The Morphing Role of PAGA in Wage and Hour Mediation

Standing.  One of hot issues surrounding PAGA claims is that of standing where a court retains jurisdiction over a PAGA claim while ordering the individual wage and hour issues to arbitration.  This has become a familiar situation where an arbitration agreement governs the individual claims.  The Court of Appeal in Kim v. Reins Intl’s California, Inc. (Dec. 2017) affirmed Judge Freeman’s trial court ruling that the plaintiff had lost standing as an “aggrieved party” to pursue his PAGA claim when he settled his individual wage claims and dismissed those claims with prejudice.  The California Supreme Court has accepted this issue for review.  While this is certainly an interesting academic issue that gets to the meaning of “aggrieved employee,” close attention needs to be paid to the scope of the release used in the settlement agreement.

Valuing PAGA.  In 2005 when PAGA was first included by plaintiffs’ counsel in wage and hour class actions, it was often treated as a point of leverage in settlement.  Counsel would enter mediation with an estimate of the total number of employees multiplied by the total number of violations they identified, multiplied by the total number of pay periods, multiplied by $200.  The resulting numbers were typically astronomical.  Defense counsel would counter with the argument that there was an absence of any jurisprudence supporting such a claim, without prior litigation, the penalty is only $100 and the employee only keeps 25% of the PAGA award anyway.  With no specific cases to argue, the PAGA claim was often reduced to a minimal amount to achieve approval by the Court.

This approach was turned on its head by Justice Chin in 2016 when he ruled in the UBER wage and hour class action that a $1M allocation to PAGA from a $100M total settlement was insufficient.  He ruled: “the court cannot find that the PAGA settlement is fair and adequate in view of the purposes and policies of the statute…Plaintiffs appear to treat the PAGA claim simply as a bargaining chip in obtaining a global settlement.”  Since that ruling, plaintiffs’ have placed greater weight on PAGA, while still being cognizant of the defense position that where there are limited funds, the employees do better with an allocation to wage and hour violations rather than PAGA due to the 25/75 split with the state.

Stand-alone PAGA cases.  Perhaps the greatest change for mediating PAGA claims has been the rise of stand-alone PAGA cases.  With the increase in the number of employment arbitration agreements, the traditional class action device has been curtailed.  Rather than handle individual claims in arbitration, many former class counsel are opting for PAGA only cases, despite the one-year statute of limitations.  At mediation, the penalty figure calculated by plaintiffs are now more forcefully advocated as the claim is no longer leverage for larger individual or class relief. In response, we are seeing greater attention given to past rulings of the assigned trial judge.  Some favor the approach of Justice Chin, while others hold little favor for these penalties.  Since a PAGA claim proceeds to the judge rather than the jury, this analysis presents important bargaining positions for both parties.

Undoubtedly, PAGA will continue to develop in the courts and legal arguments for and against large or minimal awards will be developed by sophisticated counsel.  We look forward to watching the progress of this unique statutory scheme in our Southern California employment mediation practice.