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PAGA Claims Survive Dismissal of California Labor Code Violations

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Mandatory arbitration cannot sideline labor code enforcement

San Francisco, CAOn June 26, the California Court of Appeals held that an employee could continue his state Private Attorneys General Act (PAGA) claim even after settling his California Labor Code lawsuit. Linehan-Clodfelter v. Vivint, Inc. closely follows the reasoning of the recent California Supreme Court decision in Kim v. Reins Internat. California, Inc. Kim was widely seen as strengthening employee efforts to curb employer wage and hour abuse through PAGA, especially for workers who, daunted by the risks of arbitrating wage claims, have taken a settlement offer instead. Linehan-Clodfelter affirms the availability of that important legal tool.

Linehan-Clodfelter’s Dilemma

Ezra Linehan-Clodfelter worked for Vivint as an installation technician. After his employment ended, he filed a class action lawsuit, claiming that Vivint had violated the California Labor Code by failing to pay wages and overtime or provide meal and rest breaks. His complaint also included a claim of unfair competition and a PAGA claim. Vivint successfully forced him to arbitrate the wage, hour and unfair competition claims. Linehan-Clodfelter later asked that his lawsuit concerning the wage, hour and unfair competition claims be dismissed, so that he could continue his PAGA claim.

The reason he agreed to a dismissal of these claims is not entirely clear. It is not surprising, however, and may have something to do with the arbitration process. Many workers, fearing costs and a less-than-optimal outcome of arbitration proceedings, opt to take an employer’s offer to settle wage and hour claims. An agreement to dismiss the lawsuit is often part of the negotiated agreement.

In any event, Linehan-Clodfelter had made it clear in his request for dismissal that he intended to continue his PAGA action. Vivent contested his ability to do that, since he had agreed to discontinue the underlying claims. The Court of Appeals decision is all about whether the PAGA claim could continue, and the critical issue is what the term “aggrieved” means in the statute.

A brief review of PAGA

PAGA, adopted by the California legislature in 2004, authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the state for violations of the California Labor Code. Seventy-five percent of any civil penalty goes to the Labor and Workforce Development Agency for enforcement of and education about labor law responsibilities; twenty-five percent goes to aggrieved employees.

In a sense, PAGA works like a whistleblower statute. Although the law is primarily intended to serve the public purpose of Labor Code enforcement, it depends on the participation of private litigants. The state effectively delegates some of its enforcement responsibility to workers who are in the best position to have information about Labor Code violations. In return for their trouble, the employees collect a portion of the fine recovered.

Compared to the employees’ potential for financial recovery in a class action lawsuit, a PAGA claim may not seem like a particularly good deal for workers. PAGA claims are often included in wage and hour lawsuits as a “belt and suspenders” measure, though.

There are at least four reasons:
  • Some provisions of the California Labor Code do not include a private right of action. A worker who claims the he or she has been misclassified, for example, may have no individual right to recover.
  • A worker who is contractually bound to arbitrate wage and hour claims may not be able to participate in a class-action lawsuit. Many employers now include mandatory arbitration clauses in their standard employment agreements. Arbitration proceedings tend to favor employers. It is now settled law that employers cannot require employees to arbitrate their claims under PAGA without the State’s consent. Until Kim, it was still unclear what happed to PAGA claims when the wage and hour portion of the lawsuit was voluntarily dismissed.
  • Workers may feel under great financial pressure to settle lawsuits. With sufficient inducements, employers may be able to “chip away” at class action lawsuits, until the lawsuits are financially unsustainable.
  • California’s workplace protections are famously under enforced within low-wage industries. A PAGA claim may offer a meaningful chance of recovery for many workers.

What does “aggrieved” mean under PAGA?

Linehan-Clodfelter relied heavily on Kim in parsing the word “aggrieved,” to conclude that individuals do not lose their ability to pursue PAGA claims when they settle individual California Labor Code claims. The “’[l]egislature defined PAGA standing in terms of violations, not injury,’ and the employee became ‘aggrieved’ when ‘one or more Labor Code violations were committed against him. Settlement did not nullify these violations.’”

PAGA lives on!

The bottom line on the Linehan-Clodfelter decision is that employers were once again thwarted in an attempt to limit their potential liability for California labor code violations. PAGA enforcement may not be the worker’s first choice, but it still offers a remedy for those forced to arbitrate wage and hour disputes under the terms of their employment agreements.


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