Employers Who Fail to Act on “PAGA” Notices Miss Significant Opportunity

Authored by Holden Law Group. Published in Sacramento Business Journal June 2012.

Business owners who receive a letter warning that an employee has asked the California Labor and Workforce Development Agency to investigate the company may be tempted to dismiss the notice as the handiwork of a disgruntled worker.

Bad idea. Such a letter usually is the first indication that an employer is about to be sued under an insidious statute entitled the California Labor Code Private Attorneys General Act of 2004.

As more and more employers are learning, this law allows current and former employees to file lawsuits to recover civil penalties that would. It is used for wage-and-hour and safety violations, and the lawsuits are filed on behalf of the named employee and other “aggrieved” current and former employees.

Although this sounds like a class-action lawsuit, it is something different. Called a “representative lawsuit,” it can be pursued without meeting all the requirements of class certification. That means it is easier for the employee’s attorney to pursue, but still has the consequences of aggregating multiple employees.

The concept behind the law is that the state’s labor agency does not have the resources to handle the penalty claims. The statute authorizes private attorneys to step into the state’s shoes to pursue those cases and entitles them to recover reasonable attorney’s fees if the employee prevails. One could certainly question whether the statute benefits the attorneys more than the employees — they get their fees and the employees recover only 25 percent of the penalties. The remaining 75 percent of penalties must be turned over to the Labor and Workforce Development Agency.

A Private Attorneys General Act claim requires the exhaustion of administrative remedies with the labor agency before the employee may file a civil lawsuit. The aggrieved employees must notify the agency and the employer in writing. That notice must include the specific labor code provisions that allegedly were violated and the facts and theories to support the accusation. This notice should be recognized as the employee’s first step before filing a lawsuit seeking civil penalties.

It is routine for the labor agency to issue a notice that it will not investigate the allegations. Once that happens, the employee is then free to sue under the private-attorneys law. A similar procedure is required for an employee claiming certain safety violations under Cal-OSHA’s regulations.

Employers should react quickly to a letter warning of a complaint to the labor agency. The employer is given the opportunity to “cure” any alleged violations and should take advantage of that “safe harbor” time to assess its wage-and-hour and safety policies, audit them to see if they are being followed, assess the potential defenses and violations that may exist and prepare a strategy for compliance and defense.

If the employer fully complies with the “cure” procedure described in the private-attorneys law, the employee is not permitted to file the lawsuit. That “cure” requires making the aggrieved employees “whole” and correcting any violations. The employer only has 33 days from the date of the postmark date of the notice to the labor agency to identify and cure the violations, so it is vital that the employer seek legal advice and embark on its analysis quickly and decisively.

The variety of claims that can be filed under the private-attorneys law is extensive. Included in that list is section 226.7, which provides for meal and rest period premiums. As California employers know, the explosion of meal and rest-period litigation has occupied the courts for years. While employers received some good news in April with the California Supreme Court’s decision in Brinker, the decision will not end meal and rest period litigation.

In fact, another April decision by the California Supreme Court has made it more likely that missed meal-and-rest-period lawsuits will be funneled through the private-attorneys system as a companion to class actions. In Kirby v. Immoos Fire Protection Inc., the Court ruled that attorneys who prevail on missed meal-and-rest-period claims under Labor Code section 226.7 are not entitled to recover their attorneys’ fees. If they recover a penalty under the private-attorneys law, however, they may recover fees.

There are practical and legal steps that an employer should take upon receipt of notice to the state labor agency. In addition to seeking legal advice, the proactive employer should keep in mind:

  • Recognize that the notice to the labor agency is not an idle “demand” and should not be ignored ordismissed out of hand. Attorneys who send these notices usually practice extensively in class action and other representative lawsuits.
  • Assess which current or former employees could be affected by the alleged violations. The notice to the state should state the name of the employee making the claim but need not name all “aggrieved” employees.
  • Conduct an internal wage-and-hour or safety audit on the alleged violations. Take into account not only the company’s policies but the company’s actual practices.
  • Expand your audit beyond the direct allegations in the state notice by acknowledging that this notice to the labor agency could be the tip of the iceberg with regard to other employment claims that may be made.
  • Move quickly, as the time frame is short for “curing” under the statute.
  • Take appropriate steps to ensure there is no retaliation against “aggrieved” current and former employees who are potentially impacted by the notice to the labor agency.
  • Implement necessary policy and practice changes to prevent future violations or appearance of violations.
  • Consider updating your arbitration agreement. Employers who use arbitration agreements should evaluate whether the language in their current arbitration agreements affords them the best chance of having the agreement enforced in a private-attorneys or class action lawsuit.