Posts belonging to Category Caselaw Developments

In September, the California Court of Appeal reversed a summary judgment ruling that applied the “knowing and intentional” standard of Labor Code section 226(e) to a Private Attorneys General Act (“PAGA”) claim for violation of section 226(a), the provision that requires employers to issue wage statements to employees containing certain information. The court held that PAGA claims based on wage statement violations are not subject to the statutory penalty requirements of section 226(e)(1). See Lopez v. Friant & Assocs., LLC, No. A148849, 15 Cal. App. 5th 773 (1st District Div. 1, Sept. 26, 2017) (slip op. available here). This is helpful clarification for employees seeking redress of wage statement violations through PAGA rather than through a private right of action.

The plaintiff in Lopez sought civil penalties on behalf of himself and other aggrieved employees through PAGA. PAGA affords private individuals, who allege violations of the Labor Code committed by an employer, to step into the shoes of California state labor enforcement agencies to collect civil penalties that otherwise could only be pursued by the state. As explained in Lopez, PAGA was designed to incentivize the enforcement of Labor Code provisions for which there was no private right of action, and to supplement the limited resources of state enforcement agencies. The plaintiff in Lopez’s PAGA claim was based on a violation of Labor Code section 226(a)(7), which requires the issuance of wage statements that include either the last four digits of the employee’s social security number, or some other employee identification number. The defendant moved for summary judgment against that predicate violation, arguing that the employer’s failure to include an identification number was not “knowing and intentional” as required for statutory damages or penalties under section 226(e)(1). The trial court granted summary judgment in favor of the defendant. The plaintiff appealed.

The plaintiff’s primary argument on appeal was that the “knowing and intentional” requirement under section 226(e) does not apply to a PAGA action based on a wage statement violation under section 226(a). The Court of Appeal began by examining the plain language of the relevant statutes, pointing to the “important distinction between the ‘civil penalties’ available under PAGA, and ‘statutory penalties’ recoverable by individual plaintiffs before PAGA was enacted.” Slip op. at 6. The penalties afforded by section 226(e) have always been available in private rights of action, and therefore constitute “statutory” penalties, whereas the penalties sought under PAGA for violations of section 226(a) are civil penalties, which are regulatory and not available to private plaintiffs outside of a PAGA suit, and thus are not bound by the same rules. Id. This interpretation was also supported by the relevant legislative history. Id. at 7-10. Lastly, the Court of Appeal noted that while section 226(a) is enumerated as one of the available predicate violations for a PAGA claim under section 2699.5, section 226(e) is not. Accordingly, the appellate court held: “Because section 226(e)(1) sets forth the elements of a private cause of action for damages and statutory penalties, its requirement that a plaintiff demonstrate “injury” resulting from a “knowing and intentional” violation of section 226(a) is not applicable to a PAGA claim for recovery of civil penalties.” Id. at 16.

In a footnote, the Court of Appeal also teased the issue of which civil penalty should apply to a PAGA claim predicated on a section 226(a) violation. Indeed, “various federal courts have taken different positions on this issue.” Slip op. at 11, n.6. PAGA ordinarily adopts whichever civil penalty is specifically defined by statute, and otherwise uses the default penalty amount under section 2699. And, while section 226.3 defines a civil penalty for wage statement violations, some courts have interpreted it as only providing the civil penalty for a failure to provide any wage statement at all—not one that was only missing some of the nine required elements. So does an incomplete wage statement fail to meet the definition of a “wage statement” provided? Should the section 226.3 civil penalty therefore apply? Or should the default penalty apply? Unfortunately, since that issue was neither directly raised nor sufficiently briefed, the Court of Appeal left the question unanswered.

Though many in the plaintiffs’ bar had already been operating under the interpretation that section 226(e) requirements do not apply to section 226(a) violations in the PAGA context, Lopez now makes this interpretation binding on all California trial courts. And, without the need to satisfy section 226(e), this makes wage statement claims much simpler to prosecute through PAGA than through a regular cause of action.

Authored by:
Jonathan Lee, Associate
CAPSTONE LAW APC

Complaining that California “leads the field” in circumventing United States Supreme Court’s pro-arbitration precedent Concepcion, Prudential Overall Supply petitioned for certiorari on August 15, 2017, seeking review of California’s Fourth Appellate District’s ruling that claims under California’s Private Attorneys General Act (“PAGA”) cannot be arbitrated. Betancourt v. Prudential Overall Supply, No. E064326 (4th District Div. 2, March 7, 2017) (slip op. available here) (petition for writ of certiorari available here). In April 2015, Betancourt filed a representative action suit solely based on PAGA against his employer, Prudential Overall Supply. Within the single PAGA claim, the plaintiff alleged violations of overtime and minimum wage law, meal and rest period requirements, timely pay and final pay requirements, and recordkeeping and wage statement requirements, among other claims. In a March 7, 2017 decision, the Court of Appeal affirmed the trial court’s denial of Prudential’s motion to compel arbitration of the plaintiff’s claim for penalties under PAGA. Slip op. at 2.

First, Prudential argued that Betancourt had already agreed to arbitrate the PAGA claim and that an arbitrator would decide the scope and application of the agreement. Id. at 10-11. Additionally, Prudential claimed since the “representative claims” portion of the agreement could be severed, Betancourt could be compelled to arbitrate his claims. Id. at 11. Prudential further asserted that if Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 5th 348 (2014), is interpreted as prohibiting arbitration of all PAGA claims, then the state law prohibiting arbitration is preempted by the Federal Arbitration Act (FAA). Id. at 12. Finally, Prudential, citing Sakkab v. Luxottica Retail North America, Inc. (2015 9th Cir.) 803 F.3d 425, contended that California law permits arbitration of PAGA claims. Id. at 12-13. Repeatedly citing Iskanian, the appellate court rejected each of these arguments, holding that Prudential could not “rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state . . .” because “[t]he state is not bound by Betancourt’s predispute agreement to arbitrate.” Id. at 8; see also id. at 9-13 (applying Iskanian in greater detail) (internal citations omitted). Further, the Court of Appeal noted that a state rule prohibiting arbitration of PAGA claims is not preempted by the FAA because it falls outside of the scope of the FAA, as PAGA “is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state . . . .” Slip op. at 10 (citing Iskanian, at 386-87, emphasis in original).

The Court of Appeal also rejected the defendant’s other argument, which was based on an alleged defect in the pleadings. The defendant argued that because Betancourt had sought non-PAGA remedies in the prayer for relief, e.g., for unpaid wages, business expenses, interest, and attorney’s fees, in addition to civil penalties, the action was not actually a PAGA action and that the plaintiff was trying to disguise a standard wage-and-hour action in order to evade arbitration. Slip op. at 4, 8-9. Yet, the trial court had found and the appellate court agreed, such a challenge is a challenge against the pleadings, and should have been brought as a motion to strike—not as a motion to compel arbitration. Id. at 9. As the Court of Appeal aptly noted, “Prudential accuses Betancourt of attempting to make an ‘end run around arbitration’ by incorrectly labeling his claims as a PAGA matter. It appears to this court that Prudential may be attempting to make an ‘end run” around a demurrer or motion to strike . . . .” Id. at 9.

Overall, the Court of Appeal’s Betancourt opinion makes a strong case for PAGA claims being inarbitrable, based on the fact that the state—the real party in interest in every PAGA action—is not a party to an employee’s bilateral agreement to arbitrate his or her employment claims, and thus cannot be bound by that agreement. Whether the United States Supreme Court will break its streak of rejecting cert petitions based on PAGA issues in Betancourt remains to be seen.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

Last month, the Ninth Circuit Court of Appeals issued its definitive ruling in Robins v. Spokeo, Inc., the closely-watched saga of what constitutes “concrete injury” in the world of consumer privacy actions. No. 11-56843 (9th Cir. Aug. 15, 2017) (slip op. available here). While businesses were hopeful that the conservative-leaning U.S. Supreme Court would effectively gut consumer class actions when the case was heard earlier this year, instead, the Court punted on the key issue of whether a plaintiff can suffer concrete and particularized harm without any clear monetary damages, holding that Article III standing is not conferred upon a plaintiff simply by “alleging a bare procedural violation,” yet acknowledging that the required injury may be intangible.

In Robins’ case, personal data aggregator Spokeo posted false information about him online, concerning his marital status, employment status, and annual salary. The plaintiff sued Spokeo under the FCRA (Fair Credit Reporting Act), alleging the company willfully violated certain procedural requirements of the FCRA, resulting in an erroneous report that harmed his job prospects at a time when he was unemployed and, as a result, he suffered emotional distress. While the district court found that Spokeo likely committed a statutory violation of the FCRA, it dismissed the case, finding that the alleged harm to Robins (diminishing employment prospects, stress, and anxiety) was too attenuated to confer standing. On appeal, the Ninth Circuit reversed and remanded the case, only to be reversed on a narrow issue by the Supreme Court. While the Supreme Court found that the Ninth Circuit’s analysis addressed whether the injury alleged by the plaintiff was particularized as to him, the Court also noted that the panel had not devoted enough attention to whether the alleged injury was sufficiently concrete, and ordered the Ninth Circuit to reevaluate whether Robins’ harm met the “concreteness” standard laid out by the Court.

Luckily for consumer plaintiffs, the Ninth Circuit reinforced its earlier findings and determined that harm of the kind suffered by Robins is indeed concrete enough to confer Article III standing. First, it held that while a mere statutory violation is not sufficient for a plaintiff to show injury-in-fact, some statutory violations, alone, are enough to show concrete harm. Slip op. at 8-10. Second, the court found that the statutory provisions at issue were established to protect Robins’ and other consumers’ concrete interests (as opposed to only procedural rights) and that these violations of the FCRA actually harm or present a material risk of harm to those interests. Id. at 15-19. Although the court acknowledged that not every inaccuracy in a credit report, such as an incorrect zip code, would rise to the level of “real harm,” here, Robins had made specific allegations that his marital status, age, education/degrees, and wealth level were incorrectly reported, and that these inaccuracies caused actual harm to his employment prospects as he was unemployed at the time, as well as causing him anxiety and worry. Id. at 17-18. Finally, the court rejected Spokeo’s argument that the plaintiff’s alleged harm was too speculative to amount to a concrete injury. Id. at 19-20.

This ruling should be the last word in a case that has been court-hopping since 2010, and is expected to have wide-ranging impact on various types of statutory privacy litigation.

Authored by:
Robin Hall, Associate
CAPSTONE LAW APC

In a decision likely to spur defendants to make immediate motions to compel arbitration in class actions, the California Court of Appeal, Second District, found that a defendant who chose to wait for class certification before seeking arbitration had waived the right to arbitrate. Sprunk v. Prisma LLC, No. B268755 (2nd Dist. Div. 1 Aug. 23, 2017) (slip op. available here). In Sprunk, the plaintiff filed a wage-and-hour class action in October 2011, alleging she and a class of exotic dancers had been misclassified as independent contractors and had consequently been denied wages, meal periods, and reimbursement of business expenses. The plaintiff and all putative class members had signed arbitration agreements.

Sprunk moved for class certification in September 2014. In opposing the motion, Prisma argued that a class action was not superior to other forms of litigation because the class members had signed arbitration agreements. The trial court granted class certification in April 2015, rejecting Prisma’s “superiority” argument. In August of 2015, Prisma filed two motions to compel arbitration, seeking to enforce two different arbitration clauses. By that time, Sprunk and Prisma had litigated for four years, during which time discovery was conducted, depositions were taken, and defendant moved for arbitration, then withdrew the motion, and ultimately renewed its motion to compel arbitration. In October of 2015, the trial court denied the motions. Prisma appealed.

On appeal, Prisma relied upon Sky Sports, Inc. v. Superior Court, 201 Cal.App.4th 1363 (2011), for the proposition that it would have been premature to have filed its motion to compel arbitration prior to class certification. However, the Court of Appeal cited a critical distinction: in Sky Sports, the plaintiff had not signed an arbitration agreement although other members of the class had. In Prisma, the class representative (Sprunk) and all putative class members had signed arbitration agreements, giving Prisma the right to have sought to compel arbitration at the outset of litigation.

Noting that the trial court found Prisma had engaged in a strategic delay to give itself an opportunity to defeat the class, the Court of Appeal warned, “[a]n attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration is a paradigm of conduct that is inconsistent with the right to arbitrate” and supports a finding of waiver. Slip op. at 18. The court also found Sprunk was prejudiced by the delay—had Prisma timely moved to compel arbitration, it could, “as a practical matter[,] have resolved the judicial proceedings with respect to the class” and could have “settled the question of whether the claims . . . should be adjudicated in a court or through arbitration.” Id. at 16-17.

This class action involving exotic dancers has clarified that a defendant wishing to compel arbitration must do so before the parties have invested time and energy in litigation, or risk waiver. Going forward, defendants must therefore dance quickly, or get off the table.

Authored by:
Arlene Turinchak, Senior Counsel
CAPSTONE LAW APC