More California Employers Are Getting Hit with PAGA Claims

Recent developments under the California Private Attorneys General Act (PAGA) have made the Golden State even more golden for some employment attorneys while raising litigation challenges for employers.

In addition to bringing individual or class-action claims, aggrieved employees can sue under PAGA for alleged labor violations on behalf of themselves and other workers. PAGA was intended to deputize citizens as private attorneys general to enforce the labor code in light of the state government's limited resources.

So the law allows these employees to step into the shoes of state regulators to recover civil penalties and to receive part of the amount recovered as compensation. Seventy-five percent of the penalties recovered go to the state, and 25 percent go to employees.

Background

PAGA took effect in 2004, but litigation under the act picked up in 2009 when the California Supreme Court held that the stringent certification requirements for bringing a class action do not apply to PAGA actions. "After this decision, it became common to see PAGA claims tacked on to class-action claims," said Corey Cabral, an attorney with Carothers DiSante & Freudenberger in Sacramento. "Plaintiffs also began filing PAGA-only actions, without asserting any individual or class claims."

Litigation picked up more steam in 2014 when the state high court held that employees could not waive their right in an arbitration agreement to bring PAGA claims. The court explained that PAGA claims are for the public benefit and that it is contrary to public policy to enforce such waivers. As a result, the number of PAGA claims increased dramatically and PAGA-only actions became even more common. 

Furthermore, the California Supreme Court in 2017 ruled that PAGA plaintiffs are generally entitled to request and receive a significant amount of information from the employer early in the litigation, which creates pressure for employers to settle early to avoid huge litigation costs.

The result has been an explosion of PAGA claims. Approximately 15 PAGA notice letters get submitted to the California Labor and Workforce Development Agency every day, according to Cabral.

Expanded Reach

The most consequential provision of PAGA is Section 2699(c), Cabral said, which broadly defines an "aggrieved employee" as any current or former employee "against whom one or more of the alleged violations was committed."

A California appellate court applied this definition in a 2018 opinion and held that a PAGA plaintiff who is affected by at least one labor code violation may pursue PAGA claims for other violations that did not affect that plaintiff directly.

When an employee brings a PAGA representative action, he or she does so "as the proxy or agent of the state's labor law enforcement agencies, not other employees," the court reasoned.

"Plaintiffs are now filing complaints alleging a wide variety of labor code violations under PAGA even if they have not or could not have personally suffered a violation of each provision," Cabral said. "In sum, there is nothing stopping one disgruntled … employee from filing a PAGA action alleging any number of labor code violations."

Underlying claims that create exposure in PAGA actions include "the whole panoply of wage and hour violations," such as missed meal and rest breaks, failure to provide itemized wage statements, and failure to pay overtime, said Erica Rocush, an attorney with Lewis Brisbois in Los Angeles.

A frequent PAGA allegation with significant consequences for employers is that employees performed off-the-clock work during meal periods. This common allegation can create a chain of labor code violations: failure to provide a required meal period or pay employees the appropriate premium for working during a break; failure to pay minimum wages (and possibly overtime premiums) for the off-the-clock work; failure to timely pay all wages earned; failure to list all wages earned on pay statements; and failure to timely pay final wages.

Many PAGA plaintiffs assert that they can recover a civil penalty for each of these violations, per employee, per pay period, based on the one allegation that employees worked during required meal breaks, Cabral said. "As you can imagine, these penalties can add up to a significant amount very quickly."

An initial violation carries a $100 penalty per employee per pay period, and every subsequent violation carries a $200 penalty. Employees can also recover attorney fees.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

Rocush and Cabral referenced employment practices that can expose businesses to significant risks in PAGA actions: rounding employee time entries; failing to pay employees the required penalty for missing a meal or rest period (one hour of pay for each workday a meal and/or rest period is noncompliant for up to two hours a day); failing to reimburse workers for reasonable business expenses (which are often related to personal cellphone and home Internet use); and not including bonuses and other compensation in the regular rate of pay to calculate overtime premiums.

Minimizing Risks

To minimize PAGA claim risk, Emily Camastra, an attorney with Swerdlow Florence Sanchez Swerdlow & Wimmer in Beverly Hills, recommended that employers review whether the company:

• Classifies any workers as independent contractors.
• Rounds employee time punches.
• Has compliant meal- and rest-period policies.

Out-of-state businesses with employees in California should recognize that California has strict laws in these areas. "Make sure that your wage and hour policies and practices comply with California law," she said.

Cabral recommended that HR professionals conduct regular audits of wage and hour practices. "This may seem like a daunting task but begin by identifying the major sources of potential liability and work through the list, one-by-one." He noted that attorneys who specialize in representative wage and hour litigation can assist with or conduct the audit. "Often times, a review of a company's timekeeping records and corresponding payroll records will provide a wage and hour litigation attorney enough information to start the audit process and spot potential issues," he said.

Rocush said employers should have their attorneys review employee handbooks on an annual basis to ensure continued compliance. "We also suggest providing documented training to front-line managers who are responsible for ensuring compliance with meal and rest periods and overtime to show a real effort to make sure everyone is enforcing the laws," she said.