Appellate shots fired in state labor statute challenge

A business group has filed its opening brief in an appeal challenging the Californian's Private Attorneys General Act statute. The ultimate success of the case -- almost certain to end up in the California Supreme Court -- could hinge on undermining a key legal precedent that upheld the constitutionality of the 2004 law known as "PAGA."

The California Business & Industrial Alliance's website states it is "a trade organization founded in 2017 by business executives and entrepreneurs to fix California's worst law." It sued the state in Orange County Superior Court in 2018, claiming the law violated the California and U.S. Constitutions. These included alleged violations of the Eighth Amendment violations and of due process, separation of powers, and equal protection. The group also said the law conflicts with other sections of the state Labor Code.

The case survived the state's initial attempts to throw it out. But in August, Superior Court Judge Peter J. Wilson dismissed the Alliance's amended complaint, leading to the appeal. California Business & Industrial Alliance v. Becerra, G059561 (Cal. App. 4Th, filed Oct. 22, 2020).

"When we filed the lawsuit in late 2018, I think a lot of people thought we would get blown right out of the water immediately," said Tom Manzo, the founder and president of the Alliance.

Manzo said he knew the due process and excessive fines claims would be difficult, in part because of judges' discretion to reduce fines. He said they did "get some traction" with the equal protection claims, which survived a demurrer.

But Wilson eventually dismissed the case, citing Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4th 348, 360 (2014). This is a widely cited precedent finding that California's PAGA law did not violate the separation of powers doctrine in the state constitution.

"The trial court made this court's job easy by holding that dictum statements from Iskanian v. CLS Transportation Los Angeles LLC, ('Iskanian') preclude any claim that the California Private Attorney General Act ('PAGA') violates the separation of powers doctrine, 'regardless of whether it is based on new theories or facts,'" wrote the Alliance's lead attorney, Richard J. Frey, a partner with Epstein, Becker & Green P.C. in Los Angeles.

A spokesperson for Attorney General Rob Bonta's office said they are reviewing the brief.

The Iskanian ruling held that agreements to waive the right to PAGA representation were unenforceable. The opinion has been a bane to some employers ever since and has served as the rare precedent that can sometimes undermine arbitration agreements -- for instance, when 1st District Court of Appeals ruled against Lyft Inc. in November in a dispute with drivers.

Frey's brief mentions Iskanian over 100 times. He argued the ruling failed to consider how little control the state maintains over those making PAGA claims. Because the state Legislature "underfunds" the Labor & Workforce Development Agency, the state does not investigate "99% of claims."

"There's no checks and balances whatsoever when it comes to PAGA," Manzo said. "Nobody's paying attention to it. They've created a fourth branch of government, that's the biggest issue."

Some plaintiffs, Manzo added, even use PAGA claims to get extensive discovery on a company then use that information to file a separate wage and hour case or some other type of claim. Most companies settle all but the largest claims, he added, because of the risk of PAGA litigation.

But employee-side Los Angeles attorney Leonard H. Sansanowicz said the plaintiffs are trying to "flip PAGA on its head." For decades, he said, minimum wage and other labor laws were subject to enforcement by local district attorneys, who rarely made them a priority.

"With all the limits on class actions, this is one of the last remaining mechanisms to hold employers accountable," Sansanowicz said. "That's why they want to get rid of it."

The Alliance and other business groups also unsuccessfully tried to convince Gov. Gavin Newsom to suspend PAGA during the coronavirus pandemic, which they said was already leading to an increase in employee lawsuits. The Consumer Attorneys of California and other groups lobbied to stop that effort. The group argued there are "strict controls" that prevent abuse of the law, though they cited the same state agency review process the plaintiffs say is inadequate.

"Eventually this is going to have to be heard at the California Supreme Court level," Manzo said. "We knew this when we started the whole process."