PAGA “Pick-offs” Not Likely To Pass Muster
I. QUESTIONS PRESENTED
Under California law, may a Defendant company settle with individuals who are part of a class action suit filed under the Private Attorney General Act (PAGA)?
II. BRIEF ANSWER
It is unclear because there is no case law on point. However, recent case law points to the legislative intent behind PAGA claims. Specifically, that the intent of PAGA claims is not restitution for the individual plaintiff, but punishment for the offending employer for violation of public policy.
III. BACKGROUND CASES
In Chindarah v. Pick Up Stix, (2009) 171 Cal. App. 4th 796, the court held that Labor Code §206.5 does not apply to any wage releases given in connection with a settlement resolving a good faith dispute. The defendant, Pick Up Stix, was involved in a wage-and-hour suit brought by two plaintiffs in a putative class action. After failed mediation attempts, the defendant approached individual employee class members and offered to pay them a share of the mediation offer in exchange for a full release. The plaintiffs then filed an amended complaint challenging the validity of the releases signed as part of the settlement. The court specifically noted that the releases involved past violations and did not exonerate the defendant from future violations, nor did it condition the payment of wages on the release acceptance. The court further held that employees have a statutory right to overtime pay and that this right is unwaivable per public policy. However, the court continued that public policy is not violated by the settlement of a “bona fide dispute” over wages that were already earned. Under Labor Code §206.5, releases of wages are prohibited unless paid in full, but wages are not due under this section if a good faith dispute exists as to whether these are owed. Thus, the court concluded that §206.5 did not invalidate the releases.
In Villacres v. ABM Industries Inc., (2010) 189 Cal. App. 4th 562, the defendant reached a class wide settlement. However, one of the plaintiffs filed a PAGA claim after the settlement had been approved. The defendant argued that the claim was barred by the settlement under the doctrine of res judicata and the court agreed—noting that the plaintiff could have opted out of the class to preserve his PAGA claims—but not before delving into an analysis of PAGA plaintiffs and their legal rights. The court looked into the legislative history of PAGA, noting that it was created to be an enforcement action, permitting an aggrieved employee to act “as a private attorney general to collect penalties from employers who violate labor laws. Such an action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Restitution is not the primary object of a PAGA action, as it is in most class actions.” (Emphasis added. Id. at 578.) The court further indicated that “[i]n bringing such an action, the aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties.” (Emphasis added. Id. at 579.) While causes of action are generally assignable by the owner if it arises from a legal obligation or violation of property right, PAGA claims do not create a property or substantive right and the aggrieved employee “does not own an assignable interest.” (Id.) Because of this, the aggrieved employee represents the “same legal right and interest as state labor enforcement agencies—namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency.” (Id.)
In Iskanian v. CLS Transportation Los Angeles, LLC, (2014) 59 Cal. 4th 348, the California Supreme Court held that arbitration agreements with mandatory class waivers are generally enforceable, except in cases consisting of representative claims brought under PAGA. The court highlighted that the civil penalties recoverable under PAGA are distinct from the statutory damages to which employees may be entitled on an individual capacity. (Id. at 381). Furthermore, the court indicated that a PAGA representative action is a type of qui tam action, where a private party brings an action on the government’s behalf. Thus, under qui tam actions, the government is considered to be the real party in interest, and not the representative. The court also reasoned that an agreement waiving PAGA claims is contrary to the acts intent and is a violation of public policy. (Id. at 382). Cal. Civ. Code § 3513 indicates that “anyone may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” The court points out that waiving PAGA claims directly contradicts §3513 and thus is impermissible. It further explains that PAGA claims are intended “to recover civil penalties…a law enforcement action designed to protect the public and not to benefit private parties…An aggrieved employee’s action under the PAGA functions as a substitute for an action brought by the government itself. The fact that any judgment in a PAGA action is binding on the government confirms that the state is the real party in interest.” (Id. at 386).
While there is no case law directly stating that PAGA plaintiffs may or may not settle on an individual basis, cobbling together various cases indicates that it may be contrary to PAGA’s intent and thus inappropriate. The above-mentioned cases note that PAGA cases are treated as distinct from regular class-action cases because PAGA claims are not intended to provide restitution to the plaintiffs, but rather to punish the offending employer and discourage future violations of California labor laws. Thus, Chindarah should be inapplicable because the settlements with the plaintiffs was compensating them for their unpaid wages, in essence, restitution. Furthermore, case law also indicates that PAGA claims are not intended to benefit private parties—though this is an incidental effect— but to protect the public at large. Finally, given that the government is the real party in interest, the individual plaintiff is acting in a representative capacity and any settlements should thus benefit the government’s purpose and not simply the individual plaintiff. Given that PAGA intends to collect civil penalties against the offending employer, the argument can be made that an individual settlement would not satisfy this condition and would deprive the Labor Workforce Development Agency of its function, thus running afoul of the legislative intent behind PAGA and public policy overall.
In reading the intent behind PAGA, it is unlikely that “picking off” plaintiffs would be permissible because permitting individual settlements runs contrary to the public policy behind the act. Individual settlements would benefit the individual plaintiff, not the government, and would thus weaken PAGA, rendering it futile.