Court Rules: PAGA Claim Doesn’t Require Injury

by Manatt, Phelps & Phillips, LLP
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Why it matters

A Private Attorneys General Act (PAGA) claim based on the failure to provide and maintain accurate wage statements as required by the California Labor Code does not require proof of injury, a California appellate panel has ruled. After Terri Raines was terminated by Coastal Pacific Food Distributors, she sued for age and disability discrimination, as well as violations of the Labor Code based on allegedly unlawful wage statements. A trial court granted summary judgment in favor of the employer, but the panel reversed. Raines’ representative PAGA claim for civil penalties based on a violation of Labor Code Section 226(a) did not require proof of injury or a knowing and intentional violation, the court said. “This is true even though these two elements are required to be proven when bringing an individual claim for damages or statutory penalties under section 226(e),” the panel wrote. “Because the trial court erroneously required proof of injury on the PAGA claim, the grant of summary judgment was improper.” Although employers should be concerned about potential PAGA liability where the plaintiff does not have to prove an injury, the panel also noted that trial courts retain discretion as to whether or not to award civil penalties under the statute.

Detailed discussion

Coastal Pacific Food Distributors hired Terri Raines as a billing clerk in 1998 and terminated her employment in 2014. Raines filed suit, alleging age discrimination, disability discrimination and, in an amended complaint, violations of the California Labor Code. Specifically, she claimed the employer failed to furnish employees with accurate itemized wage statements showing the applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate, as required by Section 226(a).

Section 226(e) authorizes an “employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)” to recover damages or statutory penalties. Raines sought to recover both statutory penalties on an individual basis and civil penalties on a representative basis under the Private Attorneys General Act (PAGA).

The parties settled the discrimination claims and focused on the PAGA wage statement claim. They stipulated that over a 15-month period, Coastal Pacific did not include the overtime hourly rate of pay on wage statements. The statements did include both the number of overtime hours worked by the employee and the total overtime pay, however.

Coastal Pacific argued that in order to obtain civil penalties under PAGA, Raines was required to prove she suffered an injury, and could not do so. Even though the overtime hourly rate of pay was not listed on the wage statements, because the number of overtime hours worked and the total overtime pay both appeared, the overtime hourly rate was “readily ascertainable” under the “reasonable person” standard because it required only simple math to calculate, the employer told the court.

The plaintiff countered that she was not required to demonstrate an injury in order to recover under Section 226, and even if she was, the incorrect wage statements were sufficient to establish an injury.

Siding with the employer, the trial court ruled that Raines had not suffered an injury, as required for the individual claim under Section 226(e), because the hourly overtime rate could be determined from the wage statement by simple math. The court also held that an injury was necessary for the PAGA claim, granting summary judgment in favor of Coastal Pacific.

The appellate panel rendered a mixed decision. First, the court addressed Raines’ individual claim for statutory penalties under Section 226(e). A plaintiff is “injured” under this provision of the Labor Code “if the accuracy of any of the items enumerated in section 226(a) cannot be ascertained from the four corners of the wage statement,” including the hourly rate.

Raines told the court she could not normally do division in her head and the calculation of the hourly overtime rate presented a relatively complex mathematical problem that most people could not readily do in their heads, meaning she was injured by the missing overtime hourly rate of pay.

“We reject this argument,” the panel wrote. “Here, one can determine the hourly overtime rate ‘from the wage statement alone.’ It can be ‘promptly and easily’ determined by simple arithmetic. The mathematical operation required is division, which is taught in grade school. Although many people cannot perform the calculation in their heads, it can be easily performed by use of a pencil and paper or a calculator; no additional documents or information are necessary.”

Since the plaintiff could not show a triable issue of fact as to the requisite injury, the appellate court affirmed summary judgment in favor of Coastal Pacific on Raines’ individual claim for statutory penalties under Section 226(e).

However, the court reversed on the plaintiff’s PAGA claim. Courts are split on the question of whether a PAGA claim for a violation of Section 226(a) requires the same showing of injury as an individual claim for statutory penalties under Section 226(e). PAGA is concerned only with civil penalties, while Section 226(e) provides for damages or statutory penalties, the panel noted, and case law has historically distinguished between statutory penalties and civil penalties.

“In this context, PAGA is concerned with collecting civil penalties for the violation of section 226(a), not the damages or statutory penalties provided for in section 226(e),” the court wrote, rejecting the employer’s argument that “no injury” amounts to “no violation.”

“[D]amages and civil penalties have different purposes; these different purposes may well explain the Legislature’s reasoning. Damages are intended to be compensatory, to make one whole. Accordingly, there must be an injury to compensate. On the other hand, ‘Civil penalties, like punitive damages, are intended to punish the wrongdoer and to deter future misconduct.’ An act may be wrongful and subject to civil penalties even if it does not result in injury.”

Concerns about an employer being punished where no injury occurred are also mitigated by the fact that trial courts have discretion in awarding civil penalties and may reduce the award for technical violations that cause no injury, the panel noted.

“Because the trial court incorrectly found an employee must suffer an injury in order to bring a PAGA claim, it erred in granting summary adjudication on Raines’s PAGA claim,” the court concluded.

To read the opinion in Raines v. Coastal Pacific Food Distributors, Inc., click here.

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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