Airline Not Liable for Heightened PAGA Fines in California Wage Case

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Virgin America plane departing airport

​Although a federal appeals court found that California wage and hour laws apply to interstate flight attendants who are based in the state, the airline was not subject to heightened penalties under the California Private Attorneys General Act (PAGA).

In Bernstein v. Virgin America, Inc., the 9th U.S. Circuit Court of Appeals found that an airline violated certain wage and hour rules under the California Labor Code. The court rejected the airline's argument that federal law pre-empts the state's meal and rest break requirements in the aviation context.

However, the airline was not subject to escalated penalties for repeat violations under PAGA. The airline "was not notified by the labor commissioner or any court that it was subject to the California Labor Code until the district court partially granted plaintiffs' motion for summary judgment," the 9th Circuit explained. So heightened penalties do not apply for labor code violations that occurred before such notification.

Although the decision is a federal court ruling and could still meet resistance from California state courts, the outcome should provide California employers with a strong basis to reject the application of the higher PAGA penalty rate in many cases, said Jason Geller, an attorney with Fisher Phillips in San Francisco.

PAGA Penalties

In addition to facing private lawsuits for labor code violations, employers may be subject to PAGA fines. PAGA allows aggrieved employees to sue over alleged labor code violations on behalf of themselves and other employees by stepping into the shoes of state regulators to recover civil penalties.

Under PAGA, an initial violation carries a $100 penalty per employee per pay period. Every subsequent violation carries a $200 penalty. Seventy-five percent of the penalties that are recovered go to the state, and 25 percent go to employees. Plaintiffs also can recoup attorney fees.

In Bernstein, the trial court said the $200 penalty should apply to violations that occurred after the lawsuit was filed, but the 9th Circuit disagreed. The 9th Circuit relied on a California appeals court decision, which said, "Until the employer has been notified that it is violating a labor code provision … the employer cannot be presumed to be aware that its continuing underpayment of employees is a 'violation' subject to penalties."

"The 9th Circuit resolved a question that has impact for all employers being sued for PAGA violations," said Katherine Catlos, an attorney with Kaufman Dolowich & Voluck in San Francisco. "In the past, counsel for private attorney general plaintiffs argued enhanced penalty calculations based on the date a lawsuit was filed, arguing all penalties after that date were subject to $200 per violation," she explained.

With this recent decision, the 9th Circuit held that the enhanced $200 penalty applies to violations that follow a court ruling or a labor commissioner decision and not as of the date the plaintiffs filed their lawsuit. "So therefore, employers have a win, in the sense that the range of potential penalties' calculations will be reduced when assessing potential recovery," Catlos said.

When Does California Law Apply?

There are several takeaways from the Bernstein case that are significant for California employers, said Gina Miller, an attorney with Snell & Wilmer in Orange County, Calif.

First, she said, to the extent employers currently have employees that have moved out of state during the COVID-19 pandemic and continue to work for a California employer, the Bernstein case reminds employers that it is critical to get it confirmed in writing that those workers no longer reside California. The hook for complying with California labor laws, she noted, is whether the employee is a California resident or the employee physically works within the state of California. 

California residents who work elsewhere and non-California residents who come to work in California—even briefly—will be subject to the state's meal and rest break rules.

California's nonexempt workers are entitled to a 10-minute paid rest break for every four hours worked "or major fraction thereof."  Employees must also receive a 30-minute unpaid meal break for every five hours they work. They can waive their right to take a meal break only if they work no more than six hours. A second break must be provided after 10 hours but can be waived if the first break was taken and the employee works no more than 12 hours. 

Employers should make sure that they do not categorize workers as "California based" unless those workers truly reside or work full time in the state, Miller said.

Additionally, employers should note that the appeals court in Bernstein found that the Federal Aviation Act does not pre-empt California's meal and rest break laws.

"This conclusion is curious given all of the safely regulations that pilots and flight attendants are subject to," Miller said. "It does not seem difficult to come up with a host of scenarios were airplane safety regulations could be violated due to the fact that a flight attendant is on a 10-minute rest break. It is this aspect of the ruling that is the most troubling and the most likely to be overturned by the U.S. Supreme Court."

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