Non-Compliant California Employers at High Risk under Special Law

Employees’ attorneys are increasingly relying on the California Private Attorney General Act (PAGA) to pursue businesses for Labor Code violations.

Under PAGA procedures, an employee may file a private “representative” lawsuit – on behalf of her or himself and other “aggrieved” workers – to collect civil penalties where the state chooses not to pursue such claims.  The bulk of any penalties assessed  – 75 percent –  goes to the state with the remainder distributed among the affected employees and a modest representative award to the plaintiff. PAGA also directs payment of the plaintiff attorney’s fees.

The law can produce staggering results. In Magadia v. Wal-Mart Associates, Inc. (May, 2019), three PAGA violations affecting a portion of Walmart’s California employees yielded an award of $53,901,700.

The plaintiff asserted penalties for two pay stub violations under Labor Code 226(a).

First, while Walmart included hourly rates and hours worked as required on its bi-weekly pay stubs, it omitted this information on quarterly stubs for certain bonus and overtime compensation.

Though the plaintiff sought $131,427,750 in PAGA penalties on this violation alone, the court awarded “only” $48,046,000, finding that Walmart had operated on a reasonable belief it was complying with the law until the court ruled otherwise.

Second, the court directed Walmart to pay $5,785,700 for failing to list the inclusive work dates on final pay statements, even though Walmart included this information on later stubs.

The plaintiff did not personally experience a third alleged violation – for inadequately compensating non-compliant meal breaks – but still secured $70,000 in PAGA penalties for other employees who did.  California courts allow a PAGA plaintiff to bring multiple claims even if he or she has not experienced all of them.

Walmart will survive these results even if it loses its pending appeal .  No doubt there are many thousands of employers who would be unable to endure such PAGA challenges to workplace practices non-compliant with Labor Code standards.

PAGA has been criticized as law primarily benefiting the attorneys seeking its remedies. A recent report shows:

● PAGA plaintiffs receive an award average of $12,828;

● employees such plaintiffs represent receive an average $2,078 payout; while

● the average PAGA case attorney fee award is $405,724.

The attorney fee component of this Walmart case has yet to be resolved.  It will likely be well in excess of that average, considering the number of that company’s California employees and the scope of the case.  Walmart will have to pay those plaintiff’s attorney fees in addition to the undoubtedly enormous fees it is paying its own attorneys.

Take Aways:  The specter of PAGA claims requires that California employers take extraordinary care to maintain all of their wage and hour practices in full compliance with the Labor Code.  However, once the PAGA process starts, the non-complaint business, plaintiff employee and his/her co-workers are all losers in the game, with plaintiff lawyers standing to be the only real winners.  Sacramento should question whether such results support any legitimate goal of government.

See also,

• The Peril of Ignorance – Know and Comply: California’s Itemized Paystub Requirements (May 4, 2021)
• Cautionary Tale Episode 41- Gymnastics School Takes a Tumble (April 8, 2021)
• Cautionary Tales Episode 16 – Spa Nailed for $1.2 Million, “Wage Theft” (August 1, 2018)
• Paperless Paystubs – Do They Comply with California Wage Statement Laws?(February 28, 2018)

For further assistance, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
May 14, 2021