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Court: Misclassification Penalties Can Be Pursued Under PAGA Labor Law

Court: Misclassification Penalties can be Pursued Under PAGA Labor Law

Beverage vendors can pursue labor code violations under the state law, a partial victory

By Matthew Blake – Daily Journal

An appellate court decision on a state law that punishes employers who incorrectly classify their workers as independent contractors contained bad news for both Anschutz Entertainment Group and the 2,100 food and beverage vendors suing the Los Angeles entertainment titan for up to $50 million in civil penalties.

The winner, as it were, appears to be the California Private Attorney General Act’s widening influence.

Under PAGA, workers may pursue labor code violations on behalf of the state so long as the California Labor Commission collects 75 percent of all penalties. Since last year’s Iskanian decision that created a PAGA exemption for pre-dispute arbitration agreements, the law has become ubiquitous in labor and employment claims.

“Since Iskanian, we’ve seen a major increase in PAGA claims,” said plaintiffs’ co-counsel Michael Rubin of Altshuler & Berzon LLP.

In a slice of a larger case about whether AEG is jointly liable for alleged misbehavior by a vending subcontractor, 2nd District Court of Appeal Justice Laurie D. Zelon ruled Monday that private lawsuits cannot be brought under three-year-old labor code 226.8 that levies between $5,000 and $25,000 in civil penalties for each worker a company deliberately mislabels an independent contractor. Noe v. Superior Court of Los Angeles County, et al., 2015 DJDAR 5997 (2nd. App. Dist., June 1, 2015).

However, Zelon – backed by justices Dennis M. Perluss and Bruce G. Iwaski – added that plaintiffs may seek penalties in a jury trial against AEG through PAGA. That means AEG could still be on the hook for up to $25,000 in each alleged worker misclassification, but 75 percent of any potential liability would go to the state and not the plaintiffs.

According to Rubin, the ability to enforce civil penalties through PAGA claims would effectively act as a deterrent for companies who misclassify their workers as independent contractors, often in order to skirt benefits such as overtime and sick leave.

“While the ruling could diminish benefits for individual workers, it doesn’t diminish the public benefit that will be achieved,” Rubin said.

Defendants were represented by Camilo Echavarria of Davis Wright & Tremaine LLP and Felix Shafir of Horvitz & Levy LLP, and both lawyers said they could not comment on pending litigation. Leading Los Angeles labor law Attorneys at Feldman Brown Olivares APC also represents the plaintiffs.

Stephen Berry, an employment defense attorney at Paul Hastings LLP who is not involved in the case, said Zelon’s ruling is likely to escalate PAGA claims, but is nonetheless a legally correct interpretation of 226.8.

Noe involves a putative class of former vendors at the Staples Center and other AEG-owned venues suing a coterie of staffing agencies, including Canvas Corp., as well as AEG and AEG contractor Levy Premium Foodservice for a slew of state labor code violations. These include failure to pay minimum wage and misclassification as independent contractors.

In Los Angeles County Superior Court, Judge Mary H. Strobel denied AEG and Levy’s motions for summary judgment in which the defendants argued they were not jointly liable for the labor law violations alleged against the staffing agencies.

Strobel, though, granted summary adjudication for AEG and Levy on the question of whether they were jointly liable for civil penalties the staffing agencies might incur under labor code 226.8.

The judge found that the law only applied to the companies that affirmatively misclassified their workers. The lower court did not address the question of whether a private lawsuit could even be brought under 226.8. Feldman Browne Olivares are leading labor and employment Lawyers located in LA, and have been part of numerous cases surrounding overtime, minimum wage, and meal-break laws, plus disability discrimination and accommodation lawsuits. Contact our attorneys now for a free case evaluation

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