Recent Developments in Paga Litigation

The Private Attorneys General Act, California Labor Code Sections 2698 through 2699.5, (PAGA) was enacted in 2004, giving employees the right to recover civil penalties associated with specific violations of the California Labor Code. For basic information about PAGA, please read Kevin Allen’s article. This article addresses recent developments and practical considerations when filing PAGA claims.

1. 2016 Changes to PAGA – Filing Procedures, Response Time, LWDA Involvement

SB 836, effective June 27, 2016, made important changes in PAGA requirements. Except as otherwise noted, the requirements apply prospectively to all PAGA cases pending as of June 2016 and to all PAGA claims initiated thereafter.

• PAGA claim notices must be filed online, with a copy sent by certified mail to the employer.
• Employers must file cure notices and responses to a PAGA claim online, with a copy sent by certified mail to the aggrieved employee or aggrieved employee’s representative.
• There is a $75 filing fee for a new PAGA claim notice. This fee may be waived if the party is entitled to proceed in forma pauperis.
• A $75 filing fee is required for any initial employer response to a PAGA claim notice.
• The Labor and Workforce Development Agency (LWDA) now has 60 days to review a notice under Labor Code § 2699.3(a).
• A filed-stamped copy of the complaint must be provided to LWDA in any PAGA action filed on or after July 1, 2016.
• A settlement of a PAGA action must be approved by the court, even if the settlement does not include any PAGA penalties.
• The proposed settlement must be provided to LWDA at the same time that it is submitted to the court.
• The judgment or order regarding PAGA penalties must be provided to LWDA.
• All items provided to the LWDA must be submitted online.

2. Practical Considerations in Filing PAGA Claims

Attorneys should carefully evaluate whether to bring a PAGA claim. The responsibility to the public at large should be considered before the action is filed. “[W]here plaintiffs bring a PAGA representative claim, they take on a special responsibility to their fellow aggrieved workers who are effectively bound by any judgment.” O’Connor v. Uber Technologies, Inc., No. 13-CV-03826-EMC, 2016 WL 4398271, at *18 (N.D. Cal. Aug. 18, 2016), citing Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 381 (2014). “Such a plaintiff also owes responsibility to the public at large; they act, as the statute’s name suggests, as a private attorney general, and 75% of the penalties go to the LWDA ‘for enforcement of labor laws . . . and for education of employers and employees about their rights and responsibilities under this code.’ Cal. Lab. Code § 2699(i)) This duty imposed upon the PAGA representative is especially significant given that PAGA does not require class action procedures, such as notice and opt-out rights.” O’Connor, 2016 WL 4398271, at *18.

The employer is likely to wage vigorous defenses if a PAGA claim is included, given the potential exposures. In Silva v. See’s Candy Shops, — Cal. App. 4th — (2016), the employer was granted summary judgment because the employee’s LWDA notice was defective as it was not sufficiently specific. In addition, the court found that, although the employee had alleged wage and hour violations in her PAGA claim, the employee’s interrogatory responses showed she had “abandoned” these claims.
Other courts have dismissed PAGA claims because they are unmanageable, that is, claims of the potentially aggrieved employees are so varied that they cannot effectively be heard together. See, e.g., Brown v. American Airlines, 2015 WL 6735217 (C.D. Cal. Oct 5. 2015).

While the PAGA claims carry a right to recover attorneys’ fees, most wage and hour claims also permit recovery of fees. Three-quarters of the PAGA penalties are turned over to the state and the remainder paid to the employees. If there is no class action, distribution of the penalties may require identification of aggrieved employees, calculation of penalties per employee, and engagement of a class action administrator. Similarly, the requirement for court approval of the settlement imposes additional costs and may take control of the settlement from the parties.

3. Settlement of PAGA Actions

PAGA allows “aggrieved employees” to bring actions against employers for civil penalties on behalf of themselves and other employees for violations of the Labor Code. To recover penalties, a PAGA plaintiff arguably must prove an underlying Labor Code violation as to each allegedly aggrieved employee for each pay period within the statutory period. To determine liability, the court may need to adjudicate issues specific to each pay period for each allegedly aggrieved employee. This raises potentially significant manageability problems. In addition, the nature of the proof required in a PAGA action can vary considerably depending on the underlying Labor Code claims raised.

In reviewing a settlement of a PAGA action, courts are obligated to “review and approve any penalties sought as part of a proposed settlement agreement pursuant to [PAGA].” Cal. Lab. Code § 2699(i). In Alonzo v. First Transit, Inc., the appellate court reversed a trial court’s approval of a PAGA settlement, and remanded the matter, directing the trial court to conduct a new hearing for final approval of the settlement agreement in compliance with Section 2699(i). Alonzo v. First Transit, Inc., 2015 WL 6000931 (Cal. App. Oct. 15, 2015). The parties had agreed to settle the case for $2 million, with $10,000 allocated to the PAGA claims, all of which was to be paid to the LWDA. The appellate court explained that the trial court’s analysis of the settlement terms and description of the settlement process did not address the sufficiency of the $10,000 allocated to the PAGA claims. Rather, the court’s analysis and comments at the final approval hearing focused on whether the gross amount of the settlement was fair under the standards governing class action settlements, and whether the class members received proper notice of the settlement. “… [T]he fact that the court overlooked the agreement’s failure to allocate 25 percent of the PAGA penalties to the aggrieved employees, as required by section 2699, subdivision (i), strongly suggests that the court did not separately review and approve the PAGA portion of the agreement.”

When there are questions of liability and damages, the Northern District has approved resolution of PAGA claims with minimal awards. For example, the Honorable Edward M. Chen approved a settlement that equaled 0.15% of the verdict value of PAGA claims in Viceral v. Mistras Group, Inc., Case No. 15-cv-02198-EMC (N.D. Cal. Oct. 11, 2016). That case involved multiple classes and included PAGA claims. Judge Chen recognized that there were significant problems of proof regarding all of the claims, including the PAGA claims, explaining that “the PAGA claims are subject to a very high risk on the merits.” In approving the settlement, Judge Chen compared the maximum value of the claims to the amount paid in settlement, noting that the PAGA claims were more deeply discounted than were the class claims, but finding that despite the “dramatic reduction,” the amount was reasonable “under the unusual and peculiar circumstances of this case where Plaintiffs face a substantial risk of recovering nothing on either the PAGA or class claims.”

4. Conclusion

PAGA claims present unique problems, given the unique position of the Plaintiff as the representative of the State. In filing a PAGA claim, counsel should evaluate the facts and determine whether the claims have merit or are feasible of being litigated in a representative action. In settling the matter, counsel should keep in mind that a court will need to approve the settlement and evaluate whether the allocation of settlement dollars between PAGA penalties and other claims will withstand judicial scrutiny.