In a recent episode of The Workplace podcast (https://theworkplace.podbean.com/e/episode-204-how-recent-california-supreme-court-rulings-affect-paga-litigation/), CalChamber Labor and Employment General Counsel Bianca Saad and CalChamber Associate General Counsel Matthew Roberts discuss two recent California Supreme Court decisions on California’s Private Attorneys General Act (PAGA), Stone v. Alameda Health System and Turrieta v. Lyft, Inc. Significant changes were made to PAGA this summer, starting with a reform package spearheaded by the CalChamber and signed by Governor Gavin Newsom in July, Roberts says. Two recent California Supreme Court decisions provide further relief for employers.
What Is PAGA?
Saad explains that PAGA allows aggrieved employees to essentially step into the shoes of the Attorney General and seek civil monetary penalties on behalf of themselves and all other similarly aggrieved employees, in addition to the underlying damages for several labor code violations. For example, an aggrieved employee could bring an action for a meal and rest break violation, seeking damages for those claims, and then also bring a PAGA action seeking the civil penalties on top of those damages.
There are two types of penalties, default and non-default. Default penalties are where the underlying law doesn’t have its own civil penalty structure. With non-default penalties, the penalties can stack up as they apply per pay period, per aggrieved employee, and may go back years, even for minor violations, such as a misprinted address on a wage statement.
“With all this put together, then there’s a lot of money on the table, and that really encouraged litigation, instead of using it more as a solution of last resort,” Roberts says.
Stone v. Alameda Health System
On August 15, 2024, the California Supreme Court issued a unanimous decision in Stone v. Alameda Health System, concluding that public employers are exempt from various California Labor Code provisions and PAGA penalties.
The case involved a public health system created by law in collaboration with Alameda County and the State Legislature. This decision is important because there’s a general rule of thumb that the California Labor Code doesn’t apply to public entities unless the statute provides that it does, Saad explains. In Stone, employees with the Alameda Health System brought meal and rest break claims, among other Labor Code violations and a PAGA action.
Before Stone, the California Supreme Court had never definitively ruled on whether one could bring a PAGA action against any public entity. The Supreme Court looked at the authorizing statute for the health system and found ample evidence to suggest that the county and state governments intended to create the health system as a public entity, and therefore it’s not covered by underlying Labor Code provisions, unless expressly stated in the law. The California Supreme Court, then, using this principle, examined PAGA and determined that the Legislature, in writing and enacting PAGA, provided substantial evidence that the law did not apply to public entities, she says.
“So those of you who are public agencies, as you’re defined by your authorizing statute, this is a huge win for you, because this essentially means no pocket claims will be brought against you, which you know avoids the time and expense of defending pocket claims. Unfortunately for our private entities and many of our members out there, this does not absolve us from coverage,” Roberts says.
Turrieta v. Lyft, Inc.
In Turrieta v. Lyft, Inc., the California Supreme Court limited a PAGA plaintiff’s ability to intervene in another PAGA action and object to a settlement.
This case involved different PAGA actions, all against the same employer, but each of the plaintiffs filed some overlapping claims, which is a common scenario seen in PAGA litigation, Saad says. For example, one plaintiff can file a PAGA action for misclassification of workers, unpaid overtime, failure to reimburse business expenses, and failure to provide timely wage statements. Then another plaintiff can file a similar action for the similar time period, essentially bringing a second lawsuit for the same violations.
“So, then the question becomes, if one case settles, what happens to the overlapping lawsuit?” Saad asks.
The California Supreme Court determined that the purpose and the express language of PAGA doesn’t allow PAGA plaintiffs to intervene or object to the settlement in another PAGA action.
This decision is a big win for employers, Roberts says, because they can move off of multiple lawsuits with one approved settlement. Oftentimes, however, getting to that point can be fairly costly.
“You’re still going through the time and expense of preparing your defense, executing your defense, and then still, you know, resolving the matter,” he says.
PAGA Reform
The reforms made to PAGA this year bring new benefits to limit employer liability overall, including the ability to significantly reduce exposure to potential PAGA penalties, Saad says.
Employers can limit their liability by taking what’s referred to under the law as “all reasonable steps” to avoid or correct Labor Code violations. Not only can an employer be completely proactive, meaning they’re taking all of these steps prior to ever receiving a notice of violations, but even after they’ve received a notice of violations, employers still have the ability to take all of these reasonable steps related to the alleged violations in order to limit their penalties.
Saad explains that “reasonable steps” can include:
• Payroll audits, and taking any related corrective action to the findings of those audits;
• Implementation and dissemination of lawful written policies related to Labor Code issues, such as meal and rest breaks, over time, timely payment of wages, etc.;
• Ensuring that supervisors are trained on lawful policies; and
• Taking corrective steps if supervisors fail to follow policies and procedures.