A plaintiff’s claims of labor code violations brought pursuant to the California Private Attorneys General Act (“PAGA”) may not be aggregated to meet the $75,000 threshold for removal to federal court, the Ninth U.S. Circuit Court of Appeals has ruled.

Pursuant to PAGA, if the Labor and Workforce Development Agency declines to investigate or issue a citation to an employer for an alleged violation of the California Labor Code, an employee may commence a civil action “on behalf of himself or herself and other current or former employees” against the employer.

The dispute began when former Orkin worker John Urbino filed a representative PAGA action. Although he was classified as a nonexempt, hourly paid employee, he claimed that Orkin illegally deprived him – and other nonexempt employees – of meal periods, overtime and vacation wages, and accurate itemized wage statements.

Georgia-based Orkin removed the case to California federal court based on diversity jurisdiction. Although Urbino’s claim amounted to just $11,602.40, Orkin argued that the potential claims of an estimated 811 other employees implicated by the PAGA claims amounted to $405,000 with possible penalties under the state labor code of more than $9 million – well over the jurisdictional threshold.

But calling it “a quintessential California dispute,” the Ninth Circuit sent the case back to state court.

The claims of class members can only be aggregated when they “unite to enforce a single title or right in which they have a common and undivided interest,” the court said, looking to “the source of plaintiffs’ claims.”

Unfortunately for Orkin, the Urbino plaintiffs did not derive their rights from a group status that was common and undivided, the federal appellate panel determined. Simply having questions of fact and law common to the group does not suffice.

“Aggrieved employees have a host of claims available to them – e.g., wage and hour, discrimination, interference with pension and health coverage – to vindicate their employers’ breaches of California Labor Code,” the majority wrote. “But all of these rights are held individually. Each employee suffers a unique injury – an injury that can be redressed without the involvement of other employees.”

Orkin’s obligation to the employees was not as a group but as individuals, and therefore their potential claims could not be aggregated for purposes of diversity jurisdiction, the court concluded.

Emphasizing the unique nature of a PAGA claim, Orkin argued that Urbino was really not asserting his own unique interest but the state’s collective interest, standing in the stead of the labor department. But the court said it was “unpersuaded” by the argument, as the state is not a citizen for diversity purposes.

A dissenting opinion tracked Orkin’s argument, emphasizing that Urbino’s suit asserted claims designed to protect the public, not to benefit himself or other private parties. A successful PAGA plaintiff does not win damages, but receives 25 percent of the civil penalties recovered with the remaining 75 percent going to the labor department, the dissent noted. “As such, PAGA plaintiffs do not represent ‘separate and distinct’ claims subject to the anti-aggregation rule,” the dissent stated, analogizing to a plaintiff in a shareholder derivative suit suing as proxy for an injured corporation.

To read the decision in Urbino v. Orkin Services, click here.

Why it matters: The Ninth Circuit decision will limit the ability of employers to remove PAGA suits to federal court but does provide some clarity on the standard for when claims under the statute may be aggregated. Under the Ninth Circuit’s reasoning, simply filing a PAGA suit does not create a common and undivided interest sufficient to aggregate the claims of the potential plaintiffs; instead, the court will look to the source of the plaintiff’s claims to determine if they are separate and distinct – like the court’s finding in Urbino – or function as a group, making it possible to aggregate them.