Decision: A recent decision by the US Court of Appeals for the Ninth Circuit has made it harder for employers targeted by lawsuits under the California Labor Code’s Private Attorneys General Act of 2004, Cal. Labor Code § 2698, et seq. (PAGA), to remove the cases to federal court. In Baumann v. Chase Investment Services Corporation, a financial adviser filed a representative action under PAGA in California state court on behalf of himself and other “aggrieved” financial advisers, alleging various wage and hour violations. The complaint sought statutory penalties for each alleged violation but did not invoke the California class action statute. In response to the defendant-bank’s removal of the action to federal district court, the plaintiff sought to remand the case back to state court for lack of federal jurisdiction. The district court denied the plaintiff’s motion, holding that the court had federal jurisdiction, inter alia, under the Class Action Fairness Act of 2005 (CAFA).

The Ninth Circuit disagreed, holding that representative actions under PAGA are “not sufficiently similar to [class actions under] Rule 23 to establish the original jurisdiction of a federal court under CAFA.” The court noted that, unlike Rule 23, PAGA does not require unnamed aggrieved employees to receive notice of the lawsuit or permit such employees to opt out of the PAGA action. In addition, PAGA actions need not satisfy the “critical requirements” of Rule 23: numerosity, commonality, typicality or the existence of an adequate class representative. The court further focused on the fact that PAGA judgments do not have the same binding and preclusive effects as Rule 23 class action judgments; the aggrieved employees retain all rights to “pursue or recover other remedies available under state or federal law, either separately or concurrently with” the PAGA action.

Impact: As a result of this decision—and the Ninth Circuit’s earlier decision in Urbano v. Orkin Services of California, Inc., in which it concluded that the $75,000 amount-in-controversy requirement for diversity jurisdiction could not be satisfied by aggregating the requested civil penalties under PAGA—employers are likely to encounter more difficulties when seeking to remove PAGA actions to federal court, unless those actions are also pled as class actions.