2023 was a significant year for the California Private Attorneys’ General Act (PAGA), and 2024 does not look like it will be any different. PAGA is a mechanism by which private individuals (current or former employees) can bring actions against employers “on behalf of the State of California” and obtain substantial penalties against the employer. In 2023, employees filed 5,117 PAGA lawsuits alleging labor code violations, the most on record (an increase of 863 cases from the prior year and almost double the number filed as recently as 2017). Against this backdrop, there were at least three landmark cases that impacted the scope and viability of PAGA claims in 2023, and another at the start of 2024, which all had pro-plaintiff outcomes.
Adolph v. Uber
This ruling essentially overturned the applicability of the U.S. Supreme Court’s decision in Viking River Cruises to California plaintiffs, holding that while an individual PAGA claim can be compelled to arbitration, that does not deprive the employee of standing to separately pursue representative PAGA claims under California law, which cannot be compelled to arbitration.
Only a year after the U.S. Supreme Court issued a pro-employer ruling in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022), which held that employees’ individual PAGA claims could be compelled to arbitration and thereby potentially deprive the plaintiff of standing to pursue representative PAGA claims, the California Supreme Court declined to follow such holding. Instead, the California Supreme Court held that an employee whose individual claims under PAGA are compelled to arbitration does not lose standing to separately pursue representative PAGA claims under California law.
Although this ruling is seen by many as a victory for employees/plaintiffs who bring PAGA claims, it did provide a roadmap for employers to potentially defeat a PAGA claim. The Court in Adolph explained that once the plaintiff’s individual claim is compelled to arbitration, his representative claims can be stayed (at the discretion of the court) pending the resolution of his individual claims. If the employer is successful in the arbitration and is able to establish that the plaintiff did not suffer any labor code violations, then they would not be considered an “aggrieved employee” and they would lose their standing to pursue the representative action.
LaCour v. Marshalls of Ca.
The Court held that PAGA settlements, while they can release claims for all employees, may be limited to the claims set forth in the initial LWDA letter or claims that are directly related to the facts alleged.
In LaCour v. Marshalls of Cal., 94 Cal. App. 5th 1172 (2023), the employer was facing a PAGA claim alleging failure to reimburse various business expenses (including uniforms and cell phone usage). The employer moved to strike the claim on the basis that it had already been settled as part of an earlier class and PAGA action filed against the same employer. The trial court initially granted the employer’s motion to strike, because the prior settlement agreement released all claims that had been alleged or that “could have been alleged.” However, the Court of Appeal overturned, finding that the Labor and Workforce Development Agency (LWDA) letter in the earlier PAGA action had only set out claims for off-the-clock work related to the time the employees spent doing security bag checks. The Court reasoned that the earlier settlement was limited in scope to the claims asserted in the LWDA letter, or those claims that could have been raised based on the facts alleged. The Court held that it was erroneous to interpret the earlier PAGA settlement so broadly as to incorporate claims that were in no way related to the facts alleged in the earlier case.
Accurso v. In-N-Out Burgers
This holding means that it may be more difficult for an employer facing multiple PAGA suits to settle one without having to engage in negotiations with the plaintiffs from the other cases, which may impact settlement value given multiple plaintiff’s firms will seek attorneys’ fees.
In Accurso v In-N-Out Burgers, 94 Cal App 5th 1128 (2023), an employer was facing a total of six separate PAGA lawsuits, all with overlapping claims. The plaintiff in one case sought to mediate his case individually, without including the plaintiffs from the other five cases. The plaintiffs from the other cases sought to intervene, fearing that the one plaintiff would settle his case and attempt to bind the others in a settlement to which they were not a party. The Court of Appeal held that these other plaintiffs had a sufficient interest in the case to allow for their permissive joinder in the case.
This momentum, which has been consistent for the better part of a decade in California, has now continued into 2024. The California Supreme Court issued a ruling in January of this year making it harder for employers to challenge PAGA claims on procedural grounds.
Estrada v. Royalty Carpet Mills, Inc.
This case held that the trial court lacks the authority to dismiss or strike PAGA claims for being unmanageable, depriving employers of one of their key defenses to PAGA claims.
One advantage for employees (and plaintiffs’ attorneys) to bring claims under PAGA is that they are able to bring claims on behalf of a large number of employees without having to meet the exacting standards required in a class action (i.e., the claims of the named plaintiff are typical of the class, the class has common issues, the number of employees is sufficiently numerous to warrant class action treatment, and a class action is superior to individual litigation by each employee). One tool that employers have used to challenge PAGA cases is to argue that even if the plaintiff does not have to meet the class action standards, they have to prove that their case is manageable, and if the case involves disparate claims from various employees, it would be impossible for the court to manage without having every single employee testify. This was a somewhat effective tool for employers and one of the few that had gained any traction in California courts.
Unfortunately, in Estrada v. Royalty Carpet Mills, Inc., 3024 Cal. LEXIS 123, the Court of Appeal held that trial courts lack the inherent discretion to strike or dismiss PAGA claims simply because they will be difficult to manage. While the Court left open the possibility that an employer in a specific case could argue that it is deprived of its due process rights to cross-examine every witness if the Court does not allow every employee to testify, it declined to find a due process violation in the specific case because it was a purely hypothetical argument.
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Although this wave of cases strengthens PAGA and hamstrings employers’ ability to fight these claims, there is the potential for a drastic shift in the law in this area at the end of the year. In November of 2024, California voters will vote on a ballot initiative which, if it passes, would abolish PAGA and replace it with a statutory scheme that would essentially cut the plaintiffs’ counsel out of the process of pursuing claims for Labor Code violations. The Fair Pay and Employer Accountability Act would double the statutory and civil penalties for willful violations of the Labor Code from $100 per employee per pay period to $200, would provide that 100% of all penalties would be paid to the employees instead of the current 25% (with 75% currently going to the State of California) and would require that the Division of Labor Standards Enforcement (DLSE) be a party to all labor complaints filed with the Labor Commissioner. It would also require the Labor Commissioner to provide pre-enforcement advice to the employer and would allow employers an opportunity to correct identified labor code violations without penalties. Most importantly, it would not provide for any award of attorneys’ fees in connection with claims asserted with the Labor Commissioner, thereby depriving plaintiffs’ counsel of any incentive to pursue such claims.
Although passage of the Fair Pay and Employer Accountability Act would represent a significant change for employers and employees, it faces a significant uphill battle to pass. We expect the plaintiffs’ bar to strenuously advocate against it. Moreover, the State of California stands to lose the substantial amount of penalties it now collects.
Overall, the current wave of pro-plaintiff rulings in PAGA cases, along with the rapidly increasing number of PAGA claims being filed each year, suggests that employers should be prepared to face a significant number of PAGA claims in 2024. Employers should consult with counsel and take steps to ensure that their policies and procedures are compliant with California law.
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