A federal appeals court ruling will substantially cut the amount awarded in PAGA (Private Attorneys General Act) lawsuits, as the court found that only the first violation qualifies unless the employer has been duly notified of the alleged violations.
In Bernstein vs. Virgin America, Inc., the trial court’s multimillion-dollar finding for the plaintiffs was reversed in part by the Ninth Circuit U.S. Court of Appeals, with the panel noting in its Feb. 23 decision that the defendants were not liable for heightened penalties for subsequent violations under PAGA.
“Virgin was not notified by the Labor Commissioner or any court that it was subject to the California Labor Code until the district court partially granted Plaintiffs’ motion for summary judgment,” Judge Milan D. Smith, Jr., wrote in the court opinion. “On this basis, we reverse the district court’s holding that Virgin is subject to heightened penalties for any labor code violation that occurred prior to that point.”
In any instance where fines are reduced, it may serve as some relief to employers, however, the entire PAGA system needs major reform, Maryann Marino, Southern California regional director of California Citizens Against Lawsuit Abuse (CALA), told the Northern California Record by email.
“Many PAGA lawsuits are based on technical violations, for example, a paycheck stub doesn’t have a beginning date and ending date, vacation hours listed or sick time,” Marino said. “These violations do not cause a direct loss of income. Yet because of stacking, these technical violations can add up to hundreds of thousands of dollars and hardly warrant such an exorbitant penalty either at the lower rate or higher rate. The entire PAGA system is built on the concept of adding up all these technical errors forcing an employer into a settlement.”
Marino said the courts are now looking more closely at the fines imposed on employers for PAGA claims. “This would suggest that they believe the regulation should have a thorough review to ensure accuracy and appropriateness,” Marino said. “This will help to keep businesses open and employees employed. Once a business is hit with a huge settlement, they have to look at ways to make cuts to fund their liability.”
The appeals court also vacated the plaintiff claims for attorneys’ fees, among the many controversial aspects of the PAGA law.
“The court’s action is one step, but a fairer system would properly compensate the employee and lessen the extreme financial burden on employers,” Marino said. “Businesses should watch this evolving landscape of PAGA fines, but they must still do all they can to be sure they are in compliance. As always, make sure your employees take their proper meal and rest breaks to the full amount of time. Make sure that the ten items that must be listed on a check stub are listed to be in compliance.”