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Arias v. Superior Court - Class Action Requirements Clarified By California Supreme Court

In almost every employment law class action filed, the plaintiff alleges a cause of action under California's unfair competition law, found in California's Business & Professions Code section 17200. Likewise, plaintiffs' routinely allege causes of action under California Labor Code Private Attorneys General Act of 2004, found in Labor Code section 2698. These claims can be filed by one plaintiff as a 'representative action' in which the individual plaintiff is seeking remedies on behalf of all other employees.

The issue decided by the California Supreme Court in Arias v. Superior Court was whether the plaintiff bringing a "representative action" must have the class certified as a class action when pursing a unfair competition claim and a Private Attorneys General Act claim. The Supreme Court held that a plaintiff must have the class certified as a class action when pursuing a Business & Professions Code section 17200 claim, but the plaintiff does not have to certify a class action to maintain a 'representative action' under the Private Attorneys General Act.

The Court explained, '[a] party seeking certification of a class action bears the burden of establishing that there is an ascertainable class and a well-defined community of interest among the class members.' If a class is certified by a trial court, then everyone who fits the class definition receives notice that they are automatically in the class (unless they affirmatively opt out), and are bound by the ultimate outcome of the case.

Claims Under The Unfair Competition Law Must Be Certified As a Class Action

The Supreme Court explained that the unfair competition law prohibits 'any unlawful, unfair or fraudulent business act or practice . . . .' Furthermore, in 2004, California voters passed Proposition 64 that amended Business & Professions Code section 17200 to only allow a plaintiff to bring a representative action under if he or she 'suffer injury in fact and has lost money or property as a result of such unfair competition' and that the action must comply with California Code of Civil Procedure section 382, which (generally) allows for class actions under California law. The Supreme Court explained the intent of the voters in passing Proposition 64:

A thorough review of the Voter Information Guide prepared by the Secretary of State for the November 2, 2004, election at which the voters enacted Proposition 64 leaves no doubt that, as discussed below, one purpose of Proposition 64 was to impose class action requirements on private plaintiffs' representative actions brought under the Unfair Competition Law.

Therefore, the Court held that claims brought under Section 17200 must be certified as a class action.

Claims Under The Private Attorneys General Act of 2004 Do Not Need To Be Certified As A Class Action

The Private Attorneys General Act (sometimes referred to as the bounty hunter law) was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws. As the Court noted in its opinion, at the time the legislation passed, the state's labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California's workforce. Therefore, the Act allows aggrieved employees to act like a private attorney general in collecting civil penalties for Labor Code violations. The employee must give 75% of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations.

Employees seeking recovery under the Private Attorneys General Act must comply with requirements that place the Labor and Workforce Development Agency and the employer on notice that the employee will be seeking remedies under the Act and give the Agency a chance to investigate itself. If the Agency does not investigate, then the plaintiff can proceed with the claim.

The Supreme Court did not agree with defendants' arguments that Private Attorneys General Act claims must be certified as a class action. The defendants argued that by not requiring class certification for these claims deprives defendants of their due process rights. Defendants explained that there is a scenario where plaintiffs could continually bring Private Attorneys General Act claims against their employer over and over for the same issues until they eventually prevail if the class certification is not required. The Supreme Court explained that this is not a concern:

Because an aggrieved employee's action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations (Lab. Code, § 2699, subds. (a), (g)), and an action to recover civil penalties 'is fundamentally a law enforcement action designed to protect the public and not to benefit private parties."

Therefore, because all employees on whose behalf the representative plaintiff seeks remedies are bound by the ultimate outcome of the case, defendants are not faced with this possibility.

Full post as published by California Labor & Employment Defense Blog on June 29, 2009 (boomark / email).