Introduction
Background
Facts
Decision
Comment
California's Private Attorney's General Act (PAGA) has created an extremely friendly litigation environment for employees in California. While the 2021 Ninth Circuit decision in Bernstein v Virgin Am, Inc(1) was a win for employers on subsequent violation liability, Bernstein's analysis of the potential extension of California labour regulations to employees of interstate airlines warrants a note of caution. Specifically, an airline or other interstate employer with sufficient connections to the state of California (and especially with no greater connection to any other particular state) may be subject to many significant California wage and hour laws – even when employees are physically working outside the state. PAGA could provide a way to geographically extend the enforcement of California labour laws in these circumstances.
In 2003, California enacted PAGA in response to a concern that the state could not adequately enforce its labour code through its administrative agency amid the rapid expansion of the workforce. PAGA does not create additional obligations on employers but is another way for employees to get into court. The legislature deputised "aggrieved employees" to act as private attorney generals with the ability to file a lawsuit against their employers for a violation of essentially any section of the California Labor Code, regardless of whether that section carries a private right of action. An employee filing a PAGA claim acts as a representative of other similarly aggrieved employees and sues on behalf of the state. A PAGA action provides for default penalties of $100 for each violation of the Labor Code for each pay period and $200 for subsequent violations (unless a penalty is stated in the section). The state recovers 75% of the proceeds, and 25% goes to the aggrieved employees. PAGA cases have grown exponentially since 2013, and the state, employees and their attorneys have recovered tremendous sums under PAGA. While other states have considered similar legislation, PAGA remains unique to California.
As interpreted by California courts, PAGA has developed some very employee-friendly aspects since its enactment. Most crucially, PAGA claims are not subject to an employee's arbitration agreement or class action waiver (although the US Supreme Court is currently deciding this issue in Viking River Cruises v Moriana). PAGA lawsuits are also considered "representative actions", not class actions, so a PAGA plaintiff does not need to satisfy class action requirements of, for example, typicality or numerosity. PAGA has also relaxed standing requirements. A PAGA representative employee may pursue multiple Labor Code violations but need only have suffered one of the alleged violations, so long as other aggrieved employees have. An aggrieved employee may even pursue a PAGA claim despite having settled their own individual claims under the Labor Code. The employer-friendly aspects of PAGA are an administrative exhaustion requirement with limited cure rights and a one-year statute of limitations.
The US Court of Appeals for the Ninth Circuit applied California Labor Code wage-and-hour sections – including the PAGA – to flight attendants working for an inter-state airline who were based in California. In Bernstein, a group of Virgin America flight attendants brought class action claims under California's wage and hour laws, including meal and rest breaks, minimum and overtime wages, final payment and wage statement laws, and the district court certified a class of all California-based flight attendants of Virgin America.
Both Virgin America and the Bernstein class had connections to California and, most importantly, had no greater connection to any other one state. The vast majority of Virgin flights had some connection to California; the daily percentage of Virgin's flights that arrived in or departed from California airports was never under 88% in a year. The class members spent only 31.5% of their time working within California's borders but did not spend more than 50% of their time working in any one state and did not work in any other state more than they worked in California.
Bernstein held that the dormant commerce clause did not bar applying the California Labor Code to interstate employers, partly because Virgin could not identify any other state's labour laws that applied. Additionally, certain federal statutes (ie, the Federal Aviation Act or the Airline Deregulation Act) did not pre-empt the California Labor Code's meal break and rest break rules for interstate employers operating across state lines. In doing so, the Ninth Circuit disregarded Supreme Court precedent and applied a more restrictive test that limits federal pre-emption to only state laws that bind airlines to a particular price, route or service. The Court also held that California's technical law on wage statements and final pay rules carrying 30 days waiting time for late paid wages also applied.
Sullivan v Oracle Corp(2) established that California's overtime law section applied to non-California residents who performed work in California for a California-based employer, but only for work physically performed in the state. Bernstein addressed a converse question: did California overtime law apply to these flight attendants who were California-based but spent the majority of their working hours outside of California? Bernstein applied Sullivan and agreed it did. But it expanded Sullivan to work outside of California, holding "the principles set forth in Sullivan require us to apply California overtime law to California residents' out-of-state work".
The Court in Bernstein explained:
To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state's important public policy goals of protecting health and safety and preventing the evils associated with overwork.(3) The same public policy goals would be thwarted by permitting residents to work outside of California for a California employer without the protection of its overtime law.(4)
This appears to contradict Sullivan, as that decision was careful to explain that overtime law did not follow California residents wherever they go throughout the United States.(5) The California Supreme Court has made clear that the application of California wage and hour protections to non-resident employees varies on a statute-by-statute basis,(6) and meal and rest breaks laws have not yet been analysed in this context.
The Court in Bernstein did not separately analyse whether PAGA applied, but held that because Virgin had not previously been notified by the Labor Commissioner or any court of any California Labor Code violations, there could be no heightened, second-tier penalties for subsequent violations of the Labor Code under PAGA.
While a welcome result for employers, the outcome was not an outlier. Similar rulings had been made by California state courts in similar circumstances but have not yet been definitively addressed by the California Supreme Court. Though commenters have been critical of Bernstein, there has been no case law narrowing the decision at the time of writing.
Bernstein raises concerns about the extent to which, for example, California meal, rest and overtime laws can be applied to work hours performed out of state. That would certainly be a broad extension of California's labour regulations and not necessarily supported by California authority, let alone Sullivan. Nevertheless, Bernstein's analysis may encourage an artful plaintiff to make the effort under PAGA.
For further information on this topic please contact William Walsh or Brett Greving at Cozen O'Connor by telephone (+1 206 340 1000) or email ([email protected] or [email protected]). The Cozen O'Connor website can be accessed at www.cozen.com.
Endnotes
(1) 3 F 4th 1127 (9th Circuit 2021).
(6) See Ward v United Airlines, Inc, 9 Cal 5th 732 (2020) and Oman v Delta Air Lines, Inc, 9 Cal 5th 762 (2020).