Two cases decided in the last two months have further clarified the scope of discovery and plaintiff’s ability to pursue damages in addition to individual damages under California’s Private Attorneys General Act (PAGA). The holdings are a bit of a mixed bag for employers, but they offer some clarification into PAGA. This Friday’s Five is a summary of five issues employers need to understand about PAGA and the new decisions setting out the rights plaintiffs have to pursue representative actions under the statute:
1. PAGA representative actions are different than class actions.
California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives for private individuals to enforce state labor laws. At the time PAGA became law, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, PAGA allows aggrieved employees to sue as a proxy or agent of California’s state labor law enforcement agencies in collecting civil penalties for Labor Code violations. The employee must give 75 percent of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25 percent is to be distributed among the employees affected by the violations.
First, because the plaintiff under PAGA is seeking penalties and not other forms of damages, a one year statute of limitations applies. This varies drastically from the four year statute of limitations that apply to most wage and hour class actions when a Business and Professions Code section 17200 cause of action is alleged.
Second, in Arias v. Superior Court, the California Supreme Court held that a plaintiff does not have to certify a class under PAGA to recover damages on behalf of all the other employees in the representative action. However, as set forth below, courts are still deciding the scope of PAGA representative actions in terms of discovery rights and manageability issues.
2. Arbitration agreements with class action waivers are enforceable, but representative actions brought under the Private Attorneys General Act are not subject to arbitration and cannot be waived.
Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC. That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion. However, in Iskanian, the California Supreme Court held that PAGA representative actions cannot be waived by employees and cannot be compelled to arbitration. The Court held that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”
3. PAGA penalties are separate from individual damages.
In August 2017, a California appellate court held in Esparza v. KS Industries that PAGA representative actions can only seek “civil penalties” permitted by PAGA. As set forth above, the civil penalties recovered by a PAGA claim 75 percent must be allocated to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees in the representative action. The court found that PAGA civil penalties do not include unpaid wages sought by the individual plaintiff.
4. Employers defending PAGA claims must require plaintiffs to explicitly state whether they are pursuing individual damages (which must be arbitrated) or PAGA civil penalties (which cannot be arbitrated).
As the court noticed in Esparza, PAGA representative claims for civil penalties are not subject to arbitration, but claims for unpaid wages based on Labor code section 558 are not civil penalties and can be compelled to arbitration.
If the employee wants to pursue both, the employer should compel arbitration of the plaintiff’s individual claims and stay the PAGA case pending the resolution of the individual claims.
5. Employers facing PAGA cases must consider filing a motion to sequence discovery early in the case.
In Williams v. Superior Court, a case decided in July 2017, the plaintiff sought to obtain the contact information for fellow California employees who worked for defendant, Marshalls of CA, LLC. Defendant refused to provide the contact information for the other employees, and plaintiff filed a motion to compel. The trial court limited the ability of plaintiff to obtain contact information to the store where the plaintiff worked, but denied it as to every other California store, subject to change after plaintiff sat for his deposition and made a showing of some merit to the underlying action.
The California Supreme Court reversed the trial court’s ruling and required defendant to provide the contact information for all California employees:
Our prior decisions and those of the Courts of Appeal firmly establish that in non-PAGA class actions, the contact information of those a plaintiff purports to represent is routinely discoverable as an essential prerequisite to effectively seeking group relief, without any requirement that the plaintiff first show good cause. Nothing in the characteristics of a PAGA suit, essentially a qui tam action filed on behalf of the state to assist it with labor law enforcement, affords a basis for restricting discovery more narrowly.
The Court was clear, however, that upon a defendant’s motion showing good cause, a trial court can ordered sequenced discovery. The Court explained:
Marshalls reasons instead that the trial court’s imposition of a merits requirement can be justified under Code of Civil Procedure section 2019.020. That provision sets out the general rule that the various tools of discovery may be used by each party in any order, and one party’s discovery “shall not operate to delay the discovery of any other party.” (Id., subd. (a).) However, if a party shows “good cause,” the trial court “may establish the sequence and timing of discovery for the convenience of parties and witnesses and in the interests of justice.” (Id., subd. (b).) But Marshalls did not file a section 2019.020 motion, and we thus have no occasion to decide what showing might suffice to warrant a court order sequencing discovery.