Ortoli | Rosenstadt: What Exactly Is a Seller Responsible for When Selling Its Staffing Firm?
Buyers of a business generally expect sellers to be responsible for certain liabilities relating to when the seller owned its business—a concept mergers and acquisitions professionals refer to as indemnification. Indemnification is one of the most heavily negotiated, and potentially most significant, provisions of a purchase agreement, and understanding the terminology common to such agreements is essential when negotiating a deal. Attorney Paul Pincus of Ortoli Rosenstadt LLP explains what sellers are liable for, how a seller’s liability may be limited, and how buyers may seek to fund potential indemnity claims.
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Free ASA Webinar Tomorrow—Managing Your Online Reputation
Don’t miss tomorrow’s ASA webinar “Online Excellence: Why Reputation Matters for Recruiter Success,” 2–3 p.m. Eastern time. Hear industry leaders address the role that reputation plays in staffing client and job seeker decision making in a panel discussion facilitated by Eric Gregg of ClearlyRated, the association’s satisfaction survey partner.
All ASA webinars are free for ASA members, and most qualify for continuing education hours toward ASA certification renewal. To learn more and to register, visit americanstaffing.net.
ASA Publishes Update to Issue Paper Regarding I-9 and E-Verify
ASA published an updated version of its issue paper “Answers to Frequently Asked Questions About Form I-9 and E-Verify.” Written by outside immigration counsel Helen Konrad of law firm McCandlish Holton, the updates reflect the recent approval of a permanent, virtual verification option to complete Form I-9s, changes to the new Form I-9, and updated fines and penalty amounts. This issue paper is a popular resource available only to ASA members, and the latest version will allow members to stay current in this critical area of compliance.
Another PAGA Strikeout for Employers in the California Supreme Court: Estrada v. Royalty Carpet Mills
On Jan. 18, 2024, the California Supreme Court definitively resolved a dispute among the California courts of appeal regarding the discretion of a trial court to strike on manageability grounds a claim under the Private Attorneys General Act of 2004 (PAGA).
The long-awaited decision in Estrada v. Royalty Carpet Mills Inc. (Case No. S 274340) held that “trial courts lack inherent authority to strike PAGA claims on manageability grounds.” Prior to this ruling, the California courts of appeal were split on whether trial courts were empowered to dismiss PAGA lawsuits when the plaintiff’s claims could not be tried in an efficient manner. Now, the law is clear that they are not, even in the face of unmanageable PAGA claims that will take an unduly long amount of time to try.
PAGA authorizes an “aggrieved employee” to stand in the shoes of the state of California to initiate an action for civil penalties against his or her employer “on behalf of himself or herself and other current or former employees” (Cal. Lab. Code §2699[a], [c]). To be considered an “aggrieved employee,” a plaintiff must (1) show that he or she was employed by the employer, and (2) allege that he or she suffered one or more of the Labor Code violations. In other words, the mere act of sustaining a Labor Code violation by one’s employer (or alleging as much) is sufficient to confer “aggrieved” status on an individual.
In the past few years, state and federal courts have addressed motions by defendant employers seeking to strike PAGA claims because they are unmanageable to try. In Wesson v. Staples The Office Superstore LLC, 68 Cal. App. Fifth 746 (2021), one California appellate court held that a lower court has the inherent ability to strike a PAGA claim if it is unmanageable to try. A year later, in Estrada v. Royalty Carpet Mills Inc., 22 WL 855568 (Cal. Ct. App., March 23, 2022), a different appellate court reached the opposite conclusion—California courts lack the authority to strike a PAGA claim based on manageability—but concluded that a court could manage evidence at trial, which could have the effect of limiting the scope of a PAGA claim. Meanwhile, on the federal side, in Hamilton v. Wal-Mart Stores Inc., 39 F.4th 575 (Ninth Cir. 2022), the Ninth Circuit Court of Appeals sided with the Estrada lower court, concluding that federal courts were powerless to strike a PAGA claim on manageability grounds.
Although the state supreme court’s ruling in Estrada represents a clear win for employees pursuing PAGA lawsuits, the decision does provide some recourse for defendants in those cases. Specifically, the court held that “trial courts have numerous tools that can be used to manage complex cases…that do not involve striking a PAGA claim.” While the decision was careful to explain that its fairly ambiguous discussion of the tools available to defendants is “illustrative rather than exhaustive,” it cited as examples the ability of trial courts to “limit witness testimony and other forms of evidence when determining the amount of violations that occurred and the amount of penalties to assess,” and further provided that “courts may…limit the scope of the PAGA claim.” What this means is that, although trial courts can no longer strike unmanageable PAGA claims entirely, they can presumably limit the size of the allegedly aggrieved employee group and/or narrow the scope of the PAGA claim to only those theories of liability that can be presented at trial in an efficient manner, which could substantially cut down the potential exposure in an otherwise far-reaching PAGA lawsuit. How, whether, and when trial courts will actually agree to narrow overly broad PAGA claims remains an open question, the answer to which will widely differ from court to court and hinge on the sensibilities of the judge presiding over the case, absent further guidance from the courts of appeal or the supreme court.
To address the concern of PAGA defendants that the inability of trial courts to strike PAGA claims will impair their due process rights to present their defenses, the court held that “representative testimony, surveys, and statistical analysis, along with other types of evidence, are available as tools to render manageable determinations of the extent of liability.” Moreover, the Estrada decision held open the possibility, however slim, that a PAGA claim that cannot be tried without violating a defendant’s due process rights may be struck on constitutional grounds, stating that “we express no opinion as to…whether…and under what circumstances a defendant’s right to due process might ever support striking a PAGA claim.”
How lower courts apply the California Supreme Court’s ruling remains to be seen. In the meantime, the best strategy for employers to avoid future PAGA liability is to focus their efforts on complying with the California Labor Code. Particularly with respect to highly factual issues, such as meal period compliance, the best way to avoid costly litigation is to utilize facially valid policies and compliant practices.
|Akerman is an ASA legal sponsor.