Managing PAGA Claims: A Recent Decision Points the Way to Defeat Representative Actions

3 minute read | December.21.2015

A recent federal court decision illustrates how defendants may be able to defeat PAGA claims in California.  Brown v. American Airlines, Inc., No. CV 10-8431-AG (PJWx), 2015 WL 6735217 (C.D. Cal. Oct. 5, 2015) is the latest case to dismiss PAGA claims based on the presence of numerous individualized issues that render the case unmanageable.  This decision provides hope for employers in the face of rulings by the California Supreme Court and certain federal district courts that PAGA actions need not meet class certification requirements.

PAGA allows “aggrieved employees” to bring representative actions against employers for civil penalties on behalf of themselves and other employees for violations of the Labor Code.   To recover penalties, a PAGA plaintiff must prove an underlying Labor Code violation as to each allegedly aggrieved employee for each pay period for which the plaintiff seeks penalties.  But to determine liability on the underlying Labor Code provisions, the court may need to adjudicate issues specific to each pay period for each allegedly aggrieved employee — which raises potentially significant manageability problems.

The nature of the proof required in a PAGA action can vary considerably depending on the underlying predicate Labor Code claim at issue.  For example, a plaintiff may be able to meet the burden of proof where she or he alleges an employer violated Labor Code section 226(a) simply by providing wage statements that are uniformly defective.).  By contrast, proving that an employer violated Labor Code section 2802 by failing to reimburse business expenses could require individualized proof (1) that an employee incurred expenses, (2) in direct consequence of the discharge of his or her duties or in obedience to the employer’s instructions, (3) that the expenses were necessary and reasonable, (4) that the employee sought reimbursement or the employer was otherwise aware of the expenses, and (5) that the employer failed to provide reimbursement.  The difficulties of making such a showing are compounded by the requirement that the showing be made for each allegedly aggrieved employee and for each pay period.  The result of litigating such specific issues for a large number of employees is an unmanageable series of mini-trials.

This issue was well illustrated in Brown.  There, the plaintiff brought a putative class action asserting claims for failure to pay overtime wages, failure to provide accurate itemized wage statements, unlawful business practices, and PAGA penalties.  The court denied the plaintiff’s motion for class certification, but the PAGA representative claims remained.  The employer then brought a motion to strike the PAGA claims.

Following the lead of the California Supreme Court and a variety of district courts, the judge rejected the defendant’s argument that the plaintiff could not pursue a PAGA action without satisfying class action requirements, holding that PAGA claims are not governed by Rule 23.  The court then turned to the defendant’s argument that the PAGA claims were unmanageable.  Noting its earlier conclusion that individual inquiries predominated as to the overtime claims (when denying certification), the court determined that there would be “too many individualized assessments to determine PAGA violations concerning overtime pay.”  By contrast, the court held that the wage statement claims, which were based on allegations that wage statements improperly reflected two different pay periods, were not unmanageable.  Accordingly, the court granted the motion to strike the PAGA claims except for the inaccurate wage statement claims.

Brown is the latest in a series of federal court decisions that shine a light on effective strategies for California employers to defeat certain unwieldy representative PAGA actions that would otherwise require mini-trials on numerous individualized issues.  All employers facing PAGA claims would do well to determine whether the rationale applied in Brown offers a way a way out for them.