Originally published July 8, 2009 Keywords: California Supreme Court,
representative actions, employers, Unfair Competition Law, UCL,
Labour Code Private Attorneys General Act, PAGA, employment claims,
civil penalties, Arias, Superior Court, On June 29, 2009, the California Supreme Court issued two
decisions clarifying the requirements for bringing representative
actions under two state laws, the Unfair Competition Law (UCL) and
the Labor Code Private Attorneys General Act of 2004 (PAGA). Both
decisions will be of interest to companies with California
employees. Employees frequently bring claims under those statutes in
addition to their other employment claims because the UCL extends
the statute of limitations for their underlying claims to four
years, and PAGA allows them to seek civil penalties for Labor Code
violations if the state labor law enforcement agencies fail to do
so. In Arias v. Superior Court (June 29, 2009, S155965)
Cal. 4th , the court held that an employee who sues an employer on
behalf of himself and others must satisfy class action requirements
for claims under the UCL but not under PAGA. And in Amalgamated
Transit Union Local 1756, AFL-CIO et al. v. Superior Court
Cal. 4th (June 29, 2009, S151615), the court ruled that unions may
not bring actions on behalf of their members under the UCL or
PAGA. In Arias, the plaintiff sued his employer (Angelo
Dairy) for alleged wage and hour violations and for related Labor
Code penalties, as well as for breach of contract and breach of the
warranty of habitability relating to the residential units provided
by the defendants. The complaint contained claims under the UCL
based on the defendants' alleged violations of the California
Labor Code and a claim under PAGA seeking Labor Code penalties,
brought by Arias "on behalf of himself as well as other
current and former employees of defendant." The California Supreme Court held that an employee who brings a
representative claim under the UCL must comply with class action
requirements. The UCL prohibits "any unlawful, unfair or
fraudulent business act or practice ...." The court noted
that, as originally enacted, any person could assert representative
claims under the UCL to obtain restitution or injunctive relief
against unlawful, unfair or fraudulent acts or practices. However,
Proposition 64, an initiative measure passed by the electorate in
2004, amended the UCL to provide that a private plaintiff may bring
a representative action only if the plaintiff "has suffered
injury in fact and has lost money or property as a result of ...
unfair competition" and complies with the class action
requirements in Section 382 of the Code of Civil Procedure. The California Supreme Court reached a different conclusion with
respect to Arias' representative claims for civil penalties
under PAGA. That statute provides that an "aggrieved
employee" (defined in PAGA as "any person who was
employed by the alleged violator and against whom one or more of
the alleged violations was committed"), acting as a private
attorney general, may bring an action personally or "on behalf
of other current and former employees" to recover civil
penalties for Labor Code violations. An aggrieved employee may
bring a PAGA claim only if California's Labor and Workforce
Development Agency (LWDA) refuses or fails to take action within
time limits set forth in PAGA. In a PAGA action, the aggrieved
employee receives 25 percent of any penalties recovered, with the
remaining 75 percent going to the LWDA. The court noted that there
was existing case law holding that actions under PAGA may
be brought as class actions, but that the courts had not resolved
whether such claims must be brought as class actions. The defendants argued, inter alia, that not requiring
all PAGA representative actions to satisfy class action
requirements would violate the due process rights of employers and
of nonparty aggrieved employees who are not given notice of, or an
opportunity to be heard in, a representative action that is not a
class action. The defendants contended that, unless PAGA is
construed to require all representative actions to be brought as
class actions, employers may be subjected to successive actions by
employees based on claims presenting common issues. In such
actions, the employer, but not the employee, would be subject to
the application of collateral estoppel because employees could keep
bringing unsuccessful individual suits until an employee suit
finally prevailed, after which all other employee-plaintiffs could
prevail through the application of collateral estoppel against the
employer. The California Supreme Court disagreed, holding that a
representative action brought by an aggrieved employee under PAGA
does not give rise to due process concerns because the judgment in
such an action is binding not only on the plaintiff, but also on
government agencies and any aggrieved employee not a party to the
action. With respect to the binding effect of adverse judgments on
plaintiffs and government agencies, the court reasoned that an
aggrieved employee suing under PAGA (i) does so as the proxy or
agent of the state's labor law enforcement agencies, after
those agencies have been given notice of, and an opportunity to
pursue civil penalties for, the alleged violations, and (ii)
represents the same legal right and interest as those agencies
(i.e., the recovery of civil penalties that otherwise would have
been assessed and collected by the LWDA). Because collateral
estoppel applies not only against a party to a prior action in
which an issue was determined, but also against those for whom that
party acted as an agent or proxy, a judgment against the plaintiff
in a PAGA action binds both the plaintiff and the state labor law
enforcement agencies. As for the binding effect of adverse
judgments on nonparty aggrieved employees, the court held that,
because a representative action for civil penalties brought by an
aggrieved employee under PAGA functions as a substitute for an
action by a government agency, a judgment against the plaintiff in
such an action binds all those who would be bound by a judgment in
an action brought by a government agency, including nonparty
aggrieved employees. The court acknowledged that an adverse judgment against the
plaintiff in a PAGA action will not bind nonparty aggrieved
employees with respect to claims for Labor Code remedies that may
be recovered in addition to civil penalties (e.g., claims for
failure to provide a meal or rest period under Section 226.7 of the
Labor Code). Thus, if an aggrieved employee prevails in a PAGA
action for civil penalties by proving that the employer has
committed a Labor Code violation, the employer will be bound by the
resulting judgment, and nonparty aggrieved employees will be able
to invoke collateral estoppel against the employer to obtain
remedies other than civil penalties for the same Labor Code
violations. However, if the employer prevails in such an action, the
nonparty aggrieved employees will not be bound by the judgment with
respect to remedies other than civil penalties because they were
not given notice of the action or afforded an opportunity to be
heard. Nevertheless, the California Supreme Court held that,
because an action under PAGA is designed to protect the public, and
the potential impact on remedies is incidental to the action's
primary objective, the one-way operation of collateral estoppel in
this limited situation does not violate an employer's right to
due process of law. In Amalgamated Transit, 17 individual plaintiffs and
two labor unions sued three employers for Labor Code violations. In
the complaint, the plaintiff-unions alleged that (i) the unions
were the representatives of the defendants' employees, (ii) the
action was brought on behalf of the unions and all aggrieved
transportation employees employed by the defendants, and (iii) more
than 150 employees and former employees of the defendants had
assigned their rights under the UCL and PAGA to the unions. The trial court ruled that the unions did not have standing
under the UCL because they had not suffered any actual injury, and
under PAGA because they were not "aggrieved employees."
The trial court also ruled that the employees' assignment of
rights to the unions did not confer standing on the unions to
prosecute claims under the UCL or PAGA, and that UCL representative
claims must be brought as class actions. The Court of Appeal denied
the unions' petition for writ of mandate. The California Supreme Court affirmed. After reviewing the UCL
and PAGA, the court found that both statutes required a plaintiff
to have suffered injury resulting from an unlawful action (i.e.,
from an unlawful, unfair or fraudulent act or practice under the
UCL, or from a Labor Code violation under PAGA). Although the
unions conceded that they did not satisfy these requirements, they
nevertheless argued that they had standing to sue in a
representative capacity as assignees of defendants' employees
who sustained injury. The court held that the unions did not have
standing to bring actions representative actions on behalf of their
members under either the UCL or PAGA, and that such claims were not
assignable to the unions because (i) assignment of the UCL claims
would violate the UCL's requirement that plaintiffs must have
suffered "injury in fact," (ii) assignment of the PAGA
claim would violate existing California law prohibiting the
assignment of the right to recover a statutory penalty, and (iii)
the doctrine of associational standing under Article III of the US
Constitution does not exempt the unions from the express statutory
standing requirements of the UCL and PAGA. Taken together, the decisions in Arias and
Amalgamated Transit provide important guidance for
California employers defending class actions. It is now established
that: (i) plaintiffs who bring private UCL representative actions
must satisfy class action requirements; (ii) plaintiffs who bring
PAGA representative actions need not satisfy class action
requirements; (iii) judgments in PAGA actions for civil penalties
are binding on the plaintiffs, state labor law enforcement agencies
and nonparty employees, except that an adverse judgment against a
plaintiff in such an action will not bind nonparty employees with
respect to claims for Labor Code remedies that may be recovered in
addition to civil penalties, (iv) UCL claims may be brought only by
plaintiffs who have suffered injury resulting from unlawful, unfair
or fraudulent acts or practices, and are not assignable to
plaintiffs who do not meet this requirement, and (v) PAGA claims
may be brought only by employees who have suffered injury resulting
from Labor Code violations and are not assignable. Learn more about our
Employment practice. Visit us at
www.mayerbrown.com. Mayer Brown is a global legal services organization
comprising legal practices that are separate entities ("Mayer
Brown Practices"). The Mayer Brown Practices are: Mayer Brown
LLP, a limited liability partnership established in the United
States; Mayer Brown International LLP, a limited liability
partnership incorporated in England and Wales; and JSM, a Hong Kong
partnership, and its associated entities in Asia. The Mayer Brown
Practices are known as Mayer Brown JSM in Asia. This
Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Copyright 2009. Mayer Brown LLP, Mayer Brown
International LLP, and/or JSM. All rights reserved.
Arias v. Superior Court
The UCL Claims
The PAGA Claim
Amalgamated Transit Union Local 1756, AFL-CIO et al. v.
Superior Court
Conclusion