Why it matters: A wage and hour suit brought under California’s Private Attorney General Act (PAGA) belongs in state , not federal , court, the Ninth U.S. Circuit Court of Appeals has concluded. The federal appellate panel effectively shut the doors of the federal courthouse by concluding that a PAGA claim is not “substantially similar” to a Rule 23 class action, meaning that the employer could not establish original jurisdiction under the Class Action Fairness Act (CAFA). The panel left undecided the issue of whether a federal court may allow a PAGA action otherwise within its original jurisdiction to proceed under Rule 23 as a class action – leaving one possible avenue for employers seeking to keep a PAGA action in federal court.

Detailed Discussion

Joseph Baumann filed his PAGA claim in California state court against former employer Chase Investment Services. Baumann alleged that Chase failed to pay him and other financial advisors for overtimeand meal and rest breaks and did not timely reimburse business expenses.

Chase filed a notice of removal to federal court, invoking original jurisdiction under the federal CAFA. Aggregating the potential penalties under PAGA, the federal district court kept the case.

But the 9th Circuit reversed the denial of Baumann’s motion to remand to state court. Citing to last year’s Urbino v. Orkin Services, the three-judge panel noted that the amount-in-controversy requirement for federal jurisdiction was not satisfied, as PAGA penalties cannot be aggregated.

Further, the federal court lacked CAFA original jurisdiction, the court concluded. While the state Labor Code is silent as to whether a PAGA action is a “class action,” the California Supreme Court has ruled it is not, finding PAGA actions “fundamentally different” from class actions.

“In the end, Rule 23 and PAGA are more dissimilar than alike,” the panel said. “A PAGA action is at heart a civil enforcement action filed on behalf of and for the benefit of the state, not a claim for class relief.” The California Legislature enacted PAGA because of inadequate financing and staffing to enforce state labor laws, the court noted, and such parens patriae suits lack the defining attributes of true class actions.

Unlike Rule 23 suits, PAGA has no notice requirements, lacks the ability for employees to opt out, contains no requirements of numerosity, commonality, or typicality, and no inquiry occurs into whether the named plaintiff and class counsel have the ability to fairly and adequately represent unnamed employees.

The panel continued its list of differences with the finality of PAGA judgments. Under the Federal Rules, members of a class action who decline to opt out are bound by the resulting judgment. Not so in PAGA actions, which expressly provide that employees retain all rights to pursue or recover other available remedies under state and federal law. Penalties are also “markedly different,” with the bulk of recovery in a PAGA action going to the California Labor and Workforce Development Agency (LWDA), not to aggrieved employees.

“In short, ‘a PAGA suit is fundamentally different than a class action,’” the court said. “These differences stem from the central nature of PAGA. PAGA plaintiffs are private attorneys general who, stepping into the shoes of the LWDA, bring claims on behalf of the state agency. Because an identical suit brought by the state agency itself would plainly not qualify as a CAFA class action, no different results should obtain when a private attorney general is the nominal plaintiff.”

To read the opinion in Baumann v. Chase Investment Services, click here.