California Court of Appeal Decision May Increase ‘Bounty Hunter’ Representative Lawsuits

In Arias v. Superior Court of San Joaquin County (Angelo Dairy), No. C054185 (July 24, 2007), the California Court of Appeal for the Third Appellate District concluded that representative actions for alleged Labor Code violations brought under California's Private Attorneys General Act ("PAGA"), often referred to as the "Bounty Hunter" or "Sue Your Boss" law, need not be brought as class actions. Instead, a single employee may proceed with an action on behalf of all aggrieved employees, acting as a private attorney general, without the need to comply with class action requirements.

The decision, which also clarifies that representative actions brought under California's Unfair Competition Law must be brought as class actions following the voters' passage of Proposition 64 in 2004, may well lead to an increase in the filing of PAGA lawsuits. Such lawsuits had been prevalent when the PAGA first went into effect in 2004, but they became substantially less appealing to employees and their counsel after amendments were made to the statute affecting how claims could be brought and the potential recoveries. The PAGA may now be appealing to employees and their counsel once more, however, as they can avoid the many procedural burdens inherent in class actions, such as attempting to have a class certified. Unless the decision is overturned or the PAGA amended to require that claims be brought as class actions, moreover, Arias may well signal the partial return of the very type of representative action that California voters rejected when they first passed Proposition 64.

This Alert provides a summary of the Court's decision and highlights concerns for employers.

Case Overview

Jose Arias, a former employee of Angelo Dairy, filed suit alleging a variety of violations of California's Labor Code, including claims that he was not paid for his overtime and was denied required meal periods and rest breaks. In his suit, he sought damages for himself. He also sought damages and injunctive relief for other current and former Angelo Dairy employees, doing so in his representative capacity under both the Unfair Competition Law and the PAGA. The Unfair Competition Law allows for representative actions to address business practices that are unlawful, unfair or fraudulent, and, generally, provides for the disgorgement of monies improperly obtained. The PAGA allows for representative actions to address Labor Code violations and, generally, provides for penalties of up to $100 per employee for each initial violation and $200 per employee per pay period for each subsequent violation.

The Superior Court granted Angelo Dairy's motion to strike Arias's Unfair Competition and PAGA claims on the grounds that Arias had failed to comply with the requirements for pleading a class action. The matter was reviewed by the Court of Appeal on a writ of mandate.

The Court of Appeal first concluded that a representative claim under the Unfair Competition Law had to be pled as a class action. The Court explained that the voters' passage of Proposition 64 in 2004 to address perceived abuses in Unfair Competition Law litigation requires compliance with California Code of Civil Procedure section 382, which in turn authorizes class actions. This ruling is consistent with dicta of other California courts.

Turning to representative claims brought under the PAGA, the Court reached a very different conclusion. The Court explained that an employee's representative action under the statute is one of enforcement of California's labor laws, empowering aggrieved employees to act as private attorneys general to pursue penalties that previously could only be pursued by state agencies. The Court closely analyzed the statutory language, where notably there is no express requirement of compliance with California Code of Civil Procedure section 382 as there is in the Unfair Competition Law. As the PAGA specifically states that an employee may bring an action on behalf of other employees "[n]otwithstanding any other provision of law," the Court concluded that compliance with the class action provisions of Code of Civil Procedure section 382 was not required.

Looking Ahead: What Does This Case Mean To Employers?

While Arias has generated only a modicum of fanfare to date, the decision could have a tremendous effect upon employers with operations in California.

First, by authorizing non-class action representative claims under the PAGA, the pre-Proposition 64 representative action that voters rejected has essentially been revived, at least in the employment context, only with a new name.

Second, the Arias decision could have the effect of making PAGA claims appealing once more. Representative claims under the PAGA have not been nearly as prevalent as they were when the statute first went into effect in 2004 -- and for good reason. When it was first implemented, the PAGA allowed an employee to bring a claim for even the most minor technical Labor Code violations without giving an employer an opportunity to cure the problem. Indeed, because they did not need to report a violation, employees were incentivized to allow a violation to continue in order to maximize the potential recovery. Additionally, the PAGA provided for mechanically calculated penalties of $100 per employee for the first violation and $200 per employee per subsequent pay period, regardless of whether anyone suffered any harm or whether the employer acted in good faith. For instance, an employer that had a workers compensation poster that used the wrong size type could be subjected to millions of dollars in penalties even though no one was harmed and its mistake was inadvertent. Within months of the PAGA taking effect, employers were inundated with lawsuits, often citing minor technical violations of the law, seeking tens of millions of dollars in penalties.

As a result of these early lawsuits, the PAGA was amended rather swiftly in a manner that made such lawsuits less appealing. Among other things, the statute was revised to require that employers be given an opportunity to cure alleged violations in many instances, and requiring generally that alleged violations first be reported to the Labor and Workplace Development Agency to allow the Agency to investigate itself if it so desires. Additionally, where penalties originally were to be mechanically calculated without regard to whether any harm was suffered or whether the employer acted in good faith, the amendments to the statute gave the courts discretion to award less than the full penalty to avoid an award that would be unjust, arbitrary, oppressive or confiscatory. These amendments, and the fact that any recovery had to be shared with the Labor and Workforce Development Agency, which would receive 75 percent of any penalties recovered, made PAGA lawsuits less appealing to employees and their attorneys.

Arias may change that. Simply, the fact that they do not need to go through the sometimes onerous class action procedures, including having to file a motion seeking to have a class certified, may make PAGA claims enticing to employees and their counsel once again.

Given the potential impact of this decision, it would not be surprising for the California Supreme Court to grant review. Moreover, it is certainly possible that the legislature will amend the PAGA once again to try to require that claims be brought as class actions. Should that not occur, it may be left to the voters to try to curtail PAGA lawsuits as they did with Unfair Competition Law actions when they passed Proposition 64 in 2004.

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If you have any questions regarding this Court of Appeal decision or about employment class actions, please contact Michael Kun at (310) 557-9501 or at [email protected].

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorney in connection with any specific questions or issues that may impose additional obligations on you and your company under any applicable local, state or federal laws.