California Court of Appeal Issues Potentially Far Reaching Decision Regarding California’s “Bounty Hunter” Labor Code Private Attorneys General Statute
Seventeen years ago, in 2004, the California Legislature enacted the Labor Code Private Attorneys General Act of 2004 (“PAGA”). Appropriately dubbed a “bounty hunter” law, PAGA authorizes any current or former “aggrieved” employee of a California employer to file suit to seek statutory penalties for essentially any violation of the California Labor Code together with attorney’s fees, hence the incentive for plaintiff attorneys to bring such cases. Specifically, under PAGA a current or former employee who is “aggrieved” by a violation of the California Labor Code can seek in addition to damages and liquidated damages, civil penalties on the employee’s behalf and on behalf of all other similarly “aggrieved” (i.e., affected) current and former employees. The recoverable civil penalties are up to $100 per employee per pay period for an initial violation and $200 per employee per pay period for each subsequent violation, plus attorney’s fees and litigation costs. When such penalties are awarded, the plaintiff current or former employee along with all other similar “aggrieved” employee will receive 25% of the penalties together with their attorney’s fees as a “bounty,” with the balance of the penalties payable to a State agency known as the California Labor and Workforce Development Agency.
In our experience, nearly every class action lawsuit for alleged wage and hour violations includes a cause of action seeking PAGA penalties and attorney’s fees. Causes of action for PAGA penalties are derivative of the underlying claims for alleged wage and hour violations. This means if the plaintiff current or former “aggrieved” employee can prove up any violation of the Labor Code, the penalties and attorney’s fees available under PAGA are awardable by the court in addition to whatever other remedies are available to the plaintiff individually or on a class basis.
However, claims for PAGA penalties are not confined to claims for such penalties premised on underlying alleged wage and hour violations. Most recently, on July 21, 2021, the California Court of Appeal issued its decision in Johnson v. Maxim Healthcare Services, Inc. In that case, the court held that an employee of Maxim Healthcare Services could maintain her lawsuit against Maxim seeking PAGA penalties on account of her having signed an allegedly illegal “Non-Solicitation, Non-disclosure and Non-Competition Agreement” despite her employer’s defense that her individual claims for alleged violations of California Labor Code section 432.5 were time-barred by a three-year statute of limitation on the ground the employee signed the subject agreement more than three years before filing suit. Labor Code section 432.5 states as follows:
No employer, or agent, manager, superintendent, or officer thereof, shall require any employee or applicant for employment to agree, in writing, to any term or condition which is known by such employer, or agent, manager, superintendent, or officer thereof to be prohibited by law.
When it rejected the employer’s statute of limitations defense, the Court of Appeal explained its reasoning as follows:
A PAGA claim is legally and conceptually different from an employee’s own suit for damages and statutory penalties. An employee suing under PAGA “does so as the proxy or agent of the state’s labor law enforcement agencies.” [Citation] Every PAGA claim is “a dispute between the employer and the state. . . . Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action.
The court went on to explain, “[e]mployees who were subject to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation.” The court further stated, “[t]he fact that Johnson’s individual claims may be time-barred does not nullify the alleged Labor Code violations nor strip Johnson of her standing to pursue PAGA remedies.” Thus, under the court’s reasoning an allegedly “aggrieved” current or former employee is not required to show that he or she has a viable individual claim in order to seek PAGA penalties on behalf of other alleged current for former allegedly “aggrieved” employees. This decision is contrary to the Ninth Circuit’s recent ruling in Magadia v. Wal-mart Associates, Inc., et al., No. 19-16184, 2021 WL 2176584 (9th Cir. May 28, 2021) which we reported on here. The divide between State and federal courts when it comes to PAGA is nothing new and the question remains whether the United States Supreme Court will step in at some point to address these issues.
Non-competition agreements between an employee and an employer are not prohibited by the California Labor Code, but they are generally prohibited by California Business and Professions Code section 16600 stating as follows, subject to certain exceptions related to the sale of businesses and the sale of business good will:
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
See, also, Edwards v. Arthur Andersen, LLP. (2008) 44 Cal. 4th 937, 955.
Thus, under the court’s holding in Johnson v. Maxim, California Labor Code section 432.5 functions as a “catch-all” provision that makes virtually any agreement between an employee and an employer a court finds unlawful also a violation of the California Labor Code and therefore subject to claims for PAGA penalties.
California employers should consult with competent California employment law counsel regarding the lawfulness of whatever employee-employer agreements might be in place.
- For example, properly drawn employer-employee confidentiality and non-disclosure agreements are lawful, are enforceable, and can help protect an employer’s trade secrets and other proprietary information.
- Similarly, properly drawn arbitration agreements are lawful, are enforceable, and can require a current or former employee to submit the employee’s employment related claims to binding arbitration on an individual, non-class basis, but such agreements must be properly drawn in conformity with prevailing California law. However, under current California law, a current or former employee cannot be required to submit claims for PAGA penalties to arbitration.
- Likewise, other employer-employee agreements, such as on-duty meal period agreements and second meal period waivers, should be reviewed for compliance with California law.
- California employers should also take steps to ensure their compliance with California’s numerous strict wage and hour laws governing the wages, hours, and working conditions of non-exempt employees. The most frequently filed class action lawsuits in California continue to be lawsuits for alleged wage and hour violations.