Complying with California’s regulations related to cannabis businesses can be challenging. However, it is important to keep in mind that compliance with the Department of Cannabis Control is only one aspect of the requirements imposed by California state law. Overlooking compliance with California’s labor code can result in cannabis businesses facing costly lawsuits.

Imagine, after investing nearly a year navigating and complying with the state’s disclosure requirements, obtaining permits from the California Department of Cannabis Control, and jumping through the hurdles imposed by county and municipal authorities, to then have your business face a lawsuit from a former employee who alleges that he, along with all other employees in the same position, was not compensated for pre-shift work. In this scenario (based on actual allegations filed against a California cannabis delivery company) the employee may also allege a litany of technical labor code violations. This type of lawsuit is known as a PAGA action.

California law allows employees to file to recover penalties for labor code violations on behalf of themselves and “aggrieved employees” who were allegedly subject to the same violations. PAGA lawsuits are representative actions where the employee’s attorney stands in the place of the California Labor Commissioner to collect penalties based on violations of law against the plaintiff and other “aggrieved employees”. PAGA actions are different from class actions in terms of the amount of damages that can be recovered. However, they can require almost as much work to defend against compared with class actions. They also require significantly less work from the plaintiff’s attorney to prosecute compared with class actions. These factors have made PAGA actions very popular with plaintiff’s attorneys in recent years.

Common claims that employees assert as PAGA actions against employers include claims for:

• Failure to provide meal or rest breaks.
• Failure to pay minimum wage.
• Unpaid wages and overtime for duties performed before or at the end of a shift.
• Misclassification of employees as exempt employees.
• Misclassification of employees as independent contractors.
• Violation of California Industrial Welfare Commission wage orders regulating hours and days of work.
• Failure to provide accurate itemized wage statements.

PAGA actions often involve complicated factual circumstances, potentially involving every employee of a certain job description within the state. These actions are also procedurally complicated. The law governing how these types of claims must be litigated changes regularly.

For example, in 2021 the California court of appeal ruled that PAGA actions may be stricken where they are unmanageable. In Wesson v. Staples, 68 Cal. App. 5th 746, 773 (2021), the plaintiff alleged that his employer misclassified 346 general managers in California. Staples filed a motion to strike Wesson’s PAGA claim due to the fact that a trial to establish Staples’ affirmative defenses would require mini-trials for each general manager. These mini-trials would result in a trial that would take many years to complete. The trial court determined that such a trial would be unmanageable and dismissed the plaintiff’s PAGA claim for that reason. The Court of Appeal agreed with the trial court’s ruling and held that courts have the inherent authority to consider whether a PAGA trial would be unmanageable as a factor that may require that a PAGA claim be dismissed.

However, the defense of unmanageability may be short lived. Just a matter of months after the Wesson decision was published, another division of the California Court of Appeal disapproved of the ruling in Wesson and held that a court may not strike a PAGA claim on the basis of manageability. Estrada v. Royalty Carpet Mills, Inc., No. G058397, 2022 WL 855568, at *1 (Cal. Ct. App. Mar. 23, 2022). The inconsistent approach of the Court of Appeal in the Wesson and Estrada cases demonstrates how complicated defending against PAGA claims can be.

Although manageability may not necessarily constitute a defense in all circumstances to PAGA actions, other Defenses to PAGA actions may include:

• Statute of limitations – PAGA actions have a one year statute of limitations. This is a much shorter statute of limitations compared to class actions and single plaintiff labor code violations generally.
• Failure to comply with notice requirements – the plaintiff in a PAGA action is required to serve a notice to the California Labor and Workforce Development Agency prior to filing suit.
• Discretionary penalties – Due to the discretionary nature of whether to assess penalties,  an employer may be able to effectively argue that an award of no penalties is justified where there are only isolated or highly technical labor code violations.

As is usually the case, taking proactive steps to ensure that labor code violations are avoided is the best way to ensure that your company stays out of the crosshairs of opportunistic former employees and their attorneys.

Ensuring compliance with California employment law can be complicated. It is important to discuss your business operations with a qualified employment law attorney who is familiar with the circumstances of your business to protect your company from avoidable employment lawsuits.

Zuber Lawler attorneys have successfully defended against PAGA actions and advised employers on ways to avoid litigation. Stay up to date with us by subscribing to our newsletter at LawUpdates.com