California PAGA Landscape for Staffing Companies, Summer 2023

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By Sarah Kroll-Rosenbaum, Anthony Sbardellati, Nancy Sotomayor, and Harrison Thorne, Akerman LLC

Like most employers operating in California, staffing companies face myriad challenges under the Private Attorneys General Act of 2004 (PAGA)—often with claims from multiple employees stacked on top of each other. This year, the California Supreme Court is addressing three critical PAGA-related questions, each of which will significantly affect how staffing companies approach the litigation and resolution of these claims.

What Is PAGA?
The act authorizes an “aggrieved employee” to stand in the shoes of the state of California to initiate an action for civil penalties against his or her employer “on behalf of himself or herself and other current or former employees.” (Cal. Lab. Code §2699[a], [c]) To be considered an “aggrieved employee,” a plaintiff must (1) show that he or she was employed by the employer; and (2) allege that he or she suffered one or more of the labor code violations. In other words, the mere act of sustaining a labor code violation by one’s employer (or alleging as much) is sufficient to confer “aggrieved” status on an individual.

“Aggrieved” status opens the door to widespread potential penalties—including penalties for labor code violations the “aggrieved employee” did not personally experience. In Huff v. Securitas, the California Court of Appeal held that “a person affected by at least one labor code violation committed by an employer [may] pursue penalties for all the labor code violations committed by that employer.”

What Happens to ‘Nonindividual’ PAGA Claims After a Plaintiff’s Individual Claims Have Been Compelled to Arbitration?
On July 17, the California Supreme Court issued its long-awaited decision in Adolph v. Uber, putting to bed any expectation that California employers had that so-called “nonindividual” claims would be dismissed after an individual plaintiff’s claims are compelled to arbitration.

The Supreme Court held that an employee retains standing to pursue nonindividual PAGA claims in court, i.e., on behalf of other employees, even when that employee’s individual PAGA claim is compelled to arbitration. In other words, the court held that while an arbitration agreement may require that the employee submit his or her individual PAGA claims to private arbitration, that employee can continue to pursue nonindividual PAGA claims on behalf of the other employees in litigation.

Although the court observed that trial courts are empowered to stay the prosecution of the nonindividual PAGA claims in litigation pending the arbitration of the individual PAGA claims, the Adolph decision left that decision (whether to stay the litigation) to the discretion of the trial court. Lastly, and perhaps most problematically, the court held that a plaintiff retains standing to pursue nonindividual PAGA claims in court even when recovery for his or her own individual PAGA claims is barred by the statute of limitations, meaning that an employee who suffered a labor code violation, for example, five years earlier nevertheless retains standing to pursue PAGA penalties for other employees whose nonindividual PAGA claims fall within the statute of limitations.

The practical takeaway from the Adolph decision is that it may not make sense to pursue arbitration of PAGA claims, even when they are covered by a valid arbitration agreement, unless there is a strong reason to do so—e.g., to obtain the dismissal of class claims or perhaps when it is beyond dispute that the employer can prove that the employee did not suffer a single labor code violation during the entire course of his or her employment.

Does a Court Have Discretion to Strike a PAGA Claim for Lack Of Manageability at Trial?
The Supreme Court is also set to answer the question of whether PAGA includes a manageability component in Estrada v. Royalty Carpet Mills Inc. The case is fully briefed, and oral argument will be scheduled for some time in the fall, so a decision should be handed down later this year or in early 2024. At this time, attorneys are still able to raise PAGA manageability arguments in state court. But not so in federal courts, following the decision last year from the Ninth Circuit in Hamilton v. Walmart, announcing that federal courts do not have discretion to strike a PAGA claim for lack of manageability.

Can a PAGA Plaintiff Object to a Pending PAGA Settlement?
Finally, the Supreme Court is set to answer the question of whether a PAGA plaintiff has the right to intervene, or object to, or move to vacate, a judgment in a related action that purports to settle the PAGA claims that plaintiff has brought. In Turrieta v. Lyft Inc., the defendant had three overlapping PAGA lawsuits and settled with one plaintiff. The two plaintiffs in the other PAGA lawsuits filed motions to intervene and object to the settlement but the court denied the motions. The two plaintiffs filed a petition for review with the California Supreme Court. The case is fully briefed, but the Supreme Court has not indicated when oral argument will be set. Where an employer has overlapping PAGA lawsuits and chooses to settle with one plaintiff, there is a risk that another PAGA plaintiff may object to the settlement and prevent the court from approving the settlement. In Moniz v. Adecco USA Inc., the court held that a PAGA plaintiff in a separate action may seek to become a party to the settling action and appeal the fairness of the settlement as part of his or her role as a proxy for the state. Until the Supreme Court issues its decision, there is conflicting case law on the subject of objectors to a PAGA plaintiff, and the outcome will depend on whether the approving court follows Turrieta or Moniz.

Take Action
The authors recommend that staffing companies review arbitration agreements, to ensure that they comply with recent case law, and audit wage and hour practices to ensure compliance, avoiding an underlying PAGA violation.



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