The Labor Code Private Attorneys General Act (“PAGA”) deputizes private attorneys to enforce the California Labor Code, authorizing them to assess civil penalties for alleged Labor Code violations. Recent California decisions bestowed remarkable discretion on such private attorneys to decide how many penalties to assess, whether to assess them for technical violations, whether to assess them for uncertain violations, and whether to assess them for violations never experienced by the named plaintiff. Armed with these decisions, private attorneys are filing more and more PAGA actions in California and reaping significant attorney’s fees awards—typically ranging from one-quarter to one-third of any workplace-wide settlement.
In a decision that may have a lasting impact on the number and locale of PAGA actions, the United States Court of Appeals for the Ninth Circuit just ruled in Magadia v. Wal-Mart Associates, Inc. that PAGA plaintiffs in federal court must limit the scope of their representative actions to the types of claims in which they have a personal interest. Under Magadia, an employee who worked for one week, and missed one rest break, but suffered no other violation, could not seek penalties on behalf of co-workers in different locations who purportedly suffered other distinct and unrelated claims. The Court held that, under the U.S. Constitution, an employee cannot contest any challenged compensation practice unless he or she was injured by such conduct. While not commenting on the propriety of PAGA itself, the Court suggested that PAGA is overreaching.
The facts in Magadia exemplify how quickly PAGA penalties add up when plaintiffs claim penalties for non-parties. The plaintiff in Magadia obtained a $102 million award from the trial court, consisting in part of millions of dollars in penalties for alleged meal break violations suffered by other workers, even though the plaintiff himself admitted to not missing a meal break. In overturning the award, the Court found that plaintiff lacked federal standing to prosecute a PAGA claim for the meal break violations because he was not injured by them.
In its opinion reversing the trial court, the Ninth Circuit examined whether Mr. Magadia had an injury in fact that was traceable to the challenged conduct and which could be redressed with a favorable decision. To show an injury, in fact, a plaintiff must establish that he or she “suffered an invasion of a legally protected interest” that is “concreted and particularized” and “actual or imminent, not conjectural or hypothetical.” (Spokeo, Inc. v. Robins (2016) 136 S. Ct. 1540, 1548.) The lower court found standing in this matter within the well-established qui tam action exception to traditional Article III analysis, as the government has essentially assigned its claim to the plaintiff to bring such an action. In other words, with qui tam actions, the government’s injury confers standing upon a private party to sue.
While the court noted that PAGA claims have been characterized as a type of qui tam action—in which the state confers authority on a private party whistleblower to sue for fraud committed against a public entity—the Court found the qui tam line of cases in conflict with PAGA. The Court concluded that PAGA claims are fundamentally different from qui tam actions because, unlike qui tam actions, PAGA represents a permanent, full assignment of the state’s interest in Labor Code enforcement to the aggrieved employee.
The Distinctions in Standing Analysis Between State and Federal Courts
The Court based its decision on an interpretation of the standing requirement under Article III of the U.S. Constitution, which expressly limits jurisdiction in federal court to “cases or controversies” in which the named plaintiff has a concrete interest. California state courts consistently held that plaintiffs are not held to such a stringent interpretation of standing in state court, however. Rather than being bound by the exacting requirements of “concrete interest” of Article III, California courts are guided by “‘prudential’” considerations in evaluating a party’s ability to litigate an issue. (Matrixx Initiatives, Inc. v. Doe (2006) 138 Cal.App.4th 872, 877–878.) In California courts, standing requires that the party bringing the action have “a real interest in the ultimate adjudication because the actor has either suffered or ‘is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.’” (Roos v. Honeywell Internat., Inc. (2015) 241 Cal.App.4th 1472, 1484.) Essentially, litigants have standing when they can show “a personal interest in the litigation’s outcome.” (Torres v. City of Yorba Linda (1993) 13 Cal.App.4th 1035, 1046.) When a cause of action is based on statute, standing rests on the provision’s language, its underlying purpose, and the legislative intent. (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 83, citing Osborne v. Yasmeh (2016) 1 Cal.App.5th 1118, 1127.)
While the impact of the Magadia opinion may reverberate for years to come in federal court, it remains to be seen whether the decision will in any way influence the litigation of PAGA claims in state court. Certainly, plaintiffs’ attorneys will be moving aggressively to avoid federal jurisdiction whenever possible. For now, employers in state court cannot argue that Magadia is controlling, but they can still question a plaintiff’s personal interest in each PAGA claim, and where the interest is lacking, argue that his or her claims should be limited in scope.