By now, it's a familiar maxim: when an employee brings an action under the Private Attorneys General Act (PAGA), "the state is the real party in interest." Iskanian v. CLS Transp. L.A., LLC. That concept is the jumping-off point for anyone wishing to understand the procedural complexities of PAGA litigation. Under the guise of protecting California's "interest in vigorous enforcement" of the Labor Code (see Kim v. Reins Int'l Cal., Inc.), California courts have used the state's supposed overriding interest in PAGA cases to invent a host of novel rules, nearly all of which redound to the benefit of plaintiffs. Among them: PAGA claims need not satisfy the procedural or manageability requirements of a class action, even those involving many thousands of employees; employers can't compel PAGA claims into arbitration; employees have standing to litigate Labor Code violations that they did not suffer and that caused them no harm; and an employee whose claims are barred by the statute of limitations can nonetheless seek penalties for other aggrieved employees. See Estrada v. Royalty Carpet Mills, Inc.; Arias v. Superior Court; Iskanian; Kim; and Johnson v. Maxim Healthcare Servs.
A recent case carried that thinking to its logical conclusion, and, in a rare victory, employers might stand to gain. In one sense, Rose v. Hobby Lobby Stores, Inc., decided Dec. 28, 2023, in Alameda County Superior Court, followed the normal course of PAGA cases. The employee, Rose, submitted a letter to the Labor and Workforce Development Agency (LWDA) alleging violations of the Labor Code and giving the state the opportunity to investigate the allegations and potentially intervene. The LWDA did nothing, allowing Rose to commence her action under PAGA. So, while the state remained the "real party in interest," effectively it had no role in the conduct of the eventual litigation. To this point, Rose proceeded in the same manner as nearly every other PAGA case.
Yet in another sense, Rose would turn out to be unique. Rose was the rare PAGA case that went to trial, a trial where the employer prevailed. And as the prevailing party, Hobby Lobby sought costs of nearly half a million dollars, since California law provides that "a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." But relying on the state's position as the "real party in interest," it sought those costs directly from the LWDA pursuant to Code of Civil Procedure section 1028, which provides that "when the State is a party, costs shall be awarded against it on the same basis as against any other party and, when awarded, must be paid out of the appropriation for the support of the agency on whose behalf the State appeared."
Unsurprisingly, the state preferred not to pay and intervened to challenge the award of costs. The trial court considered various alternatives but ultimately concluded that neither the named plaintiff, her attorneys, nor the other allegedly aggrieved employees were on the hook. That left the LWDA itself, even though the LWDA had done nothing to prosecute the case. Indeed, it was precisely because the LWDA could have intervened at the outset to take control of the case, but chose not to, that the court awarded costs against it. "There is a difference," the Court held, "between a person or entity that has the opportunity to exercise control and chooses to not exercise control and a person or entity that does not have the authority to exercise control."
In addition, while the LWDA does not normally participate in the conduct of PAGA litigation, it does reap the financial benefits. By statute, 75% of civil penalties recovered under PAGA are awarded to the LWDA, with only 25% awarded to employees. And the evidence before the Court revealed some eye-popping numbers: The LWDA received over $109,800,000, $111,500,000, and $157,000,000 from PAGA settlements or judgments in fiscal years 2019-20, 2020-21, and 2021-22, respectively. While the Court ultimately reduced the amount of costs awarded, it ordered the LWDA to foot the bill of approximately $125,000. A modest victory compared with what the employer likely expended in defending itself, but a meaningful one, nonetheless.
Rose was a trial court order, and the LWDA has already filed a notice of appeal, so this will likely not be the last word. If Rose stands, however, it may encourage the LWDA to police PAGA cases more rigorously and weed out those that have no realistic prospect of success. Until Rose, sending notice to the LWDA had often been merely a box to check on the way to the courthouse, since the LWDA frequently appears generally content to sit back, let the plaintiffs' lawyers do the work, and collect their share of any settlements. But after Rose, the LWDA may have real skin in the game to defend.
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