PAGA Action Fails and Walmart Prevails: the Ninth Circuit Reverses $102 Million Award and Holds Employee Must Suffer Injury to Pursue a PAGA Action

In Magadia v. Wal-mart Associates, Inc., et al., No. 19-16184, 2021 WL 2176584 (9th Cir. May 28, 2021), the Ninth Circuit Court of Appeal reversed the district court’s award of $102 million to an employee who sued the company alleging that he and other employees did not receive compliant wage statements or meal periods.  Unlike the district court, the Ninth Circuit found that the former employee who sued Walmart had suffered no meal period violations, and thus the employee had no standing to sue on behalf of others.  The Ninth Circuit also held that the district court incorrectly concluded Walmart’s wage statements did not comply with California law.

Plaintiff Roderick Magadia, a former employee of Walmart, filed his lawsuit as a class and representative action under California Labor Code’s Private Attorneys General Act (“PAGA”).  In a PAGA action, an employee sues on behalf of himself and other “aggrieved” employees, seeking recovery of civil penalties for violations of the Labor Code on behalf of the State and the other employees.  After a bench trial, the judge found in favor of Magadia and awarded $102 million.  Specifically, the district court held that Walmart violated both meal period requirements and wage statement requirements under California law.

California Labor Code requires employers to provide employees with a duty-free uninterrupted thirty minute meal period by the end of the fifth hour of work.  The district court found that although Magadia did not suffer any meal period violations, Magadia could nonetheless pursue PAGA civil penalties on behalf of aggrieved employees and the State of California based on violations incurred by other Walmart employees.  The district court ordered Walmart to pay $70,000 in PAGA penalties for the meal period claim. 

The district court also found that Walmart’s wage statements contained technical violations of California Labor Code section 226 and awarded Magadia $101.8 million. Magadia’s wage statement claim was premised on the theory that Walmart did not include the rate of pay or hours worked for adjusted overtime pay and that Walmart failed to list the pay period start and end dates in its final wage statements.

PAGA Claims Require That the Plaintiff Suffer an Injury

In an effort to justify the $70,000 PAGA award for meal period violations, Magadia alleged that although he did not suffer an injury-in-fact, he had standing to pursue a claim for meal period violations because PAGA is a qui tam statute.  Qui tam statutes permit private plaintiffs to sue in the government’s name for the violation of a public right.  The Ninth Circuit distinguished PAGA from a qui tam statute on two separate grounds.

First, PAGA explicitly involves the interests of nonparty aggrieved employees, whereas the underlying theory of qui tam is that the only real party in interest is the government.  Further, PAGA requires that a portion of the penalty goes to the employee bringing the suit and all employees affected by the Labor Code violation.  In addition, a judgment under PAGA binds California, the plaintiff, and the nonparty employees from seeking additional penalties under the statute.

Second, a traditional qui tam action acts only as “a partial assignment” of the government’s claim, wherein the government can intervene in a suit, can settle over the objections of the plaintiff, and must give its consent before a plaintiff can dismiss the case.  In contrast, PAGA acts as a “permanent, full assignment” of California’s interests to the aggrieved employee.  Indeed, PAGA gives California the right of first refusal such that if California issues a citation, employees are precluded from bringing a PAGA action for the same violation.  However, once California elects not to issue a citation, an aggrieved employee may bring a PAGA action and the State has no authority to intervene in such action. Thus, California is bound by whatever judgment results.

Ultimately, the Ninth Circuit found that the Plaintiff lacked Article III standing to bring a PAGA claim for meal break violations because he did not suffer an injury. 

Hyper Technical Wage Statement Claims May Not Pass Muster

Walmart provides quarterly bonuses to high-performing employees; and if an employee worked overtime during the quarter in which the employee received a bonus, the employee must receive adjusted overtime pay because of that bonus.  Using a formula that includes the number of hours the employee worked each pay period of the quarter and the employee’s overtime rate, Walmart’s wage statements provided the adjusted overtime pay as a lump sum with no corresponding hourly rate or hours worked.

In addition, pursuant to California law, Walmart issues a final paycheck at the time of an employee’s termination along with a statement of final pay.  While the statement of final pay does not include the pay period start and end dates, Walmart separately provides a final wage statement at the end of the semimonthly pay period that lists the required dates.

The employee argued Walmart’s wage statements did not comply with California law because they did not provide the hourly rate or hours worked for the adjusted overtime pay, and the statement of final pay did not include the pay period start and end dates.

Finding that Walmart complied with California’s wage statement laws, the Ninth Circuit held that since the bonus was a “non-discretionary, after-the-fact adjustment,” it was not an hourly rate “in effect during the pay period,” and Walmart was not required to provide an hourly rate or hours worked.  In addition, the court emphasized that California law requires employers to provide an accurate itemized wage statement “semimonthly or at the time of each payment of wages.” Since Walmart provides the required pay period dates semimonthly, Walmart complied with the law.

Takeaways for California Employers

While the Ninth Circuit’s decision is welcome relief for Walmart and other employers, it serves as a reminder that technical legal issues and disputes regarding wage and hour laws can lead both to big headaches and to large awards to the employees if violations are found. 

If you have questions about PAGA claims, meal period policies, overtime bonus issues and corresponding wage statement requirements, contact the authors or your usual trusted counsel at AALRR.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

© 2021 Atkinson, Andelson, Loya, Ruud & Romo

Categories: Litigation, PAGA

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