Deleon v. Verizon Wireless concerns a case where the employer had been previously sued under various sections of the California Labor Code for charging back commissions to its salespeople. No claims under the California Labor Code Private Attorneys General Act (PAGA) were alleged in the original complaint. That case settled in 2006, and the court certified a class for purposes of settlement. Nothing in the settlement agreement made reference to the PAGA. Rather, the agreement defined "released claims" to include all liabilities and penalties arising out of "any conduct, events, or transactions occurring during the class period." After the settlement, the plaintiff in Deleon sued the same employer, purportedly on behalf of the same employees, based on the same violations of the Labor Code, but this time seeking only penalties pursuant to the PAGA. The employer demurred to the second complaint, and the court of appeal upheld the trial court's dismissal of the second complaint based on res judicata. The recent Deleon decision is significant for employers in at least the following three ways:

Settlement Agreements. Even if an employer is settling a class action that has no PAGA claims, provided the employees release all "liabilities and penalties" arising out of "any conduct, events, or transactions” occurring in the class period, Deleon provides that the employer should be protected against any subsequent tag-along PAGA actions. More importantly, the employer need not designate any part of the settlement amount as settling PAGA claims, and no part of the settlement amount need be paid to the State of California in order to release non-asserted PAGA claims. On the other hand, if PAGA claims are a part of the complaint, the parties will most likely be required to designate some portion of the settlement amount as settling PAGA claims, and 75 percent of that amount should be paid to the state.

Dismissing PAGA "Aggrieved Employees." Plaintiffs often bring claims for PAGA penalties against an employer on behalf of unnamed, unidentified "aggrieved employees." The Deleon court, however, identified the employee--and not the state--as the rights-holder of any PAGA claims. Based on Deleon, an employer can arguably move to dismiss from the action any purportedly "aggrieved employees" who have not expressly consented to have plaintiff represent them, as well as any unnamed or unidentified "aggrieved employees." At the very least, the employer can argue that employees should have the opportunity to "opt out" of plaintiff's representation, which at least one court had previously held could not be done because the PAGA plaintiff, as a "private attorney general," represents the state—not employees— in enforcing the Labor Code.

Motions for Summary Judgment. Finally, if an employer can force a PAGA plaintiff to identify who he or she is representing, and each of those allegedly "aggrieved employees" represents a separate source of liability against the employer, then the employer can arguably take discovery on those specific employees and move for summary judgment against their PAGA claims. Again, at least one superior court has held that an employer was not entitled to move for summary judgment as to specific employees because they were simply "witnesses" in an enforcement action.

This blog post was authored by Richard Rahm.