On August 31, 2023, the California Court of Appeals issued two decisions that will create more challenges for California employers defending against lawsuits brought under California’s Private Attorneys General Act (PAGA). One decision limits the preclusive effect of PAGA settlements, while the other decision strengthens a PAGA plaintiff’s ability to intervene in, and object to, overlapping PAGA settlements. These decisions make it more important for California employers to implement a robust wage-hour compliance program.

The PAGA Framework

PAGA authorizes “aggrieved employees” to sue their employers, on behalf of the State of California, for alleged violations of the California Labor Code (generally, wage-hour claims). Before filing a PAGA lawsuit, an employee must give notice of the alleged Labor Code violations to the California Labor & Workforce Development Agency (LWDA). If an employee prevails on his or her claims, he or she can recover civil penalties for each pay period in which a Labor Code violation occurred. 75% of a PAGA judgment goes to the LWDA and 25% is awarded to the group of aggrieved employees. However, the vast majority of PAGA lawsuits settle.

Similar to class actions, PAGA settlements require court approval. Once approved, the settlement generally bars lawsuits by other employees over the same, or similar, PAGA claims. Thus, PAGA settlements can effectively preclude other PAGA lawsuits. However, two recent appellate decisions dimmed the preclusive power of PAGA settlements: LaCour v. Marshalls of California LLC and Accurso v. In-N-Out Burgers.

The Decisions

In LaCour, aggrieved employees brought PAGA claims alleging, among other issues, that employees were not reimbursed for work uniform costs and for personal phone and vehicle use. The trial court dismissed the PAGA claims on the grounds that they had been released in a previous settlement. However, the Court of Appeals reversed on the grounds that the LWDA notice in the previous action did not assert sufficient facts to support that the claims in the previous action could have been released. This was despite the fact that the court approved settlement in the previous action broadly released PAGA claims that were, or could have been, alleged. The LaCour ruling appears to narrow the decision in Moniz v. Adecco USA, Inc., where the court concluded that a previous PAGA settlement could release similar claims even if they “were not specifically listed in the PAGA notice.”

Accurso also involved a claim for failure to reimburse business expenses. There, In-N-Out was facing six overlapping PAGA lawsuits. In-N-Out settled with Accurso, with the goal of also eliminating the other lawsuits. However, two of the other plaintiffs asked to intervene and object to the settlement because it would dispose of their claims. The trial court rejected the intervention on the grounds that the third-party plaintiffs did not have “a personal interest in the PAGA claims being prosecuted by Accurso, but rather the interest lies with the State, as the real party in interest.” The Court of Appeals disagreed, remanding with instruction to reconsider the request to intervene: “[I]n situations where PAGA claimants with their own overlapping claims in other pending cases show up and wish to provide input, we see no reason why they should not be given a seat at the table.” This decision broke with the decision in Turrieta v. Lyft, Inc., which found intervention inappropriate because a PAGA plaintiff has “no personal interest in the PAGA claims” that are brought on behalf of the State of California.

Their Effect

These cases are wins for PAGA plaintiffs, who now have increased grounds to object to, and narrow, overlapping PAGA settlements. These decisions will likely embolden plaintiffs to bring PAGA lawsuits despite a preexisting case (or cases) on the same issues. Enterprising plaintiffs may also bring copycat claims with the goal of shoehorning themselves into the preexisting case for the purpose of getting a cut of that settlement with little work on their own part.

Takeaways for Employers

Here are a few takeaways from these decisions:

• Employers with PAGA lawsuits should retain defense counsel with experience structuring PAGA settlements to guard against duplicative/copycat claims.
• Stay alert for further appellate court decisions on these issues as they will likely have practical implications for defending and settling PAGA claims.
• Finally, the best PAGA prevention is wage and hour compliance. Employers with California employees should consider the following:
  • Conducting regular audits of employee time and payroll records for wage and hour compliance.
  • Review and update wage and hour policies, particularly those policies relating to repeat PAGA targets: meal and rest breaks, business expense reimbursements, and timekeeping.
  • Train managers, particularly front-line supervisors, on California wage and hour law, as a written policy is only as good as the managers implementing it.

If you have any questions or want to know more about the potential impact of these changes on your business, please reach out to one of the contacts listed in this alert.