Courts Grapple with California Labor Law Questions After Reform

California employers await judicial guidance on how to defend against class action-like lawsuits employees file on behalf of co-workers and the state over labor law violations, despite legislative reforms to rein in those cases.

The 2024 amendments to the Private Attorneys General Act, resulting from a business-labor compromise, sought to address employer allegations that the plaintiff’s bar has abused the 2004 law, causing boilerplate complaints, high case volumes, and prolonged litigation that ultimately cost companies approximately $10 billion over the past decade.

But PAGA-based filings remain active and courts are addressing new questions about the law’s scope, practitioners said. Those outstanding issues include whether workers can sue on behalf of others without bringing an individual claim, and how to apply a new standing requirement to violation notices submitted before the amendments went into effect.

“It just turned out there were a lot of kinks in the” legislation stemming from a lack of specificity defining certain parts of PAGA, said JJ Johnston, an employment and class action mediator.

That surprised not only the defense bar but also worker-side lawyers who were expecting a significant drop in casework, he said.

Still, the amendments have led to “a lot more detailed” complaints, Johnston said, a positive development for defense counsel who previously dealt with numerous vague and identical suits that delayed mediation efforts and required discovery to identify actual violations.

The reforms include shortening the timeframe for employees to file PAGA claims for misclassification, unpaid wages, missed mealbreaks, and other violations. It also reduced and capped recoverable PAGA penalties, which are shared with state regulators, and allow employers to avoid liability after taking corrective actions.

For worker advocates, PAGA remains a vital tool to enforce labor standards as the state lacks sufficient personnel to fully enforce them. Large employers like DoorDash Inc., Alphabet Inc.'s Google and Walmart Inc. have shelled out tens of millions of dollars in recent years to resolve alleged violations.

“Defendants are trying to figure out ways to send pieces of cases to arbitration to narrow them and to slow them down,” said Lauren Teukolsky, founder of Teukolsky Law PC.

‘Headless PAGA’

Legal observers expect a California Supreme Court decision early this year addressing whether every PAGA case must also include individual violation claims, even if the plaintiff had signed a valid and binding employment agreement to arbitrate workplace grievances. The state high court’s ruling in Leeper v. Shipt could resolve conflicting lower court opinions on the issue.

A decision in favor of employers would limit workers’ ability to pursue “representative only” or “headless PAGA” claims, potentially reducing case volume and barring employees who lose their individual labor violation claim at arbitration from proceeding in court with representative claims, said Michael Kun, a partner at Thompson Coburn LLP.

Headless PAGA emerged in recent years as the only viable way to keep group claims in court when individuals waived their right to participate in class actions due to mandatory arbitration, he said.

A judicial endorsement of the practice would weaken employers’ ability to enforce such arbitration pacts in most PAGA cases, as many workers may waive their individual claims to avoid arbitration.

Such a ruling would also undercut the US Supreme Court’s 2022 decision in Viking River Cruises Inc. v. Moriana that allows California employers to compel arbitration of an employee’s individual PAGA claim.

Legal Standing

Another issue under scrutiny is the applicability of the new standing requirement to pre-reform violation notices.

The amendments clarified that individual and representative violations must have been experienced within a one-year statute of limitations. But it applies only to cases with violation notices filed after June 19, 2024, leaving earlier notices in a legal gray area.

State appellate court rulings in Williams v. Alacrity Solutions Group and Osuna v. Spectrum Security Services offered divergent views.

Williams held the plaintiff must serve notice within one year of the most recent violation they’ve suffered. Although that case concerns pre-reform PAGA claims and thus was reviewed under the previous framework, the ruling said the amendments made “the already-existing timeliness requirement explicit within PAGA itself.”

But Osuna, another pre-reform case, reached a different conclusion. A PAGA plaintiff has standing once they’ve been employed by the alleged violator and suffered at least one labor violation, regardless of whether the violation occurred within the one-year statute of limitations, the court found.

The California Supreme Court granted review of Williams pending its Leeper decision.

The pre-reform standing inquiry, however, “is going to become a non-issue as time goes on” because new cases must comply with post-reform notice and standing rules, Teukolsky said.

Claim Preclusion

Beyond the 2024 amendments, a legal doctrine that prevents parties from re-litigating claims already decided in a court’s final judgment is also primed for further development in the PAGA context, attorneys said.

Under the “claim preclusion” doctrine, an employee who lost their individual labor code claims in arbitration may be barred from moving forward with similar representative PAGA claims.

Attorneys said the state high court’s 2023 Adolph v. Uber Techs. Inc. ruling offers some guidance, as it allows workers to litigate representative PAGA claims after individual claims are sent to arbitration.

Adolph indicated that though an arbitrator’s decision may have some preclusive effect on the pending representative claims, there’s “still an open question” because the claim preclusion issue remains unresolved, Teukolsky said.

This issue is of particular importance for employers facing multiple PAGA actions with overlapping claims and want to ensure that settlements are properly noticed and judicially approved to avoid duplicative litigation, Johnston said.

Employers facing such cases can pause litigation while a related case is pending, he said. But any delay can be costly, as penalties will “keep increasing” unless the violations have already been cured, Johnson added.