The California Labor Code Private Attorneys’ General Act of 2004 (Labor Code §§ 2698, et seq.) permits private persons to seek civil penalties on behalf of the State of California and other workers for alleged violations of a wide range of Labor Code sections. These penalties can add up to hundreds of thousands of dollars. The PAGA was passed to help supplement California’s labor law enforcement resources, which are insufficient to investigate and prosecute all of the Labor Code violations committed by California employers. The legislature reasoned that by deputizing private persons and their attorneys to serve as private attorneys general, California can rely on skilled private practice attorneys to take over some of its enforcement burden.
For many years following the enactment of the PAGA, most wage and hour employment class action cases included a claim under the statute for civil penalties. However, the PAGA claim was routinely treated as a secondary claim, subservient to the often-more-valuable wage claims asserted on behalf of the plaintiffs and the class. In six- and even seven-figure class action settlements, the parties often allocated no more than $10,000-$20,000 to the PAGA claims. And, the Courts routinely approved the miniscule allocations for reasons that are beyond the scope of this article.
During the past several years, many mid-size and large companies in California have required employees to agree in writing to arbitrate claims against them on an individual basis. Arbitration agreements, with so-called “class action waivers,” are now fairly typical. As a consequence of the rise of the use of class action waivers, the plaintiff’s bar is relying with ever-increasing frequency on the PAGA.
PAGA claims, unlike class action claims, cannot be waived by an employee without the State’s consent. Correia v. NB Baker Electric, Inc. (2019) No. D073798 Court of Appeals of California, Fourth District, Division One, 2/25/19. A representative action waiver is thus generally unenforceable. PAGA claims are seen as a way around the class action waiver barrier. The PAGA, once the tail of wage and hour cases, is now wagging the beast. The increase in the number of PAGA representative actions raises serious concerns for business corporate officers and directors. Until recently, these individuals have enjoyed certain limited liability protections against wage and hour claims.
Based on a recent California appellate decision, we know that in a PAGA lawsuit, officers and directors of corporations and limited liability companies in California can be held personally responsible for civil penalties, statutory interest, and costs of suit, including attorneys’ fees, under Labor Code §§ 558(a), 1197.1(a) and 2699(g). In Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809, the Court of Appeals held that under California’s Private Attorneys General Act (“PAGA”), an employee may seek civil penalties, including underpaid wages, from officers and agents of a corporation.
“[W]e conclude that the language in both section 558(a) and section 1197.1(a) is broad enough to unambiguously include [the corporate officer] as a person other than the corporate employer subject to the civil penalties awarded by the trial court under those two statutes.” 
Business Owners: What this means in practical terms is that owners of small businesses are more likely to become targets of PAGA lawsuits because of the ability for employees and their attorneys to name corporate owners as individual defendants. If an award of PAGA penalties is made against an officer or director by the court, the assets of those individuals could be subject to collection efforts after a verdict is rendered. Even if the company has no assets worth pursuing or goes out of business, the individual owners’ assets could be levied upon.
The risk of individual liability makes it more important than ever to make sure a company’s employment policies and practices are fully compliant with California law. Furthermore, because the statute of limitations for PAGA claims is relatively short, only one year, it is important to come into compliance with all labor laws as soon as possible. One year from now, it will be too late for an employee to bring a PAGA case based on earlier, non-compliant practices.
Employees: For employees of large companies, the imposition of liability against officers and directors will make no difference to a PAGA case. In large company PAGA cases, we do not have the same concerns about collecting a judgment that we have with small companies that could be forced to go out of business during the course of a PAGA lawsuit. But, for employees of small companies, asserting PAGA claims against the company and its owner officers and directors could be a smart strategic choice.