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PAGA Claims and Iskanian Rule

California Civil Code § 3513 provides that “[a]ny one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” In a recent case, Correia v. NB BAKER ELECTRIC, INC., Cal: Court of Appeal,4th Appellate Dist., 1st Div. 2019the California Court of Appeal held that employers cannot require employees to arbitrate their representative claims under the California Private Attorney General Act of 2004 (“PAGA”), Labor Code § 2699 et seq., without the State’s consent.  The trial court granted the petition to compel arbitration on all causes of action, except for the PAGA claim. On the PAGA claim, the trial court followed two prior California decisions, Iskanian v. CLS Transportation (“Iskanian”), 59 Cal.4th 348 (2014) (holding as unenforceable agreements to waive the right to bring PAGA representative actions in any forum) and Tanguilig v. Bloomingdale’s, Inc., 5 Cal. App. 5th 665 (2016) (holding that a PAGA claim cannot be compelled to arbitration without the State’s consent). The court in  Iskanian, 59 Cal.4th 348, further ruled that PAGA waivers are unenforceable under California Law.

The Labor Code Private Attorneys General Act

California’s Labor Code Private Attorneys General Act of 2004, Cal. Lab.Code § 2698 et seq., “authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state.” Iskanian, 59 Cal.4th at 360, 173 . An action brought under the PAGA is a type of qui tam action. Id. at 382. The PAGA was enacted to correct two perceived flaws in California’s Labor Code enforcement scheme. 

The first flaw was that civil penalties were not available to redress violations of some provisions of the Labor Code.  Those provisions only provided for criminal sanctions, not civil fines, and could only be enforced in criminal prosecutions brought by district attorneys, not in civil actions brought by the Labor Commissioner. See id. at 379, As a result, many violations of the Labor Code went unpunished. The PAGA addressed this problem by providing for civil penalties for most Labor Code violations. “For Labor Code violations for which no penalty is provided, the PAGA provides that the penalties are generally $100 for each aggrieved employee per pay period for the initial violation and $200 per pay period for each subsequent violation.” Id. (citing Cal. Lab.Code § 2699(f)(2)).

The second flaw the PAGA addressed was that, even where the Labor Code provided for civil penalties, “there was a shortage of government resources to pursue enforcement.” Id.; see also 2003 Cal. Stat. Ch. 906 § 1. The legislative history of the PAGA describes the legislature’s perception of the seriousness of this problem: “Estimates of the size of California’s `underground economy’ — businesses operating outside the state’s tax and licensing requirements — ranged from 60 to 140 billion dollars a year, representing a tax loss to the state of three to six billion dollars annually. Further, a U.S. Department of Labor study of the garment industry in Los Angeles, which employs over 100,000 workers, estimated the existence of over 33,000 serious and ongoing wage violations by the city’s garment industry employers, but that DIR was issuing fewer than 100 wage citations per year for all industries throughout the state. [¶] Moreover, evidence demonstrates that the resources dedicated to labor law enforcement have not kept pace with the growth of the economy in California.” (Assembly Com. on Labor and Employment, Analysis of Sen. Bill No. 796 (Reg.Sess.2003-2004) as amended July 2, 2003, p. 4.)

To compensate for the lack of “[a]dequate financing of essential labor law enforcement functions,” the legislature enacted the PAGA to permit aggrieved employees to act as private attorneys general to collect civil penalties for violations of the Labor Code.2003 Cal. Stat. ch. 906 § 1(d). Labor Code section 2699(a) provides: any provision of [the Labor Code] that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees…

Seventy-five percent of the civil penalties recovered by aggrieved employees under the PAGA, are distributed to the Labor and Workforce Development Agency, while the remainder is distributed to the aggrieved employees. Cal. Lab.Code § 2699(i). The Iskanian rule prohibiting waiver of representative PAGA claims does not diminish parties’ freedom to select informal arbitration procedures. To understand why, it is essential to examine the “fundamental []” differences between PAGA actions and class actions. The class action is a procedural device for resolving the claims of absent parties on a representative basis. See Fed.R.Civ.P. 23; Ortiz v. Fibreboard Corp., 527 U.S. 815, 832-33, 119 S.Ct. 2295, By contrast, a PAGA action is a statutory action in which the penalties available are measured by the number of Labor Code violations committed by the employer. An employee bringing a PAGA action does so “as the proxy or agent of the state’s labor law enforcement agencies,” Iskanian, 59 Cal.4th at 380, As the state’s proxy, an employee-plaintiff may obtain civil penalties for violations committed against absent employees, Cal. Lab.Code § 2699(g)(1), just as the state could if it brought an enforcement action directly. However, by obtaining such penalties, the employee-plaintiff does not vindicate absent employees’ claims, for the PAGA does not give absent employees any substantive right to bring their “own” PAGA claims. civil penalties recovered on behalf of the state under the PAGA are distinct from the statutory damages to which employees may be entitled in their individual capacities”). An agreement to waive “representative” PAGA claims — that is, claims for penalties arising out of violations against other employees — is effectively an agreement to limit the penalties an employee-plaintiff may recover on behalf of the state.

Because a PAGA action is a statutory action for penalties brought as a proxy for the state, rather than a procedure for resolving the claims of other employees, there is no need to protect absent employees’ due process rights in PAGA arbitrations. For this reason, PAGA arbitrations, therefore, do not require the formal procedures of class arbitrations, also the court does not inquire into the named plaintiff’s and class counsel’s ability to fairly and adequately represent unnamed employees — critical requirements in federal class actions under Rules 23(a)(4) and (g)… Moreover, unlike Rule 23(a), PAGA contains no requirements of numerosity, commonality, or typicality. By the same token, the FAA does not require courts to enforce agreements to waive the right to bring representative PAGA actions just because the amount of penalties an aggrieved employee is authorized to recover for the state makes the formal procedures of litigation more attractive than arbitration’s informal procedures. For the most part, both the PAGA statute and the Iskanian rule reflect California’s judgment about how best to enforce its labor laws. “[T]he Legislature’s purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the Agency.” Iskanian, 59 Cal.4th at 383,

Where as here, Correia v. NB BAKER ELECTRIC, INC., Cal: Court of Appeal, 4th Appellate Dist., 1st Div. 2019 is the latest in a string of California appellate decisions to find that PAGA claims are exempted from class/representative action waiver provisions in arbitration agreements and that employers cannot compel employees to arbitrate PAGA claims. 

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Not an Administrative Law Bang but a Whimper



In Kisor v. Wilkie, No. 18-15, the Supreme Court will decide this term whether to overrule or modify two prior decisions, Auer v. Robbins, 519 U.S. 452 (1997), and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), that require courts to defer to reasonable agency interpretations of their own regulations. The facts of Kisor suggest a very narrow ruling—that the court will either accept or reject an interpretation by the Department of Veterans Affairs (VA) of a technical regulation dealing with the effective date of a veteran’s benefits claim that the agency determines has been erroneously denied. Petitioner is aiming, however, at a larger target: striking the first blow against doctrines of judicial deference to an agency interpretation that is believed to sustain an ever-expanding administrative state.

To appreciate the controversy, think of three different stances or standards of review a court might adopt in dealing with an agency interpretation of its authorizing statute or regulation. One stance or standard is de novo review: the court decides the matter without according any particular significance or respect for the agency’s view; the agency’s view is given no greater weight than, say, a well-crafted law review article. An intermediate stance or standard is associated with the Court’s decision in Skidmore v. Swift & Co., 323 U.S. 134 (1944): the agency’s view is entitled to respect to the extent it has “power to persuade,” which would be a function of whether the view was consistently held and drew on the agency’s expertise or experience in the field. A third stance or standard at the other end of the deference spectrum is associated with the Court’s decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). When a court extends Chevron deference to an agency’s interpretation of its authorizing statute, the court has determined that the statute, properly read, indicates that Congress intended to delegate to the agency authority to make subsidiary policy decisions within statutory limits. In this context, unlike the other two, the agency is the principal decisionmaker within those limits; the court’s job is simply to make sure that the agency’s decision is a reasonable one even if the court, left to its devices, would come out another way.

The mistake the Supreme Court has made in this area, and this is largely due to Justice Scalia’s overeager embrace of the deference doctrine in Auer (which he later came to regret), was to apply Chevron-type deference to an agency’s interpretation of its own regulations. This was a mistake because, unlike Chevron, in the Auer context there is no delegation by Congress of authority in the agency to interpret its own regulations. Those regulations are legal instruments that stand or fall on their text which courts interpret all the time. Courts may accord Skidmore respect to an agency’s views if they reflect technical matters within the agency’s expertise or experience, or if the views are persuasive in their own right and have been consistently and openly held by the agency. Kisor presents an opportunity to make clear that Chevron-type deference is inappropriate and that at most Skidmore respect may be appropriate. The Court should do no more; it certainly should not raise questions generally about Chevron deference that rests on a congressional delegation of authority not present in the Auer context.

The Background of Kisor

Kisor comes to the Supreme Court by way of the US Court of Appeals for the Federal Circuit, which affirmed a decision of the US Court of Appeals for Veterans Claims (Veteran Appeals Court) holding that James L. Kisor was not entitled to an effective date earlier than June 5, 2006, for a grant of service connection for his post-traumatic stress disorder (PTSD) claim. Kisor served on active duty in the Marine Corps in Vietnam from 1962 to 1966. In December 1982, he filed an initial claim for disability compensation for PTSD. In March 1983 the VA regional office obtained a psychiatric examination for Kisor that did not diagnose him as suffering from PTSD although he had been involved in operations in which he came under attack, including an ambush which involved 13 deaths in a large company. Rather, it was the examiner’s view that Kisor suffered from an intermittent personality disorder that lacked a required service connection. Accordingly, in May 1983, the VA regional office rejected his claim. Kisor did not perfect an appeal at the time.

In June 2006, Kisor sought to reopen his denied claim. He presented evidence that included a July 20, 2007, report of a psychiatric evaluation diagnosing PTSD. In September of that year, a VA examiner diagnosed Kisor with PTSD. The VA regional office reopened the previously denied claim, this time granting Kisor a service connection for PTSD and assigning a 50 percent (subsequently raised to 70 percent) disability rating, effective June 5, 2006. Kisor challenged the effective date determination arguing that it should have been the date his initial claim was denied in May 1980. He based his argument in substantial part on 38 C.F.R. § 3.156(c), which provides:

(c) Service department records. (1) Notwithstanding any other section in this part, at any time after VA issues a decision on a claim, if VA receives or associates with the claims file relevant official service department records that existed and had not been associated with the claims file when VA first decided the claim, VA will reconsider the claim, notwithstanding paragraph (a) of this section [which requires “new and material” evidence]. Such records include, but are not limited to: (i) Service records that are related to a claimed in-service event, injury, or disease, regardless of whether such records mention the veteran by name, as long as the other requirements of paragraph (c) of this section are met; * * * (3) An award made based all or in part on the records identified by paragraph (c)(1) of this section is effective on the date entitlement arose or the date VA received the previously decided claim, whichever is later, or such other date as may be authorized by the provisions of this part applicable to the previously decided claim.

The Board of Veteran Appeals denied Kisor’s entitlement to an earlier effective date because the service department documents received after the May 1983 rating decision were not “relevant” within the meaning of § 3.156(c)(1) because they did not document that he suffered from PTSD. The Veterans Appeals Court agreed. The Federal Circuit affirmed, deferring to the agency’s interpretation of “relevant” official department records under §3.156(c)(1). The court found that the meaning of the term “relevant” in the regulation was ambiguous and that the agency’s interpretation—that relevant records must bear on whether Kisor suffered from PTSD rather than from nonservice-connected stressors—was a reasonable one. “The Board’s ruling was thus based upon the proposition that that, as used in §3.156(c)(1), ‘relevant’ means noncumulative and pertinent to the matter at issue in the case…. Because Mr. Kisor’s 2006 records did not remedy the defects of his 1982 claim and contained facts that were never in question, we see no plain error in the Board’s conclusion that the records were not relevant for purposes of 3.156(c)(1).”

Skidmore Respect, Not Chevron-type Deference

Although the Federal Circuit purported to apply Auer, it is not clear that it was using a Chevron-type standard of review. Since the issue here seems to turn on what definition of “relevant” official records makes sense in setting effective dates for reversal of previously denied claims, this seems an area where courts should accord Skidmore respect to the agency’s view as to practicability and appropriate incentives for claimants. This is not a case involving an unfair notice of an agency’s novel interpretation of a regulation. Some arguments for rejecting Auer-Seminole Rock deference are overstated. Agencies are not incentivized by this doctrine to adopt ambiguous regulations. Agencies have every incentive to craft regulations that comply with legal requirements and make sense if they want to prevail in court—regardless of the deference regime. The case for rejecting Auer-Seminole Rock deference is that there is no analytical basis for Chevron-style deference in this context. All that is required is a sensible application of the Skidmore factors for when courts should pay respect to the agency’s view of the proper reach of its own regulations.




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