In the past few months there have been several developments regarding the controversial California Private Attorneys General Act (“PAGA”) and similar laws that have made their way into other states.
PAGA allows employees to sue labor law violations on behalf of the State of California. The law has been challenged several times by employers and corporate advocacy groups arguing that it allows workers to circumvent individual arbitration provisions in employment contracts. California courts, however, have upheld the law by ruling that PAGA does not fall under the scope of the Federal Arbitration Act (“FAA”) and refusing to subject PAGA claims to mandatory arbitration. PAGA’s success in dealing with these challenges has led employee representatives groups to try to replicate them in other countries (see our earlier analysis of these developments here).
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PAGA recently suffered some setbacks in the United States Court of Appeals for the Ninth District. As we held in Magadia against Wal-Mart Assocs., Inc. in a previous warning on May 28, 2021, an employee had to be personally injured to be eligible to make a PAGA claim. The Magadia plaintiff has not alleged that he was injured in the class action lawsuit he brought against Wal-Mart for lunch break violations, but he was still empowered to bring the lawsuit on behalf of injured colleagues. The Ninth Ward disagreed, finding that they were not entitled to claim a meal break, overturn a $ 100 million judgment, and refer the claim back to the state court.
The Ninth Ward has also severely curtailed the potential penalties employers and executives could face in private lawsuits under PAGA. According to PAGA, the penalty for an initial violation of the California Labor Code is $ 100 per employee per pay period, while the penalty for a “later” violation doubles to $ 200 per employee per pay period. Cal.no. Laboratory. Code (the “Labor Code”) Section 2699 (f) (2). Plaintiffs often allege that employers face increased “post-breach” penalties for any breach that occurs after the first breach within the statute of limitations or after receiving the PAGA notification letter from the California Agency for Work and Development and / or the court . Complaint filed. This means that if an employee receives a wage slip that does not meet all of the requirements of Section 226 of the Labor Code, and the employee receives 26 non-compliant wage slips over the course of a year, the total PAGA penalties for the individual worker will be $ 5,100 (i.e. $ 5,100) $ 100 x 1 pay period + $ 200 x 25 pay periods = $ 5,100). If the employer provides 100 employees with non-compliant pay slips, the potential penalties, assuming that assumption, increase to $ 510,000.
However, in the Bernstein v Virgin America, Inc. case, the ninth court found that argument unsuccessful. Instead, the court ruled that a defendant employer would not be subject to the increased penalties for subsequent violations unless they were first “notified” by the California Labor Commissioner or other court that their conduct was in breach of labor law. In Bernstein, the court stated that defendant Virgin America, Inc. was “not informed by the Labor Commissioner or any court that it is subject to California labor law until the district court partially upheld plaintiffs’ motion for a summary judgment.” No. 19-15382, 2021 WL 686281, * 12 (9th Cir., 02/23/2021).
According to this ruling, a “subsequent” violation, threatened with increased penalties, appears to have occurred only if the employer has been informed, either through an administrative decision or a court ruling, that he is violating the labor code and has not subsequently mitigated the problem. This is important as it effectively cuts the potential exposure of employers and their executives in half under PAGA. An employer would not pay increased compensation for “subsequent” violations under PAGA until such a decision or decision is made. Employers should nonetheless investigate allegations contained in PAGA letters or lawsuits and ensure that their practices comply with the law or revise them accordingly.
Maine Passes Private Corporation Law; Governor vetoed
On June 18, 2021, Maine became the first state outside California to pass PAGA-type law, only to be vetoed a month later by Governor Janet Mills.
Specifically, Legislative Document 1711, an Enforcement Enforcement Act (“LD 1711”), passed the Maine Senate by 21-13 votes and the Maine House by 74-55 votes. The bill was similar to PAGA in that it represented workers (defined as “whistleblowers” in the bill) to initiate private enforcement actions on behalf of the state for alleged violations of certain labor laws, particularly violations of wages and working hours.
However, LD 1711 differed from PAGA in several notable ways. First, the law allowed advocacy groups and other organizations to sue on behalf of workers, significantly expanding the number of attractions. In contrast to this, PAGA only authorizes the injured employee (s) to sue in their own name and in the name of other employees. Second, LD 1711 allowed workers to sue for alleged violations of Maine anti-discrimination laws, while PAGA is primarily limited to California wage and hourly claims. These parts of LD 1711 have been widely criticized by law enforcement officials who argued that allowing advocacy groups to take over the work of employees in enforcing such laws could put a significant strain on government and legal resources.
Maine lawmakers have also made the LD 1711 notice periods longer than PAGA’s. While PAGA gives the California Labor and Human Resources Development Agency only 60 days to investigate an alleged violation, Maine law allowed 180 days to investigate, 90 more days to attempt arbitration, and another 90 days to initiate enforcement action .
Surprisingly, LD was rejected by Governor Janet Mills in 1711. Governor Mills described her concern that the new law could undermine current enforcement mechanisms and public interest. She also highlighted the increase in the state’s enforcement budget, which was previously cited as a reason for passing PAGA-like laws.
Other states trying to pass state AG laws
In addition to Maine, several other states have proposed or are considering their own legislation similar to PAGA.
- New York: The Empowering People in Rights Enforcement Worker Protection Act, or EMPIRE Act, would allow employees, whistleblowers, or employee-selected organizations to initiate public enforcement on behalf of the state. Such organizations include trade unions and other employee interest groups. The bill is currently on the Senate Committee and the State Assembly.
- Washington: In addition to civil law sanctions, the proposed law actually provides for the representative assertion of traditional claims for damages. The bill died in the state’s Senate committee, but not before passing the House of Representatives with majority approval. Because of this, it is likely to be reintroduced.
- Oregon: The proposal would also allow individuals and certain representative organizations to take enforcement action on suspected violations. The current bill also allows individuals and organizations to receive up to 40 percent of the penalties collected, including legal fees.
- New Jersey: This bill is tighter than PAGA and focuses on promoting a “fair work week.” It would establish staff scheduling rules for large retail chains, hotels, restaurants and warehouses, and give workers the right to sue on behalf of the state to enforce those rules.
- Connecticut: The proposed measure would allow unions and other stakeholders to file workplace violations lawsuits but stall on the state’s Senate committee.
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As more states seek to enact their own versions of PAGA, it is important for employers to understand the risks posed by such future laws. PAGA does not discriminate against employers. Even employers who complain extensively in their payrolls can be sued for minor violations (e.g. failure to provide all required information on a pay slip) by current or former employees acting on behalf of the state. In many cases, the penalties for these violations are disproportionate to the actual damage employees may suffer. Using the payroll example above, an employer who fails to provide proper pay slips under the California Labor Code would be fined, even according to Bernstein, $ 100 per employee per pay period (provided they did not receive a “notification” of their violation of the Labor Code), regardless of the fact that its employees were properly paid at all times. And while such a violation could technically be the fault of an employer’s payroll service provider, the employer ultimately bears responsibility for the violation to its employees. For these reasons, and given the potential for such significant exposure from mere allegation, employers are often in the unenviable position of considering early resolution if they are involved in a PAGA class action lawsuit.
Employers should take steps to ensure that both they and their payroll service providers comply with all applicable state and state wage and hour laws. Indeed, as there are no reversals like last month in Maine, pressures for PAGA-style legislation will continue to gather pace and employers should prepare accordingly.
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