Private Attorneys General Act (PAGA)

Thermometer and pills on paper marked with Sick Leave labelAs employers know all too well, it is no small task keeping up with California’s State and Local Sick Leave laws. Just as frustrating are California’s many paystub requirements under Labor Code section 226. One paystub requirement that often gets forgotten is the need to include employees’ accrued sick time on paystubs.

Inclusion of sick time on paystubs is not governed by Labor Code section 226.  Instead, it is Labor Code section 246(i) which requires employers to list an employee’s accrued sick time on their wage statements or in a separate writing.  Luckily for employers, violations of this particular subdivision also do not trigger Labor Code section 226’s dreaded penalties.

The enforcement of the provisions from the Healthy Workplaces, Healthy Families Act of 2014 is governed by Labor Code section 248.5.  Section 248.5 makes clear that there is no private right of action to enforce the Act’s provisions.  Only the Labor Commissioner or Attorney General may bring a civil action against the employer for alleged violations.  Further, the section explicitly makes clear that “any person or entity enforcing this article on behalf of the public as provided for under applicable state law shall, upon prevailing, be entitled only to equitable, injunctive, or restitutionary relief, and reasonable attorney’s fees and costs.”  (Labor Code section 248.5(e))  Thus, individual employees cannot collect penalties for themselves, or for others pursuant to a dreaded PAGA claim.

Since employees cannot sue to collect individual penalties and cannot sue to collect PAGA penalties, is there any risk to employers who do not include accrued sick time on paystubs?  The answer is yes.  Even though an individual cannot seek penalties, the California Labor Commissioner can take action to recover penalties in the amount of $50 for “each employee or person whose rights under this article were violated for each day or portion thereof that the violation occurred” with a cap of $4,000.  Further, a claim for injunctive action still allows for recovery of reasonable attorney’s fees and costs.

Businessman handing over paycheck at desk in officeSo California employers, check those paystubs.  In addition to ensuring that they include all of the information required under Labor Code 226, add accrued sick time to the list of necessary information provided to your California employees.

 

If you are an employer in California, you are likely well aware of Labor Code § 226 and the many items that our state requires to be on employee paystubs: gross wages, legal name of employer, inclusion dates for the pay period, etc. (Labor Code § 226) Failure to adhere to all of Labor Code § 226’s paystub requirements can result in penalties owed to the employee, and worse still, the possibility of a dreaded PAGA action. It is no surprise then that vigilant employers have kept a close eye on their paystubs to ensure inclusion of all the necessary information.

Businessman handing over paycheck at desk in officeBut what about the paychecks themselves? Often forgotten is Labor Code § 212 which imposes certain requirements on employers who pay employees with traditional paychecks (as opposed to direct deposit). A traditional paycheck must be “payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument…” Labor Code § 212(a). The point being that employees must have the opportunity to know where they can cash their paycheck and receive their wages immediately, without paying a fee.

Does this mean an employer must pick out one specific location where an employee can cash their paycheck and then list the location and its address on the check? Lucky for employers and employees, the answer is no. As long as the drawee of the check is a bank, the bank’s address need not appear on the paycheck itself. In other words, if the employer uses a bank with branches in California for its payroll checks, the employer need only list the name of the bank, so long as the check can be cashed immediately without a fee to the employee at any of the bank’s branches.

Failure to comply with Labor Code § 212 can result in minor penalties to an individual if they can establish that they were denied the opportunity to immediately obtain their wages. However, a purely facial violation on the check, and nothing more, could potentially result in a much larger PAGA lawsuit.

Although many workplaces find that the vast majority of employees receive their pay through direct deposit, there are still many employees who receive their wages in the form of a traditional paycheck. Accordingly employers should examine their paychecks and ensure the following:

  1. Paychecks should list the name of a national or state bank that has conveniently located branches where employees can cash their paychecks; and
  2. Employers should confirm with the bank used for its paychecks that all employees can cash their paychecks immediately at any of the bank’s locations without a fee (even if the employee does not otherwise bank there).

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.

Illustration of a fox with sunglassesWe often blog about how different California employment laws are when compared to the rest of the US.  Whether it is the minimum wage, mandatory harassment prevention training requirements, or that funky law called PAGA, find out how to comply with laws in what we fondly refer to as the United Republic of California with this handy guide to Doing Business in California.

Many thanks to Sahara Pynes for her assistance in updating this informative guide.  Check it out on the Fox Rothschild website.

The California state flag

Guest post by Charlie Nelson Keever:

Brace yourself.  Plaintiffs can now use representative PAGA actions as the basis for a statewide “fishing expedition” to discover alleged employer misconduct.

"Hello, I am suing you" nametag
Copyright: iqoncept / 123RF Stock Photo

Now, I’m a baby lawyer (or, more aptly, an almost baby lawyer) – I’m a Summer Associate trying to figure out what this means so I can tell you all about it. And while my brilliant and talented supervising attorney (Hey, Nancy Yaffe!) assures me that I’ve understood this correctly, this does not smell right to me.

First of all, there’s this thing called PAGA (The Private Attorneys General Act), that allows one employee to initiate a civil action against an employer on behalf of other allegedly aggrieved employees for Labor Code violations. Employees like representative PAGA actions because they don’t need to meet the rigorous requirements of traditional class actions. So basically, one employee having a problem at work – say, they’re not getting appropriate meal breaks – can use this super convenient tool to sue their employer. Not only that, they get to act the hero and say they’re suing on behalf of other “aggrieved” employees, even if they don’t know if anyone else is having the same problem. These lawsuits bring up a lot of questions like “Who is an ‘aggrieved employee’?” and “How much discovery should be allowed?” Conflicts over these issues make PAGA lawsuits particularly burdensome and expensive for defendant-employers to manage.

Last week, the CA Supreme Court answered one of those questions. In Williams v. Superior Court, Plaintiff-employee Michael Williams filed a representative PAGA action against Defendant-retailer Marshalls alleging that the company failed to provide him and other employees with proper meal and rest breaks, and that it failed to provide timely wage payments and accurate wage statements. To bolster his claims, Williams served interrogatories requesting contact information from 16,500 current and former non-exempt Marshalls’ employees throughout California – not just at the location where he worked. Marshalls objected on the grounds of relevance, scope, burden, and employee privacy. They essentially argued that Williams had no reason to believe that his issues at work were company-wide. So the trial court limited production of contact information to employees at the store where Williams worked.  The Court of Appeal agreed.

But the California Supreme Court disagreed, and found that nothing more than a mere allegation of a state-wide policy issue is necessary to compel preliminary discovery. So essentially, if one disgruntled employee says they have a problem, they’re entitled to contact information for employees all over the state to figure out if anyone else is having the same problem. While the Court held that this wasn’t an invasion of employee privacy, I’m willing to bet that a lot of employees would disagree. The Court also opposed the lower courts’ conclusions that discovery seeking statewide contact information was unduly burdensome to the defendant employer.

So What Can Employers Do?

While this might sound like all bad news for employers, the Court did shed some light on how employers might protect themselves and their employees by limiting the scope of discovery if they are unlucky enough to get sued in a PAGA action.

  • First, the Court noted that there might be “special reason[s] to limit or postpone” a PAGA plaintiff’s access to contact information (though the Court didn’t specify what those reasons might be). It will be up to employers to set forth specific facts that demonstrate undue burden and/or particular privacy concerns.
  • Second, the Court suggested that an employer might seek a protective order that would condition discovery on, for example, a confidentiality requirement or prohibition against using the information for purposes outside the confines of a specific lawsuit.
  • Finally, the Court indicated that an employer attempting to subvert such broad discovery might file a motion to “establish the sequence and timing of discovery,” although the mere availability of this measure may do more harm than good, as it tends to undermine the argument that the discovery is unduly burdensome.

Here’s my takeaway: even with these potential interventions, the best protection for employers is compliance with the Labor Code, and fixing any issues as soon as the PAGA notice is served. Now would be a good time for employers to review previous posts related to the PAGA from our blog.


Charlie Nelson Keever is a summer associate, based in the firm’s Los Angeles office.

Copyright: Poofy / 123RF Stock Photo
Copyright: Poofy / 123RF Stock Photo

The California Supreme Court has once again deviated from what many view as clear precedent of the U.S. Supreme Court concerning the enforcement of arbitration agreements. Last week, the California court decided McGill v. Citibank, N.A., holding that state “public policy” precludes the enforcement of arbitration agreements where a class sues for “public injunctive relief” under Business and Professions Code § 17200, California’s much abused “unfair competition” statute. This decision comes on the heels of Iskanian v. CLS, in which the California court held that a class waiver in an arbitration agreement was unenforceable to prevent a representative action under the Private Attorneys General Act, again citing “public policy.” The McGill and Iskanian decisions are at odds with recent SCOTUS opinions such as ATT Mobility v. Concepcion, and American Express Co. v. Italian Colors. In the Italian Colors case, the high court specifically rejected state “public policy” as any kind of exception to the sweeping preemption of the Federal Arbitration Act (“FAA”).

California has been in a running dog fight with the FAA since 1987. In that year, SCOTUS decided Perry v. Thomas, in which Justice Thurgood Marshal upheld the FAA under the Commerce and Supremacy clauses, and slapped down California’s attempt to undermine arbitration agreements. Thirty years later, California courts remain determined to block arbitration under PAGA and Section 17200 in the face of otherwise enforceable arbitration agreements.

Also, with today’s swearing in of Neil Gorsuch, SCOTUS returned to its full complement of nine justices. Look for the high court to grant review of California and Ninth Circuit cases that follow McGill and Iskanian in the next couple of years with an eye toward overturning those decisions. In the meantime, companies should continue to include waivers of class and representative actions in their arbitration agreements with consumers and employees, noting that the waivers are enforceable to the extent permitted by applicable law.

I am looking forward to the California HR Conference sponsored by PIHRA (Southern California’s SHRM) coming up on August 29-31st in Long Beach.  If you haven’t registered, take a look at the three day list of speakers and networking events.

2016 California HR Conference

I will be speaking on the Top 10 Trending Issues for California HR on Monday, August 29th at 1:30 pm.  The session will provide a fast paced summary of the hottest issues facing HR professionals in California, including essential and practical tips for compliance.  I will cover many of the issues we have blogged about here, including the Fair Pay Act, joint employment, independent contractors, wage-and-hour trends, local minimum wage ordinances, PAGA considerations, and more.  If you attend, you will get an overview of the key legal issues facing California HR professionals in one session.

I hope to see you there!

We’ve made no secret of the fact that we’re not big fans of the Private Attorneys General Act (PAGA). Our gripes include the following:

  • PAGA 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.
  • PAGA expands potential liability for employers, 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, it’s unclear what, if anything, a PAGA plaintiff must show to bring a representative action.

PAGA is based on the pretense that employees are bringing these claims on behalf of the state of California, which lacks the resources to pursue every non-compliant employer. Keep in mind that non-compliant employers, in this context, includes those that don’t put the inclusive dates of the pay period on the wage statement or who put the employer’s address on the paycheck, but not on the attached pay stubs. Pretty heinous stuff, right?

In keeping with this pretense that plaintiffs are acting for the state, 75% of the penalties go to the Labor and Workforce Development Agency (LWDA) and 25% goes to the “aggrieved employees.” That means that, for every dollar an employer pays in PAGA penalties, an employee shares 25¢ with all other aggrieved employees. When it comes time to settle cases, the parties decide what part of the settlement to designate as PAGA penalties and what part goes directly to the employees. Invariably, plaintiffs want more to go to them directly because they and their attorneys get all of that. Employers will go along with that because they get more bang for their buck.

Copyright: lisafx / 123RF Stock Photo
Copyright: lisafx / 123RF Stock Photo

Now, as part of the state’s new budget:

  • The LWDA will take 60 days to review proposed PAGA claims to decide if it wants to bring an action itself (previously 30 days).
  • The plaintiff cannot file the action until 65 days after submitting information to the LWDA (previously 33 days).
  • Any proposed settlement needs to be sent to the LWDA and approved by the Court (previously, you only needed court approval).

The fact that the LWDA will be more active in reviewing proposed PAGA settlements means that more money will need to be earmarked for PAGA penalties. More money going to PAGA penalties, means less going to plaintiffs directly. Since employees see just a fraction of those penalties, it will be more expensive for employers to settle lawsuits that include PAGA claims. You can add that to our ever growing list of reasons why, for employers and their counsel, “PAGA” is a four-letter word.

The Private Attorneys General Act (PAGA) allows plaintiffs to sue for violations of California Labor Code provisions that don’t provide a private right of action. Why? According to the Act’s legislative history, as the state supreme court noted in Iskanian v. CLS Transportation, “there was a shortage of government resources to pursue enforcement.” Thus, the state needs private litigants to bring these claims.

Copyright: izakowski / 123RF Stock Photo
Copyright: izakowski / 123RF Stock Photo

Employees who sue on PAGA claims can’t be required to arbitrate, even if they agreed to arbitrate all employment-related claims. And even if they agreed to waive class or collective actions, they still get to bring a collective action under PAGA. Why? Because the state didn’t agree to arbitrate or waive class actions and it depends on these “Private Attorneys General” to bring these claims on its behalf.

What’s wrong with that? First, according to some reports, 2.4 million government employees work in California. Second, as we reported before, the state has plans to add additional employees just to focus on PAGA claims. So the idea that PAGA claims require special treatment because the state needs private litigants to bring them on its behalf is just wrong.

I will, however, admit that the state benefits from PAGA claims in the sense that the employees get to keep only 25% of the penalties they recover. The other 75% goes to the state. Their lawyers get to keep 100% of their fees. But what’s wrong with that? After all, they’re the ones who came up with this scam.