Orange County Superior Court Judge Peter Wilson just ruled that although a California trade association can challenge the Private Attorneys General Act (“PAGA”) on equal protection grounds, it cannot pursue a claim that PAGA violates due process rights. Under PAGA, any employee can claim workplace-wide Labor Code violations and demand civil penalties from his or her employer for each such violation.
The trade association, the California Business & Industrial Alliance (“CABIA”), filed the lawsuit against California last year, claiming PAGA violates employers’ constitutional rights on various grounds. It argued that PAGA’s potentially crippling penalties and litigation costs unlawfully compel even law-abiding employers to settle. CABIA supporters were hoping this due process claim would succeed and help stem the tide of PAGA lawsuits. However, Judge Wilson held he cannot allow this particular part of the lawsuit to proceed as there is insufficient case authority to support it. Although the CABIA lawsuit may still serve as a catalyst for PAGA reform, the scope of the challenge is narrower and the prospects for success at the trial level are uncertain.
Because the Orange County ruling is not a binding precedent, employers can still, of course, argue that PAGA violates their due process rights (as well as their rights to equal protection). They will not have a successful ruling from Orange County Superior Court to help fortify those arguments, but such arguments can still be made in good faith depending upon the unique circumstances of each individual case.
In the wake of this ruling, CABIA has announced that it will focus on its remaining equal protection challenge, based upon the claim that PAGA unlawfully treats employers differently because certain employers with collective bargaining agreements are immune from PAGA claims. The immunity, signed into law last year, is based upon the Legislature’s finding that PAGA lawsuits have become abusive and threaten construction contractors who are signatory to union contracts. CABIA claims that employers in other industries are equally subject to such abuse and deserve equal protection. CABIA has stated it will begin asking the state for any documentation and witnesses which support the establishment of this two-tier PAGA system.
Minimize the Threat of PAGA Claims
As judicial challenges to PAGA on constitutional grounds remain an uphill battle, and imminent legislative reform of PAGA is unlikely, employers (even the most conscientious and law abiding) should make every effort to minimize the threat of PAGA claims. Such steps include careful monitoring of workplace practices–both formal policies and informal practices. PAGA litigation continues to increase in light of the potential to collect lucrative fees and penalties. Employers cannot compel arbitration of PAGA claims or require employees to waive the right to assert a PAGA claim. It remains to be seen whether an employee’s settlement and release of individual claims can bar him or her from later suing for PAGA penalties on behalf of the state. That issue is now pending before the Supreme Court. However, employers should still seek such releases to help argue that PAGA litigation is unwarranted.
On a positive note for employers facing PAGA claims, the California Supreme Court just ruled in the case of ZB, N.A. and Zions Bancorporation v. Superior Court that PAGA plaintiffs cannot seek unpaid wages in a representative capacity. Many PAGA plaintiffs had misread the law on this issue and assumed they could recover both penalties and wages. This new holding clarifies the issue and should help reduce the complexity of PAGA litigation, as well as the amounts demanded in settlement and trial.
While legal challenges to PAGA are pending, California employers are advised to take effective measures to prevent and defend potential PAGA suits. Employers should audit their wage statements, timekeeping practices, payroll records, and rest and meal break policies to ensure they are in compliance with applicable labor laws and regulations.