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California Supreme Court Clarifies Plaintiffs Can Only Pursue Civil Penalties Under PAGA – Not Wages

Author: Orlando Arellano

December 9, 2019 10:00am

For many years wage and hour class actions were commonplace in California.  Plaintiffs’ lawyers could conjure up class action complaints from virtually nothing – sometimes completely nothing.  One claim that was often added was a claim under the California’s Private Attorney General Act of 2004 (“PAGA”).  Since the statute of limitations on a PAGA claim is one year, and the other class action claims often reached back three or four years, the PAGA claim was mostly an afterthought.  Recovering wages through the PAGA was not necessary.

However, once employers started implementing arbitration agreements with class action waivers, PAGA suddenly became very important.  It was the only collective claim that could often be pursued.  And when the California Supreme Court held arbitration agreements could not compel plaintiffs to arbitrate their PAGA claims in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, PAGA became the class action replacement.  With PAGA being litigated far more often, plaintiffs’ attorneys began to allege that under Labor Code section 558, the plaintiff could not only recover civil penalties, but wages as well.  This was based on Labor Code section 558, which provided an employer was subject to the following civil penalty: “For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.”  The concept that a plaintiff could recover wages under section 558 was often accepted by not only the courts, but also often the defendants as there was no case law to the contrary.  This allowed an end run around to the prohibition on class action litigation in arbitration agreements.

Finally, some good news came for employers this September.  In ZB, N.A. v. Superior Court of San Diego County (2019) 8 Cal.5th 175, the California Supreme Court clarified that PAGA only permits private citizens to recover civil penalties – not the alleged underpaid wages.  The California Supreme Court’s decision was based on an extensive review of the history and purpose of PAGA, which was to allow the Labor Commissioner to recover alleged unpaid wages and civil penalties for employees.  In essence, the California Supreme Court explained that not all of the rights provided to the Labor Commissioner under PAGA apply to private citizens pursuing PAGA claims.  This reading more closely reflects the language in section 2699, which states a private citizen can recover civil penalties, but never mentions underpaid wages.  The California Supreme Court concluded “the amount for unpaid wages referenced in section 558 is not part of that section’s civil penalty and is not recoverable through a PAGA action.”

This decision substantially impacts PAGA litigation – reducing the value of PAGA claims significantly.  The decision is most impactful in cases where the alleged claims involve large amounts of alleged unpaid wages (as opposed to mere technical Labor Code violations).  The decision also makes arbitration agreements with class action waivers far more valuable than they had been recently as it forecloses the PAGA end run around to recovering wages on a collective basis.

Takeaway:

Employers with large workforces (40 or more) should strongly consider implementing arbitration agreements with class action waivers and re-evaluate the value of any PAGA claims asserted in litigation against them.  If your company has any questions regarding this decision or arbitration agreements please contact Tyson & Mendes.

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