In re Patacsil, 2023 WL 3964908 (Bankr. E.D. Cal. June 9, 2023)

The Private Attorneys General Act (PAGA) permits aggrieved employees to file representative action to recover civil penalties for Labor Code violations.  The law allocates 75% of any recovery to the Labor and Workforce Development Agency (LWDA) for “enforcement of labor laws” and “education of employers and employees about their rights and responsibilities” under the Labor Code.  Further, according to a recent bankruptcy court opinion, the amounts payable to the LWDA qualify as penalties “payable to and for the benefit of a governmental unit” which makes them nondischargeable in bankruptcy.  11 U.S.C. § 523(a)(7).  Thus, employers will remain liable for 75% of the award even after emerging from bankruptcy.  Importantly, however, the bankruptcy court held that the other 25% of the penalty (payable to “aggrieved employees”) and any statutory attorneys’ fees do not satisfy any exception in the Bankruptcy Code and thus are dischargeable in bankruptcy.