Seyfarth Synopsis: Members of the plaintiffs’ bar submit about 500 PAGA notices each month to California’s Labor and Workforce Development Agency. Each notice presages yet another PAGA lawsuit against yet another hapless California employer. But today we consider a new sort of PAGA-focused lawsuit. This recent complaint filed last week is not on behalf of a California law enforcement agency against some employer, but rather is on behalf of employers, and against a law enforcement official—California Attorney General Xavier Becerra. This lawsuit seeks injunctive and declaratory relief from PAGA because of the ways in which it violates the state and federal constitutions.

Filed by the California Business & Industrial Alliance (CABIA), this lawsuit is a counterpunch by aggrieved employers. CABIA, a trade organization of business executives and entrepreneurs, was formed as one business owner’s response to his personal experience with a PAGA lawsuit. That ordeal imposed a million dollar cost on his business, which has fewer than 200 employees. The ordeal also made the employer feel it had no choice but to comply literally with Labor Code provisions and thereby implement workplace changes (such as arbitrary times for meal periods) that were adverse to the interests of the employer’s workers.

Although the business owner settled that lawsuit, he remained disturbed by the hostile business and legal conditions that the California Legislature created in enacting PAGA. With likeminded business owners, he formed CABIA. Last week the organization sued.

The lawsuit, noting that PAGA lacks sufficient oversight from both the executive and the judicial branches of government, asserts that PAGA violates the constitutional separation of powers doctrine. CABIA contends that PAGA does not achieve its stated purpose to assist employees in righting workplace wrongs where the state lacks resources to do so itself. The lawsuit amply illustrates the point—well known to experienced employers—that PAGA primarily serves the interests of the plaintiffs’ bar, not the employees they nominally represent in court.

The 54-page complaint explains several ways in which PAGA runs afoul of both the California and United States Constitutions. The complaint explains that PAGA as enacted and as applied violates constitutional guarantees of procedural and substantive due process, as well as constitutional prohibitions against excessive fines and unusual punishments.

The lawsuit also cites the recent passage of AB1654, which exempts construction employers with certain collective bargaining agreements from PAGA lawsuits. Since it is unconstitutional to deny any person equal protection of the laws, the lawsuit contends that there is no basis to exempt one industry from the burdens that PAGA generally imposes on all employers.

However quixotic this lawsuit may seem (the California Supreme Court has already rejected constitutional challenges to PAGA), the lawsuit ably catalogs the many ways in which PAGA is unjust. Any employer that has had to defend itself in a PAGA lawsuit is familiar with the statute’s shocking procedural and substantive aspects. Regardless of whether CABIA’s lawsuit prevails, California employers should appreciate its efforts to be heard.

Readers interested in developments concerning California’s unique Private Attorneys General Act (PAGA) may want to delve into a short thought piece (actually advice to the California Legislature) on a recently-proposed bill that would amend PAGA. To read that post, also available on Seyfarth’s Wage & Hour Litigation Blog, please click here or at the end of the synopsis.

Seyfarth Synopsis: Sometimes, plaintiffs’ attorneys have circumvented a key aspect of the California Legislature’s intent in enacting PAGA: limiting standing to pursue penalties for Labor Code violations to those employees who were actually harmed. Though a new California bill could halt those attempts, PAGA plaintiffs’ wiliness warrants a cautionary comment to the Legislature to ensure that any amendment furthers—rather than further frustrates—the original legislative intentContinue Reading

By David Kadue

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California. Continue Reading U.S. Supreme Court Declines to Referee Slugfest Between Federal and California Courts on Enforceability of Arbitration Agreements

By David D. Kadue and Simon L. Yang

Remember the Black Knight in Monty Python and the Holy Grail? The overconfident fellow who refuses to desist, even after losing four limbs in combat? Some lawyers are like that.

Although the California Supreme Court in Iskanian (June 23, 2014) upheld employer efforts to force waivers of class-action claims in mandatory arbitration agreements, some plaintiffs’ lawyers say that the real take-away from Iskanian is its holding that those agreements cannot be used to waive an employee’s right to bring representative PAGA actions. Moreover, say these lawyers, PAGA actions are particularly potent for plaintiffs because they are categorically unremovable to federal court, thus permitting the plaintiff to remain in more favorable state court.

So does this mean that Iskanian really was a disaster, signaling a new reign of terror for hapless employers who now must confront “gotcha” claims of obscure wage and hour violations while being subject exclusively to the tender mercies of California Superior Court?

Well, perhaps there are a couple of chinks in the Black Knight’s armor.

First, how solid is the dogmatic view about categorical unremovability of PAGA claims? PAGA cases once were routinely removed to federal court under diversity-of-citizenship jurisdiction, where the defendant employer was a non-California citizen and the amount in controversy exceeded the jurisdictional threshold ($75,000 in an individual action or $5,000,000 in a class action, although PAGA claims need not be brought as class actions). The amount in controversy was often easy to establish, as PAGA penalties mount rapidly: $100 per employee per pay period, even if one counts only the 25% of the penalties that go to the employees (75% go to the State of California).

But recent Ninth Circuit decisions dropped flies in the removal ointment. They rejected the efforts of removing defendants, in calculating the amount in controversy, to aggregate the potential individual recoveries of all the employees the plaintiff purported to represent. These decisions now suggest that one should consider only the PAGA plaintiff’s individual recovery, which would be well below $75,000. And the Ninth Circuit has stated, rather elliptically, that the State of California is not a citizen, suggesting that this observation precludes a finding of diversity of citizenship. Hence the basis for a new conventional wisdom that PAGA claims are categorically unremovable. But is this necessarily so? Continue Reading After Iskanian, What’s Next For Defending PAGA Actions?

Paga is a city in Ghana, well-known for its crocodile pools.  PAGA, California’s Private Attorneys General Act of 2004, allows employees to sue their employers on behalf of themselves and other “aggrieved” employees to recover penalties for Labor Code violations.  What do the two, other than a shared moniker, have in common?  Run afoul of either and you’re bound to get bit.

Imagine a company that unknowingly pays its employees bi-weekly and 10 days after the close of a pay period.  Strictly speaking, that practice would be is a violation of Labor Code section 204, which requires payment within seven days after a pay period ended.  The hyper-technical violation is fixed promptly once the company learns of it.  No employees complain; no employees were financially harmed in any way; and nothing suggests the company profited from the mistake. 

No harm, no foul, right?  Wrong.  The company is potentially on the hook for millions of dollars in PAGA penalties. 

Employees’ attorneys try to conflate the penalties to extract the maximum amount of penalties from the seemingly innocuous mistake described above.  The way they do it is by misreading the statutory language of Labor Code section 210, which prescribes the penalties for a violation of section 204.  The law allows for $100 for each failure to pay each employee for “any initial violation” and $200 for each failure to pay each employee, plus 25% of the amount wrongfully withheld, for “each subsequent violation.”  Lab. Code § 210(a)(1)&(2).  

One of the primary reasons for this situation is an unfortunately superficial 2008 decision that said an initial violation is incurred for each pay period within the one-year statute of limitations up until the time actual notice of the violation was given to the employer.  Buoyed by this decision, employees’ attorneys have pushed for aggregation of multiple “initial violations” dating back to the start of the statute of limitations.  This math results in millions of dollars in theoretical penalties in connection with the relatively harmless scenario described above.

The good news: there are strong arguments that the statutory language allows for just a single initial violation.

Nothing in Labor Code section 210 says that an initial violation arises from each pay period.  This omission is significant, particularly in light of other statutory language.The California Legislature is careful to specify when an initial violation is to be paid for “each pay period” (see Labor Code sections 752, 558, 1197, and 2699), so the intentional omission of this language from Labor Code section 210 is proof that the Legislature did not intend for this law to be applied that way.

Also, Section 210 imposes a penalty for violations of eight specific sections of the Labor Code, including section 204.  That means there can be eight separate Labor Code violations to trigger Section 210 penalties.  That is eight ways to have an initial violation, one for each enumerated code provision.  The statute does not allow for aggregate penalties for the same violation.  Instead, it allows eight ways to fail, and a penalty for “each failure.”  This analysis is missing from the 2008 decision and is a critical shortcoming of the opinion. 

There are also specific terminology differences between the initial violation statute and the subsequent violation statute that compel the conclusion that there is only a single initial violation, resulting in a single payment of $100 to each aggrieved employee.  In the former, the term “any initial violation” is used, indicating a single event.  By comparison, repeated violations are contemplated for “each subsequent violation.”  If the Legislature wanted to aggregate multiple initial violations, then it would have said so, using “each” as it did for subsequent violations.

Workplace Solutions: Don’t be alarmed by an employee’s attempt to stack penalties for multiple “initial violations” under Labor Code section 210.  There are strong arguments that the statutory language allows for only one, single initial violation.

Labor Code Section 226 makes California employers liable for penalties if they issue inadequate wage statements that cause ‘injury.” Courts generally have denied penalty claims where hypertechnical violations did not cause real harm. Unsatisfied with this result, employee advocates lobbied for a 2012 amendment. Senate Bill 1255, effective January 1, 2013, amends Section 226(e) to deem “injury” to occur when the wage statement is imperfect and an employee can’t quickly use the statement to derive such items as the wage rates and number of hours worked.

When statutes get amended, it’s often a big deal. What about this amendment? Not so much.

Does the definition really change the law? We think not.

  • In our view, SB 1255’s new definition for deemed “injury” does not materially change the law on itemized wage statements. The leading cases, published in 2011 and 2010, established that “mathematical injuries” do not support Section 226 claims and that penalty claims should fail where an employee can derive the needed information with a little math. SB 1255 did not overrule these cases. Of course, if the Legislature were to define injuries so that harmless itemized wage statement deficiencies led to civil penalties, we here at CalPecs would be blogging about the serious constitutional issues that such draconian measures would raise.

But can’t plaintiffs use other sections to seek penalties for wage-statement imperfections even in the absence of injury? We think not.

  • Creative plaintiffs’ counsel have sought wage-statement windfalls by using California’s PAGA statute to claim penalties under Labor Code section 226.3, which establishes a civil penalty for certain violations of Section 226. But, as to wage statements, Section 226.3 applies only to a complete failure to provide a wage-deduction statement. Section 226, by contrast, specifically addresses both complete failures to provide itemized wage statements, Lab. Code § 226(e)(2)(A), and provision of inaccurate or deficient statements, Lab. Code § 226(e)(2)(B).

In sum, the benighted view of some trial courts notwithstanding, Section 226.3 claims properly are limited to the complete failure to provide a wage deduction statement.

But doesn’t PAGA still provide additional penalties for inadequate wage statements, even in the absence of injury? Again, we think not.

  • Employee advocates who realize that Section 226.3 is not a means to seek penalties for injury-free wage-statement violations have pursued the alternative of seeking PAGA penalties under Labor Code section 2699(f). These claims, too, should fail. While PAGA does create penalties where a Labor Code provision is silent on the matter of penalty, PAGA does not create penalties for any “provision[] … for which a civil penalty is specifically provided.” By our view, Section 226(e) already specifies a penalty for Section 226(a) violations creating any injury, and thus already provides a penalty sufficient to meet the PAGA’s aim of deterring Labor Code violations.

Workplace Solutions: The bottom line is that while one may ballyhoo much about the 2013 amendment defining wage-statement injuries, the practical effect of the amendment may be nil, other than to clarify existing case law to the effect that “mathematical injuries” and other trivial effects of an imperfect wage statement do not enhance an employee’s ability to collect penalties for “gotcha” violations of Section 226.