In companion opinions issued on June 29, 2009, the California Supreme Court clarified the requirements for “representative” actions under California’s Unfair Competition Law (UCL) and Private Attorneys General Act (PAGA). As the Court explained, a “representative” action is one in which a plaintiff seeks recovery on behalf of others, as is often the case when a lone employee, or labor union, asserts wage and hour violations against an employer on behalf of a group of employees.

One of the Court’s rulings may lead to more employment lawsuits seeking civil penalties. In Arias v. Superior Court, the Court held that representative actions seeking civil penalties under PAGA need not be maintained as class actions. The Court’s other rulings were more favorable to employers. In Arias, the Court held that representative actions under the UCL must proceed as class actions. In the companion case, Amalgamated Transit Union Local 1756, AFL-CIO et al. v. Superior Court, the Court held that labor unions lack standing to maintain either UCL or PAGA claims on behalf of their members even if aggrieved members assign their claims to the union.

Background of Arias

Plaintiff Jose Arias sued his former employer, Angelo Dairy, for various Labor Code violations including the company’s alleged failure to provide meal and rest periods and failure to pay overtime wages. Mr. Arias also claimed the company’s practices were unfair under the UCL and he sought civil penalties under PAGA. He brought his UCL and PAGA claims on behalf of himself and other former and current employees.

The trial court dismissed the UCL and PAGA claims on the grounds that the complaint failed to satisfy class action requirements. Mr. Arias petitioned the Court of Appeal for a writ of mandate and obtained reversal of the trial court’s ruling only as it pertained to his PAGA claim. The California Supreme Court granted Mr. Arias’s petition for review.

The California Supreme Court Holding in Arias

The Court held that representative actions under the UCL must be brought as class actions. Thus, a representative UCL plaintiff must plead and prove the existence of an ascertainable class and a well-defined community of interest among class members in order to seek class-wide recovery. If a class is ultimately certified, class members must be notified of their right to opt out and that their failure to do so will bind them to any judgment rendered. Additionally, the court must approve any settlement or dismissal of class claims. The Court based its decision on the plain language of the UCL and voter intent behind Proposition 64, which amended the UCL in 2004 to preclude uninjured plaintiffs from seeking relief.

In contrast to its treatment of representative actions under the UCL, the Court held that representative actions under PAGA need not proceed as class actions. As a result, individual plaintiffs with PAGA claims may seek to recover civil penalties on behalf of other current and former employees without complying with class action requirements. The Court reasoned that imposing class action requirements on representative PAGA claims would be inconsistent with the statute’s language and legislative history. Additionally, defendants’ due process rights remain protected in the absence of class action requirements because any judgment on PAGA claims in favor of a defendant would bind government agencies and “aggrieved employees” even if they were not parties to the case.

Conclusion

The PAGA ruling in Arias could encourage lawsuits seeking civil penalties on behalf of current and former employees. Some plaintiffs’ counsel now do not pursue PAGA claims, in part because 75% of PAGA proceeds go to the state instead of to employees. PAGA claims may now have more perceived value because counsel pursuing them will not face the same classcertification hurdles that they must confront in pursuing traditional wage and hour claims.

The Amalgamated decision, although beneficial to employers, is of lesser significance. While unions generally may lack standing to sue, the case makes clear that “aggrieved employees” may pursue PAGA claims and that any person or association suffering an “injury-in-fact” may pursue claims under the UCL.