Labor & Employment Law

Binding Effect of PAGA Decisions Is An Alternative To Class Certification -- Arias v. Superior Court

The California Supreme opinion in Arias v. Superior Court has created a potent new alternative to class actions for enforcing Labor Code provisions.

The Supreme Court granted review to decide whether plaintiffs must obtain formal class certification in order to bring claims under two different statutes --  the Unfair Competition Law (the "UCL," Business and Professions Code section 17200, et seq.) and the Labor Code Private Attorney General Act of 2004 ("PAGA," Labor Code section 2698, et seq.).  The answers were "Yes" as to the UCL, and "No" as to PAGA.

The really interesting part of the decision, however, was the Supreme Court's elucidation of how principles of collateral estoppel should apply in a representative PAGA action which has not been formally certified as a class action.  To understand the due process issues raised by such an action the Court first explained the burdens imposed on a defendant by the prospect of "one-way intervention."

Unfairness may result from application of collateral estoppel when, for example, various plaintiffs in separate lawsuits against the same defendant assert claims presenting common issues. Because collateral estoppel may be invoked only against a party to the prior lawsuit in which the issue was determined, and because in our example the defendant would be a party to every lawsuit while each of the various plaintiffs would be a party in only one lawsuit, the defendant would in later lawsuits be bound by any adverse determination of the common issues, while none of the plaintiffs would be similarly bound by prior determinations in the defendant's favor. Thus, one plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevailed; then everyone else would ride on that single success.  (Internal Citations omitted).

The Court went on to explain, however, that this "one-way intervention" problem cannot arise as to employee claims for the penalties provided solely by PAGA itself. 

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. . . . Accordingly, with respect to the recovery of civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under the act, and therefore defendants' due process concerns are to that extent unfounded.

Just as significantly, however, the Court went on to specifically approve "one-way intervention" for employees who wish to "piggyback" on a favorable PAGA ruling by seeking wages and other remedies which are not provided by PAGA itself.

 [I]f an employee plaintiff prevails in an action under [PAGA] for civil penalties by proving that the employer has committed a Labor Code violation, the defendant employer will be bound by the resulting judgment. Nonparty employees may then, by invoking collateral estoppel, use the judgment against the employer to obtain remedies other than civil penalties for the same Labor Code violations. If the employer had prevailed, however, the nonparty employees, because they were not given notice of the action or afforded any opportunity to be heard, would not be bound by the judgment as to remedies other than civil penalties.

In short, as construed by the Supreme Court, an action under PAGA  represents the best of both worlds for plaintiffs' attorneys.  On the one hand, they need not obtain class certification to bring an action on behalf of an entire group of employees.  And yet, a favorable decision on the merits will still bind the employer on a class-wide basis as to both PAGA and non-PAGA claims.

Full post as published by California Labor & Employment Defense Blog on June 30, 2009 (boomark / email).