California Labor and Workforce Development Agency (LWDA)

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Plaintiffs’ attorneys in California love making claims based on technical violations related to paystubs.  An employee will go see a lawyer complaining about wrongful termination or harassment or discrimination and the lawyer will say, “Let me see your paystub.”  Labor Code Section 226 lists at least 9 items that an employer must include on employees’ paystubs.  Even omitting one item (e.g., pay period dates on a “final” paycheck) can expose employers to extensive liability depending on the nature of the oversight, the number of affected employees, and how often the improper paystubs were issued.  Under the Private Attorneys General Act (“PAGA”) a single employee can bring a lawsuit on behalf of all affected employees, also known as “aggrieved employees,” regardless of whether those employees want to be included, and without having to go through the rigorous requirements of class certification.  [We told you about this in a 2009 California employment law newsletter,]

Up close of wage statementEmployees (or rather, the class action attorneys that bring these cases) do not have to prove that anybody was injured by the omission on the paystub because the code section provides an automatic penalty per paycheck in place of requiring employees to prove actual damages (which are typically non-existent).  Because employers have virtually no defense to these paystub cases, they are generally referred to as “gotcha” claims.

Recently a California Court of Appeal handed PAGA attorneys a “gotcha” of their own.  In Khan v. Dunn-Edwards Corporation, the appellate court upheld summary judgment dismissing Plaintiff Khan’s PAGA claims because he failed to comply with required administrative procedures.  Though Plaintiff’s regular paychecks appeared to be in order, his final paycheck failed to list the start date of the pay period.  On the basis of that single oversight on a single check, Khan and his attorneys filed their lawsuit seeking to recover penalties on behalf of a group of employees who may have received a similar final paycheck.  Khan’s notice and exhaustion letter to California’s Labor and Workforce Development Agency, however, was peppered with references to violations of his rights, and nowhere referenced any other employee other than himself.  The Court was not impressed.  It held that Khan’s use of the word “my” instead of “we,” or any other language indicating that he was seeking to claim penalties on behalf of anyone but himself, constituted a failure to give proper notice to the individuals involved, and a failure to comply with administrative requirements.  Thus, the Court upheld summary judgment in favor of the employer, and dismissed Khan’s PAGA claim.

If you are in the unfortunate position of having to defend yourself (or a client) against a PAGA action, make sure you take a very close look at the employee’s letter to the Labor Workforce and Development Agency to make sure the employee has followed every technical requirement of the law in giving notice to the employer and the Agency.  You might find a technical shortcoming in the letter on which to defend your client.  Or better yet, make sure that your employees’ paystubs contain the required information in advance.

For lawyers who defend wage and hour cases in California, “PAGA” is a four-letter word. The Private Attorneys General Act allows private employees to sue to recover penalties that the state labor commissioner could have collected. Employers and their attorneys dislike PAGA for these reasons:

  • It drastically expands the ways that employers can be sued, because employees can sue for violation of statutes that previously provided no private right of action.
  • It expands the potential liability, since employees can sue on behalf of themselves and other aggrieved employees.
  • PAGA claims are exempt from arbitration agreements.
  • The procedures that apply to PAGA actions are ill-defined. While a class action plaintiff has to satisfy specific requirements to represent a class, no one knows what, if anything, a PAGA plaintiff must show to bring a representative action.

Now comes word that Governor Jerry Brown’s budget proposal for the 2016-2017 budget year seeks “to stabilize and improve the handling of PAGA cases, largely to the benefit of workers, employers, and the state.” It intends to do this by adding additional positions to the Department of Industrial Relations and the Labor and Workforce Development Agency and have those agencies be more involved in reviewing incoming cases, pursuing them administratively, and approving PAGA settlements.

Copyright: romastudio / 123RF Stock Photo
Copyright: romastudio / 123RF Stock Photo

The idea that having the state involved in this process is going to somehow benefit employers is absurd. These agencies are bureaucracies premised on the belief that employers are inherently evil “wage thieves.” Their involvement in the process will only add greater levels of expense and uncertainty to a process that already has plenty of both.

Takeaways: PAGA is a mess that seems likely to get messier. The only way to “win” is not to get sued in the first place. A thorough wage and hour compliance audit can quite literally save even a medium-sized employer millions of dollars.