Welcome to my latest Monday Morning Briefing, which I will tell you right now, I am writing on Sunday so that I make sure to get this one out to you bright and early Monday morning. I have a confession – I avoided sending out my Briefing last week. I knew I was going to be writing about this pair of appellate court decisions I am discussing today. But it is not a happy conversation, and I didn’t want to present it to you until I had worked up a productive response.
I am going to break this down and make it really crystal clear for you all. I’m going to give you the cold, hard facts about where we stand with this law called PAGA, just in case there were any doubts. I think a lot of my clients are in complete denial about PAGA until they are hit with their first lawsuit, and I really do not want you to be. You should quite honestly live in fear of the PAGA lawsuit and do everything to avoid it First, PAGA is a brutal statute, and I am not going to sugar coat this for you. Far too many of my clients are shocked when they get their first PAGA lawsuit, even though I have been writing and speaking about the dangers of this law since its passage back in 2004. People seem to skim over the details of articles such as this until they get that lawsuit. I urge you, please do not.
Second, if you are inclined to skip or skim this Briefing because you think you are (a) too small and not a target for PAGA, or (b) in the wrong industry (I’m not one of Beth’s restaurant clients), think again. First, I have actually seen PAGA suits filed in very small companies – the smallest was a Papa John’s Pizza franchise that had five employees. I know, it made little sense. We’ve also seen one for a residential care employer of 12 employees. There is no minimal number, like class actions. Next, these can be in any industry, finance, manufacturing, landscape, tech. And even if you do not get a PAGA suit, one of the most popular lawsuits we are getting these days is the individual or multiple plaintiff lawsuit for wage and hour claims. Just a single or two or three person lawsuit, either claiming misclassification or other Labor Code violations. And some of my clients are getting several of these in a row, from the same attorney, and they can range from $40,000 to mid-six figures EACH. Most of these kinds of claims can be prevented by the most basic of compliance reviews, which I talk about below.
This is going to be a longer than usual Briefing, I realize. But I encourage you to keep reading. Take a break if necessary; I’m taking a few, I promise. Because after the ugly details, we are going to talk about what you and your business can and should be doing to protect yourself. Immediately.
TWO CALIFORNIA APPELLATE DECISIONS FORESHADOW PENDING STATE SUPREME COURT OUTCOME REGARDING PAGA
Let’s start with a brief primer on the Private Attorneys General Act, found at Labor Code Sec 2698, et seq, better known as PAGA. It was passed by then Governor Davis as he was being thrown out of office by the California electorate, and after he had added a record amount of employee friendly legislation to the California Labor Code. This last piece went largely unnoticed at the time.
What PAGA does is allow a private attorney to bring a lawsuit against an employer in California on behalf of all “aggrieved employees” and on behalf of the State of California, through and by one employee who acts as a representative. The other employees do not have to join, approve or even know about the lawsuit, let alone be “similarly situated, “ as in a class action. The rep employee may have only worked at the employer a few days or weeks, and only suffered one violation, and yet still sue for dozens of others. And the money recovered is not “damages,” rather, it comprises the penalties that previously only the Labor Commissioner could have recovered if the employer was determined to have willfully violated certain Labor Code statutes. But now, these attorneys can seek them all – all the maximum penalties, per employee, per payroll period, for every violation of every Labor Code Section. And for companies who have a hundred employees or more, for example, this often adds up to many millions of dollars. Even for smaller employers, the sums of money sought can easily be in the six figures. Of the money recovered, 75% goes to the State, 25% goes to the employees to be split, and the attorneys recover their reasonable fees. How often are the maximum numbers awarded by the court? Who knows? These cases are almost never, and I mean NEVER, tried. The reality is, because the maximum possibility of liability is SO high, and the cost to take these cases all the way to trial is also so high, early settlement is highly encouraged, at a fraction of the maximum. The looming numbers are just too large, and the chances of losing on at least one of these claims too great. So everyone settles, usually before there is even a deposition taken or formal written discovery served, and the great game continues.
Why not just walk away from these corporate employers, one client recently asked. I can just fold it down and start a new one, he said. One more wrinkle just for fun – a few years after the law passed, they added in a section so that personal liability attaches in these claims. Oh, snap! Yeah, California thinks of everything.
When these cases were first brought, they were added on as the cherry on top of a class action, because who wanted most of the money to go to the State? Also the statute of limitations for PAGA cases were much shorter than class actions, and the initial PAGA letter had to be brought within a year of the employee’s termination, which often got missed. So PAGA claims were not the big hairy monster that class action lawsuits were, with their four year reach.
However, more and more employers began to implement a little weapon known as the class action waiver, buried within the arbitration agreement. You all should know this, because our firm has been encouraging this tool for many years. It took the courts a while to finally confirm that its use was lawful, and even then, arbitration has remained under attack up through this year. But the more that class action waivers gained favor by employers, we started to see the Plaintiff’s bar filing stand alone PAGA suits. Finally, in 2014, the California Supreme Court issued a ruling in the decision of CLS v Iskanian which confirmed that while class action waivers were valid in California, they were not valid against PAGA suits, since California was a party to PAGA actions. Ever since then, we have seen a growing number of stand-alone PAGA suits, and they are the train we cannot seem to stop. In March of 2020, just as the pandemic was hitting, the California Supreme Court also issued a very painful ruling in Kim v Reins International. Previously, defense attorneys like us had been able to use individual settlement agreements as a weapon to try to settle out all or parts of a class action or PAGA case, even after the filing of that lawsuit. The Kim case held that individual settlement agreements (sometimes known as Pick-Up Sticks agreements after a case involving that restaurant) were not valid in PAGA cases because, again, the State is a party to those lawsuits. So we were stuck with these PAGA cases, with no way to stop them, and no way to try to gut them once they were filed. We had to settle them for huge dollars at mediation, or try them.
That was the state of law in California until last year, when SCOTUS gave us the lovely but short lived victory in Moriana v Viking River Cruises. The majority opinion disagreed with Iskanian, and held that it would allow an individual to continue with their own PAGA claims in arbitration. However, Justice Sotomayor, while voting with the majority, offered a concurring yet impactful decision. The majority opined that the claims of the rest of aggrieved employees should be dismissed, for lack of standing. Justice Sotomayor suggested that what happened to the remaining claims of the other employees should be an issue that California courts or legislature should decide.
Well, it didn’t take long for California to seize upon that opening. Within only a few months, the California Supreme Court agreed to hear the case of Adolph v Uber to decide the key issue of what happens in a PAGA case when the lead Plaintiff is sent off to arbitrate their claims. Is the rest of the case (a) dismissed, or (b) stayed pending outcome of the individual Plaintiff (and potentially dismissed if the Plaintiff loses), or (c) unaffected, and goes right on without the lead Plaintiff, who has their own case?
Well, we have all been waiting for the Adolph case to be decided, and oral argument has not even been scheduled. Our own firm has dozens of cases on hold awaiting this outcome, stayed by the trial court, as do firms all over the state. But last week, we had a hiccup – because two appellate cases came down before the State Supremes have gotten a chance to weigh in. In a published opinion, Sherrod v In-in-Out Burgers held that a worker’s individual PAGA claims could go to arbitration, and the remaining aggrieved employees’ PAGA claims could proceed in court. The ruling came after a similar ruling in Galarsa v Dolgen California LLC, which was originally unpublished, but the court there changed its mind upon request and has since certified its ruling for publication. Of course, that is the worst of the three outcomes for us.
It’s very possible that these two cases will be taken up on appeal by the Adolph court, who no doubt will want to be the last word on this issue. In the meantime, these two published cases will be precedent in California. Many pundits see these cases as portending the outcome of the law of the California, whose jurists have been vocal about the folks in DC throwing shade on their laws. Assuming that this, in fact, is where we will ultimately be with the state of PAGA when all the dust settles, the Viking River Cruises case will have been absolutely no help to us at all in deterring PAGA cases. Indeed, the number of PAGA filings seems to be at an all time high state wide.
Hence you see the depressing part of this Briefing that I was dreading writing.
TOP TEN TIPS TO FIGHT PAGA/OTHER WAGE AND HOUR SUITS NOW – DON’T BE A TARGET!
I actually came up with this title when a frustrated client came to me after a fourth former employee joined a lawsuit for meal and rest breaks. He asked me how he could stop this from happening. I told him plain and simple, he needed to clean up the way they operated – he was making himself an easy target! I had another new client tell me recently that they don’t do “that break thing.”
NONE of you are too small, or in the wrong industry, not to do “that break thing .” I don’t even know what that means. AB 60, the law that reinstated daily overtime and gave us the one hour premium pay for meal and rest breaks, became law in 2000! It’s been 23 years. There is just no excuse for not knowing this law now.
I am not going to spend time here going over what the law requires. I have many past articles doing that, and the rules are in your handbooks. I am going to do two things here. First, I am going to give you tips to make it as unlikely as possible that you ever get sued. However, I am going to tell you that even if you do everything right, everything – you can still get sued. It will be a WHOLE lot less likely, but possible.
However, if you follow the first steps, and you truly believe that you have done everything right and you have been sued anyway, the choices you have in litigation and how you approach it are vastly different than if you have substantial exposure. Unfortunately, in 99% of the cases, it usually turns out there IS some exposure. So let us turn to the first steps.
- Make Sure Your Employee Handbooks Are Compliant and Updated
We still encourage that the handbook include an arbitration provision with a class action waiver, because it will preclude a class action lawsuit, even if it does not ultimately ban a PAGA suit. However, remember to have at least the arbitration agreement translated in Spanish if the employee speaks Spanish, and given to the employee. I have discovered recently that several of our clients simply post the handbook and do not print it out the arbitration agreement for employees who do not have access to email. Do not cheap out here. You want that arbitration agreement binding. And I still prefer a wet signature over a digital one. If it’s digital, you’re going to have to be able to verify that e-signature, which can be tricky. You can always scan the wet signature. But make sure to follow up with getting these signed, every year if you distribute annually.
An updated handbook also ensures that your meal and rest break, overtime, vacation pay and ROUNDING policies (which should be deleted) are current. As most of you know, we do this ANNUALLY.
- Review and Update All Your Onboarding and other Forms
I can’t tell you how often we are in the middle of lawsuits, only to find out that our clients are using strange forms we have never seen, and often forms that contradict the policies we have written in the handbook. Turns out, someone has pulled something off the internet and is using a form from an old employer from 20 years ago. Send us your hiring packets and any other forms you are using, to make sure they are compliant. Most often, you do not need very many forms in addition to the handbook, just the state and federally required ones and maybe the six hour meal break form. If we have not created it or passed on it in the last few years, we should be looking at it.
- Make Sure Your Practices, Including Meal AND Rest Breaks, Are REALLY Compliant – What Are We REALLY Doing?
The best way to make sure that you have properly classified employees as exempt, or you are paying all proper expenses, is for us to make time to sit down and do a proper audit. Most likely, it will only take an hour or two over the phone.
But then, you also have to take time to sniff out your own company practices to see what your own people are doing. Almost all of my clients tell me that they are “good” when it comes to meal breaks. Almost none of them are. Unless you have a system in place that automatically pays a premium when someone misses a meal break, you are not “good.” And even then, those systems can fail. Are you auditing that system to make sure it’s paying? And how is that premium reflected on the pay stub? Are you calculating regular rate correctly? When is the last time you have looked at your pay stubs?
What are you doing for rest break compliance? Don’t take anyone’s word that it’s being done. See for yourself. Assume you are in the middle of a lawsuit and you have to prove to me that you are compliant. Because that day may well come.
Are you paying for cell phone usage? Wi-fi for employees at home? Mileage for employee travel? We will uncover every single issue. Are you listing sick pay on your pay stubs, and are your meal breaks incorporating regular rate correctly?
If you’re not losing sleep about all these issues, something is wrong. You should be.
- Regularly Audit Your Own Compliance Methods
Once you have established what you believe are your fool-proof compliance methods of ensuring employees get breaks, break pay, overtime, etc. – assume those methods may fail, and audit them. Audit your payroll companies and other outside vendors. Systems fail. Vendors fail. Glitches in technology happen. You are responsible for all of it. California assumes you are responsible. And by the way, there is no offloading this onto “staffing” companies or leasing companies or any other employer. It’s ALL you. If you have a contract saying someone else is responsible, the best you get to do is sue them later and hope they contribute. You are still stuck on the lawsuit with the employee.
Audit, audit and audit. Do not assume all is good and wait for the lawsuit to have to prove it.
- Make Sure All Your Managers Are Using Only Company Approved Forms
Again, don’t wait for the lawsuit asking them to turn over those forms. Go now, and ask them that question. You don’t want to be surprised later. And then implement a rule that they can only use what you approve.
- Remember That You Are Only As Strong As Your Weakest Manager – Train Them!
Always remember that most of our managers come up through the system because they were good at whatever you hired them to do originally. But unless you are a company like McDonald’s that has Hamburger U, most companies promote without much if any training. So why are we surprised when they don’t know how to manage. Or trip over California law (which confuses many judges). Or take the path of least resistance and have employees work off the clock and shave time to meet a budget. They aren’t doing it to be bad – they often don’t know better. But their mistakes can lead to a six or seven figure lawsuit – more for a larger employer. So spend the fraction of this cost and educate them. And they will give that back to you many times over in productivity.
By the way, we can help you come up with a manager training program. Contact us if you are interested.
- And To That End, Pay Your Managers More
It just tracks, as the kids say. When you pay more, you attract higher quality employees who will retain that training I reference above. You reward hard work and loyalty, you get better employee retention. If the higher compensation reduces turnover, it probably evens out.
I will just say that while it is not a formal study, the clients I have who pay their managers on the higher side of the industry are also getting sued a lot less than average for the industry. I do think it’s a factor.
- Your Employees Are Your Assets – Treat Them As Such
I really should have started out the list with this one. Whenever I am speaking on a panel and I am asked to name the number one way to defeat employee related lawsuits, I always say “treat your employees well.” In the end, that’s really what it’s all about. Happy employees tend not to sue their employers.
That means, managers don’t scream and yell. Expectations are communicated and when they are not met, there is appropriate counseling and termination, which is well documented. Transparency and respect should be key values in the workplace, at all levels of employment. Employees are fairly compensated. None of this is required by law, of course. Just humanity.
- Make Better Hiring Decisions
It’s the age old story, “our employees are generally great, but we sort of knew this one was off from day one.” So why did you make this hire? Well, we were SO short staffed, and our managers were just pressing us to hire someone . . .
The “warm body” syndrome. I cannot tell you how often it is responsible for so many mishaps in the workplace. In its least form, it’s just extra drama. In its worst form, this person turns out to be your next PAGA rep, or maybe avoided signing the handbook, and now you have a class action.
Don’t. Go. There. It’s always worth taking your time and looking for the better hire. Be down a person or two, give your good employees a little extra overtime if needed. It is definitely worth being short workers rather than having a toxic employee who is not the right fit, or worse, a former employee who is haunting your business with an expensive lawsuit for years.
- Communicate Better During Employment, Up to Termination
In general, when employees know where they stand, and understand the system, it helps reduce anger. And reducing anger and frustration goes a long way to reducing an employee’s feeling like they need to go to an attorney. Employers always feel like the reason employees go to a lawyer is to make money. But that’s not usually the first reason. They go because they believe they have been treated unfairly, and often, a lack of communication is a big part of this.
Training managers to do a better job of communicating where employees stand with respect to job performance is part of it, but it’s also about communicating changing systems, or explaining why key processes are changing in the workplace. If you are rolling out key changes in forms, programs, even handbooks, sometimes it is nice to roll out the changes first to managers, let the managers buy into the changes, and then allow the managers to be a part of the roll out to the employees. Thinking about how changes are introduced or communicated is one way of respecting your workforce.
Having town halls, or online forums, being out in person and present and accessible to your staff, or other means of encouraging communication within the workplace can also be important. As many of you know, I am the co-founder of an anonymous reporting app called kendr for this very reason, to encourage open dialogue between employees and upper management. I know I’ve included information on this before, but just in case: www.kendr.com.
But once again, we see that higher employee satisfaction levels are shown where employees say they feel included in employment decisions, where they feel a part of the team, where they feel they are treated fairly and with respect, and of course, fairly compensated. And when all of that is present, there is less turnover, and the likelihood of lawsuits is much lower. And then, if employees DO feel something is wrong, they will feel comfortable coming forward to management, rather than just running out to the nearest lawyer. And that, too, is key.
And even communicating the reason for the termination can help deter a lawsuit. When an employee is confused about the reason, they often seek a lawyer to determine what that reason is. Yes, it’s an at-will state. But a confused employee is an angry employee, and more often, they will wander into the office of a lawyer who will tell them they have no wrongful termination case, but guess what they do have . . .PAGA! Don’t give them a reason to wander anywhere. Treat your terminated employees with the same respect you would want to be treated. It’s hard to lose a job. Let them down gently.
So if you do all these things, I cannot promise that you still will not get sued. That is the thing. Until and unless this law goes away, you might still get sued. As one of my clients said, “what is to stop any of our employees from bringing one of these lawsuits?” There is nothing. I’m sorry, but there really is nothing. And unfortunately, most often, you will not have been perfect over the last few years, so there might be exposure for you.
BUT, (and this is a big “but”), if you do all the above things, especially the top ones, it is possible that there is not real exposure for you. And if that is the case, you have choices how to handle this lawsuit if it is filed. You can dig in at mediation. You do not have to look at settling for a lot of money. If individual suits are filed, you can make them go away for little or no money. And the likelihood of them being brought at all, is MUCH, much less. You have made that target much smaller, if not invisible.
It is not too late to clean things up if your compliance has not been good – you must start immediately. And if you think it has been good, AUDIT those compliances methods. Now. Often. Double and triple check. Clean up what hasn’t been perfect. Time passes quickly, soon a year passes, and another. That statute of limitations is always running.
My team and I are here to help all of you with whatever compliance we can. And we can recommend a lot of resources – POS systems and other systems for auto-pay of premiums, HRIS systems, other compliance techniques, experts to help conduct data and pay and system audits, etc. And we are here to do much of the work as well. We are here to help.
And here is the last thing, which I am not even going to put on the list. There is a ballot initiative that will be coming up the end of next year that would essentially repeal PAGA. It is being sponsored by the California Chamber of Commerce, the California Restaurant Association, and I think originally by the California New Car Dealers Association. It would replace PAGA with a new law, and if you want more information click here.
We will need a lot of help to get this through next year. We will need all your voices.
Well, thank you for hanging through to the end. I know you are all appreciative of these Briefings, and maybe you are not so grateful when I send ones out like this. I know this means work for all of you. Trust me, it was work to write this on a Sunday (it took my whole Sunday and time to proof today). But this is important. I know you know how important it is. I can’t stop these lawsuits. And I see the pain that you all go through when you get hit with them. I wish I could take that away.
This is the best I can do. Please, please take my warnings seriously. Take these laws seriously.
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