, finding that the PAGA notice letters had not provided sufficient information. Finally, the district court denied leave to amend the complaint and the remaining individual claims were set for trial. However, prior to trial, the parties settled all remaining individual claims for consideration, reserving the right to challenge the district court’s denial of class certification and the dismissal of Ms. Brown’s PAGA claim. Order at 4. Both plaintiffs appealed the issues reserved by the settlement. Id.

Cinemark subsequently brought a motion to dismiss the appeal in light of Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), which was issued after the notice of appeal was filed. The Ninth Circuit denied the motion to dismiss the appeal. First, the Ninth Circuit distinguished Baker, noting that in Baker, the district court had denied class certification and the Ninth Circuit had denied discretionary interlocutory review under Rule 23(f). Order at 4. Then, “rather than pursue their individual claims on the merits, the plaintiffs voluntarily dismissed their own claims with the express purpose of creating a final judgment for appeal.” Id. The Baker plaintiffs subsequently only appealed the district court’s interlocutory order denying class certification. The Supreme Court of the United States found that such a voluntary dismissal did not qualify as a “final decision” within the parameters of 28 U.S.C. § 1291 and was a tactic that would undermine section 1291’s firm finality principle. Id. Here, however, the Ninth Circuit found that “unlike Baker, where the plaintiffs openly intended to sidestep Rule 23(f) when they voluntarily dismissed their claims[,]” after the district court denied certification, the Brown plaintiffs continued litigating their remaining individual claims, some of which resolved in favor of the defendants and some resulted in settlement. Id. at 5. The Brown plaintiffs did not engage in any “sham tactics to achieve an appealable final judgment,” and “the parties’ mutual settlement for consideration in this case does not raise the same concerns.” Id.

Second, the Ninth Circuit reversed the district court’s dismissal of Ms. Brown’s PAGA claim based on a failure to exhaust administrative remedies “[g]iven the import of Williams.” Memorandum at 2. The panel found that the PAGA notice letter “pleaded facts and theories sufficient to put the Defendants and the California Labor and Workforce Development Agency [LWDA] on notice for potential investigation, which satisfies the policy goal of California Labor Code section 2699.3(a).” Id. at 2-3. Quoting the California Supreme Court’s unanimous decision verbatim, the Ninth Circuit underscored that “[h]urdles that impede the effective prosecution of representative PAGA actions undermine the Legislature’s objectives.” Id. at 3. The panel further relied on the powerful dicta in Williams setting a very modest standard for PAGA notice letter sufficiency, recognizing that “[n]othing in Labor Code section 2699.3, subdivision (a)(1)(A), indicates the ‘facts and theories’ provided in support of ‘alleged’ violations must satisfy a particular threshold of weightiness, beyond the requirements of nonfrivolousness generally applicable to any civil filing.” Id.

Third, the Ninth Circuit found the district court erred in denying class certification of the direct wage statement claim on the basis of the pleadings. Memorandum at 3. Because the district court based its decision to deny certification solely on the pleadings rather than a Rule 23 analysis, the Ninth Circuit reviewed that decision de novo rather than applying the more deferential abuse of discretion normally reserved for certification rulings. It concluded that the pleadings put the defendants on sufficient notice of wage statement violations, whether direct or derivative, and further found that the plaintiffs’ pleadings merited a Rule 23 analysis for their direct wage statement claim. Id. It thus vacated the order and remanded for the district court to conduct a Rule 23 analysis.

The import of the Brown rulings is that Baker does not necessarily preclude federal appellate review of certification orders pursuant to partial settlements for consideration, particularly when the parties continue litigation. Further, with respect to PAGA notice letters, the Ninth Circuit has demonstrated that the California Supreme Court’s recent pronouncement in Williams is key—that PAGA notice letters need not meet any “threshold of weightiness,” but need only put defendants and the LWDA on notice of potential investigations, a low bar that need only pass the requirements of “non-frivolousness.”

Authored By:
Liana Carter, Senior Counsel
CAPSTONE LAW APC

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

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