How To Confront PAGA Actions In California

Examining the employment policies and practices

Employers in California are beginning to realize what a significant threat to their company a California’s Private Attorneys General Act (PAGA) claim can present. Employers are also beginning to understand PAGA claims are not readily avoided. 

 

Certain industries have been inundated with the threat of PAGA litigation.  In 2018, over 150 PAGA Notice Letters were submitted with the state alleging claims against hospitals and medical companies. Ambulance companies, however, have largely avoided PAGA actions.  Between 2016 and 2018, approximately 10 ambulance companies faced the threat of PAGA litigation. 
 
This is due, in large part, to various Labor Code and Wage Order exemptions that apply to employees of these companies. The approval of Proposition 11, however, created new Labor Code statutes that could, feasibly, serve as the basis for a representative PAGA action.  That said, ambulance companies should prepare themselves to confront PAGA claims.
 
While PAGA actions are representative civil actions (similar to class actions), and most employers treat them that way, all California employers should treat PAGA actions as criminal law enforcement actions.
 
The California Supreme Court has explained that PAGA actions represent the State of California’s “interest in penalizing and deterring employers who violate California’s labor laws.” Applying that characterization to PAGA issues before it, the court has held that PAGA actions (1) are not subject to class action procedures, (2) are not subject to pre-dispute arbitration agreements, and (3) provide plaintiffs easier access to representative discovery. 
 
Recently, a California Court of Appeal held that a PAGA plaintiff has the standing to represent the State of California’s interest in enforcing any number of Labor Code provisions so long as he or she was affected by one violation of one such provision.
 
In sum, California courts treat PAGA actions as law enforcement actions brought by the State of California to enforce the Labor Code, and any employee who adequately claims to have suffered from one Labor Code violation is authorized to bring these actions.
 
Confronting PAGA actions as law enforcement actions brought by the State of California will help employers limit the scope of potential liability, take more control over the anticipated litigation, and reduce the overall cost of litigation. The first opportunity to exercise this approach is often when employers receive a PAGA Notice Letter. However, employers in California should always consider Labor Code issues in this manner, before receipt of a PAGA Notice Letter and during any potential litigation arising from the Notice.

Before commencing a PAGA action, employees must submit a Notice Letter to California’s Labor and Workforce Development Agency (LWDA), and send the employer a copy via certified mail. Although the PAGA Notice Letter must provide notice of “the facts and theories to support the alleged” Labor Code violations, specific allegations are often scant and ambiguous. Regardless, California employers’ first opportunity to confront PAGA claims begin with their receipt of a PAGA Notice Letter.
 
Employers must ensure that they have a system in place for getting prompt notification of PAGA Notice Letters. Most plaintiff attorneys will mail the letters to the Agent of Service of Process address listed on the California Secretary of State’s website. Employers must ensure that the individuals responsible for managing PAGA issues will receive a copy of PAGA Notice Letter as soon as possible. 

When a PAGA Notice Letter is received, employers should treat them as notices from a government law enforcement agency alleging that the business violated the law. Employers should immediately conduct a careful evaluation of the letter to identify each claimed Labor Code violations and each allegation supporting each claim.
 
Then, employers must determine whether they may cure any of the claimed violations.  If that is the case, they only have 33 days from the postmark date of the PAGA Notice Letter to complete the cure process (save the envelope) and submit a Notice of Cure. Curing one of these violations may completely prevent a PAGA lawsuit. For example, alleged wage statement violations based on an inadequate showing of the employer’s name and address are subject to the PAGA’s cure provisions. The cure process requires the issuance of revised wage statements, which can be time-consuming and cumbersome. 
 
Early evaluation and identification of curable claims is a critical component of confronting PAGA actions, particularly for California ambulance companies. That is because each Labor Code provision created by the approval of Proposition 11 is subject to the PAGA’s cure procedures. 
 
Employers should also determine whether the PAGA Notice Letter assert sufficient “facts and theories” supporting each claimed Labor Code violation. Employers often conduct this evaluation, but do nothing about it.  They treat the claims as though brought by an employee, not the state. That is a missed opportunity to confront the anticipated PAGA action. 
 
If the government accuses you of violating the law, you would want to know exactly what you are accused of doing. That said, employers should submit a Response Letter explaining, (1) the deficiencies in the Notice Letter, (2) that the employer has not been able to identify any of the alleged violations based on the information provided, and (3) additional information is necessary for the employer to investigate and cure the alleged violations. 
 
If the claimant submits an Amended PAGA Notice Letter, the employer will be in a better position to investigate the claims and cure any violations. Further, the amended notice may limit the scope of the anticipated PAGA action to the now-specified “facts and theories.” If the claimant does not reply, the employer can use the claimants’ failure to provide specific notice of his or claims to support the employer’s defenses in litigation.

Most employers are hesitant to take action responding to claims in a PAGA Notice Letter.  Non-responsiveness is a gift to PAGA plaintiffs and their attorneys. Not only will they claim liability for “continuing” violations each pay period that passes following the Notice Letter, but they will more forcefully seek “subsequent” civil penalties for those violations. “Subsequent” civil penalties are at least twice the amount of “initial” civil penalties. Additionally, courts are more likely to reduce any future assessment of PAGA civil penalties when employers take immediate remedial action.
 
By conducting an early evaluation of the claims and proactively correcting and remedying any issues, employers cap the scope of liability in the anticipated PAGA action.  Employers can implement these remedial measures without creating an admission of liability. As a result, plaintiffs’ attorneys are less eager to engage in costly litigation and the action will likely reach a more efficient and less-expensive conclusion.

Confronting PAGA actions as brought by the State of California does not stop with a PAGA Notice Letter. Employers who take this approach into litigation should continue treating PAGA plaintiffs like the State Attorney Generals they claim to represent. Employers should not accept unreasonable extensions or delays. 
 
Instead, they should demand efficiency in the litigation, continue seeking clarification of the claims, and advance the case toward the earliest resolution possible. The PAGA incentivizes plaintiffs to do the opposite. Due to the relatively small one-year statute of limitations period for PAGA claims, the bulk of liability in most PAGA actions is based on “continuing” violations that occur in pay periods after the complaint is filed.

Employers should prepare for and anticipate PAGA actions as they do IRS tax audits. Files of receipts will not help a business efficiently and successfully resolve a tax audit. Similarly, providing employees with required notices and retaining those records is not enough to obtain a favorable resolution in a PAGA action.
 
PAGA actions can be predicated on any number of employment practices.  PAGA claims are frequently based on the following employment practices:  non-compliant meal and rest period practices (e.g. failing to make employees free of all duties during breaks – requirement to carry or communication device or remain on premises), working off-the-clock (e.g. donning and doffing uniforms or protective equipment while off the clock), rounding employees’ work time (which is sometimes lawful, but always costly to defend), miscalculating the overtime rate of pay (e.g. failing to include other forms of compensation, like attendance and safety bonuses), failing to reimburse for “business expenses” (e.g. use of personal cell phones, home internet, vehicles, and other personal equipment or services to perform a work duty, without any reimbursement), and technical wage statement violations (e.g. failing to itemize split differential rates and hours worked at those rates). 
 
Employers should regularly audit their employment policies and practices that may relate to those issues in order to ensure that, (1) the business’s written policies and procedures are compliant with the law, (2) the business’s actual practices and implementation of the policies and procedures are compliant with the law, and (3) employees are actually aware of the business’s compliant policies and procedures.  Employers with records evidencing all three factors are in a position to successfully defend PAGA actions. Employers lacking evidence of any one factor need to be prepared for costly litigation.
 
Auditing these employment policies and practices, and implementing defensive procedures, does not necessarily require a significant undertaking. A targeted approach with the guidance of experienced counsel can allow for an efficient and cost-effective audit. The return on investment will be significant when the inevitable PAGA action comes.
 
Employers can greatly reduce the impact PAGA actions have on their business by treating them as claims brought by the State’s law enforcement agencies, preparing for them in advance, proactively investigating and resolving allegations in PAGA Notice Letters, and litigating PAGA actions efficiently.