9th Circuit Addresses PAGA Standing and California Wage Statement Requirements — Reversal of $102 Million Judgment

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In a recent ruling, the 9th Circuit overturned a $102 million judgment against Walmart for alleged meal break and wage statement violations. In an opinion demonstrating the complexity of California PAGA litigation, the court concluded the plaintiff had no standing to bring meal break claims in federal court and that Walmart had fully complied with California’s wage statement statutes.

Injury Required for PAGA Actions in Federal Court

The first issue considered by the appellate court was plaintiff Roderick Magadia’s standing to seek PAGA penalties for meal break violations. During the trial, even though the district court determined that Magadia had not personally suffered an injury under the meal break statute, the court permitted him to seek PAGA penalties for meal break violations on behalf of other aggrieved employees. On appeal, the 9th Circuit determined the district court erred in permitting Magadia to pursue PAGA penalties because he had no standing to bring such claims.

The 9th Circuit began its analysis with the rule that a plaintiff must have suffered an injury to have standing to bring a claim in federal court. There is an exception to this rule, however, for qui tam actions – actions undertaken by an individual on behalf of the government. Magadia argued that because the California Supreme Court views PAGA suits as a type of qui tam action, he was not required to demonstrate his own injury before seeking PAGA penalties. The 9th Circuit disagreed and stated that PAGA actions are not truly qui tam actions, and therefore plaintiffs must still demonstrate their own injury to bring such actions in federal court.

In reaching this conclusion, the 9th Circuit discussed important differences between PAGA actions and traditional qui tam actions. For example, in traditional qui tam actions, the government only partially assigns its interests to an individual representative – retaining ultimate control over the litigation as it progresses. In PAGA actions, however, the government fully assigns its interests to its representative – giving up the ability to intervene or control the litigation. Furthermore, the court noted, in traditional qui tam actions the real party in interest is the government and the rights being protected by litigation are public rights. In contrast, PAGA actions are undertaken on behalf of not only the government, but other aggrieved employees. This means the rights being protected by litigation are a mixture of public and private rights. For the court, these differences meant PAGA actions are not truly qui tam actions, and as such, Magadia could not bring meal break claims without first showing his own injury.

No Wage Statement Violations Found

After concluding the district court had erred in its meal break analysis, the appellate court reviewed Magadia’s wage statement claims – beginning with Magadia’s argument that Walmart failed to provide adequate pay rate information on its wage statements.

Under Walmart’s compensation plan, employees were paid and given wage statements every two weeks. At the end of a quarter – after every six pay periods – high-performing employees were given a bonus. To comply with California law, Walmart then adjusted the amount of overtime pay it awarded employees to account for these bonuses. Walmart reported both the bonus and the adjusted overtime pay as lump sums on the wage statement issued at the end of the quarter, but did not include an “hourly rate” or “hours worked” alongside the adjusted overtime pay record. According to Magadia, this practice violated California Labor Code Section 226(a)(9)’s requirement that wage statements include “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” The 9th Circuit disagreed, however, stating that Walmart’s compensation plan fell within the statutory requirements.

The appellate court reasoned that Walmart’s adjusted overtime pay was not “ordinary overtime pay with a corresponding hourly rate.” Instead, because the adjustment needed to be retroactively calculated based on work from six prior pay periods, the adjusted overtime rate was never “in effect during [any] pay period.” As such, Walmart’s adjusted overtime pay did not violate Section 226(a)(9)’s requirements for wage statements. To hold otherwise, the court explained, “would lead to the anomalous result of having a wage statement listing an ‘hourly rate’ but with zero ‘number of hours worked’ at that rate.”

Concluding that Walmart had not violated Section 226(a)(9), the court then examined Magadia’s second wage statement claim – that Walmart violated California Labor Code Section 226(a)(6) by failing to provide the pay-period dates with his last paycheck. Under 226(a)(6), employers are required to furnish employees “semimonthly or at the time of each payment of wages” with “an accurate itemized statement in writing showing . . . the inclusive dates of the period for which the employee is paid.” Magadia argued Walmart violated this statute when it gave him, at the time of his discharge, a paycheck and a “Statement of Final Pay” that did not include the “dates of the period for which” he was paid.

The 9th Circuit again disagreed with Magadia’s argument and found that Walmart’s practices comported with California law. Under the statute, employers are given the option of furnishing wage statements semimonthly or at the time of each payment of wages. Here, while Walmart’s “Statement of Final Pay” did not reflect the pay-period dates, Walmart furnished the required pay-period dates to Magadia in his final wage statement – which came at the end of the next semimonthly pay period. Because Magadia had been discharged during the middle of a pay period, Walmart had not missed 226(a)(6)’s deadline when it chose to furnish pay-period information with Magadia’s final semimonthly wage statement. Therefore, the court concluded, Walmart had committed no violations under California law and Magadia had no viable claims.

Conclusion

Walmart’s victory came after a persistent and appropriate defense of its fully compliant wage statement practices. The appellate court’s decision to overturn the previous judgment showcases the complexity and high-stakes nature of PAGA litigation, as well as important differences in the federal and California state court systems. Given these considerations, California employers would be well-served to regularly review their own compliance with California’s wage and hour laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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