by Jackson Lewis
The California Court of Appeal has increased the potential liability to
employers in wage and hour class actions in a decision on a procedural
issue involving class certification of wage and penalty claims under
the California Labor Code. Specifically, the Court ruled that
representative claims for unpaid wages brought under the Unfair
Competition Law ("eUCL"e must be brought as class
actions under Section 382 of the Code of Civil Procedure, but claims
for penalties under the Labor Code Private Attorneys General Act
("ePAGA"e do not. Arias v. Superior Court, No. C054185
(Cal. Ct. App., July 24, 2007). For California employers, this opinion
underscores the need to conduct periodic audits of wage and hour
practices to limit potential liability for wage and hour claims.
The facts in the case are straightforward. The plaintiff sued
his former employer alleging that he was not compensated for overtime,
that he received no meal periods or rest breaks, and that the housing
provided to employees was uninhabitable. Asserting claims under the UCL
and the PAGA, the plaintiff sought damages and injunctive relief
individually and in his representative capacity on behalf of other
current and former employees. Arguing that the employee failed to
comply with the requirements for pleading a class action, the employer
asked the trial court to dismiss the UCL and PAGA claims. The court
granted the motion, and the plaintiff filed a petition for a writ of
mandate.
The plaintiff argued that the UCL contained no specific
requirement that representative actions be brought as class actions.
The Court of Appeal disagreed. The Court explained that since its
amendment in 2004, the UCL has required compliance with Section 382 of
the California Code of Civil Procedure, which provides, "ewhen
the question is one of a common or general interest, of many persons,
or when the parties are numerous, and it is impracticable to bring them
all before the court, one or more may sue or defend for the benefit of
all."e The Court stated that Section 382 "ehas
historically been interpreted to authorize a representative action by
an individual as a class action only."e Thus, a representative
action under the UCL must meet the requirements of a class action.
In contrast, the employer argued that the plaintiff's claim
for penalties under the PAGA must be asserted as a class action. This
time, the Court of Appeal disagreed with the employer. The Court stated
that, unlike the UCL, the PAGA does not require compliance with Section
382. Rather, the PAGA states that "ecivil penalt[ies] to be
assessed and collected by the Labor and Workforce Development Agency .
. . for a violation of this code, may, as an alternative, be recovered
through a civil action brought by an aggrieved employee on behalf of
himself or herself and other current or former employees . . .
."e The Court reasoned that this language authorizes a
representative action independent of the class action requirements of
Section 382. Any penalties recovered are distributed 75 percent to the
Labor and Workforce Development Agency and 25 percent to the aggrieved
employees. In addition to the recovery of penalties, a prevailing
employee is entitled to an award of reasonable attorneys' fees and
costs.
The Court noted that the PAGA was adopted to allow employees
to seek civil penalties for Labor Code violations that previously could
be assessed only by state agencies. Further, the statute's broad
language permitting representative actions, "enotwithstanding
any other provision of law,"e indicates that compliance with
the class action provisions of Section 382 is not required. Thus, the
Court concluded that the plaintiff could assert a representative claim
under the PAGA without complying with the class action requirements of
Section 382. The Court directed the trial court to vacate its order
striking the claim under the PAGA and to allow the plaintiff to amend
his complaint.
The practical effect of this opinion may well be to increase
the number of wage and hour lawsuits seeking penalties on behalf of all
aggrieved employees under the PAGA. Further, the settlement value of
such cases may increase because class certification is not a
prerequisite to pursuing representative PAGA penalty claims. As a
practical matter, employers often first defend against wage and hour
class actions on the basis that a class cannot properly be certified;
this potential defense is not available under the PAGA. Since the
settlement value of cases is typically much lower prior to class
certification, the ultimate effect of the Arias decision seems likely
to be increased claims and settlement demands.
To avoid exposure to wage and hour claims, employers should
audit their wage and hour practices periodically to ensure compliance
with California law. Employers should make sure they understand and
comply with California's unique overtime and break requirements.
For more information on the Trade Secrets, Non-Comptes and Workplace Technology Practice Group, please visit
www.jacksonlewis.com/pa . The Group assists employers in establishing policies, hold procedures and complex e-discovery matters.