A recent California Supreme Court ruling could bring a flood of plaintiff claims against employers under California's Private Attorney General Act (PAGA).
PAGA provides employees with a private right of action for Labor Code violations against their employers in order to collect penalties on behalf of the State's Labor and Workforce Development Agency (LWDA). PAGA was enacted because the LWDA did not have adequate resources to enforce the Labor Code. Labor Code violations are grouped into three categories under PAGA: category 1 encompasses Labor Code violations such as waiting time penalties, meal and rest break premiums, and wage order violations; category 2 consists of health and safety violations, and; category 3 claims consist of "all other" claims.
Each category contains different notice provisions before a plaintiff can file suit but generally the employee must give notice to the LWDA, the employer, and in some circumstances the employee must give notice to the Division of Occupational Safety and Health. PAGA contains a "safe harbor" provision with respect to category 3 claims: employers can cure a violation under this category within 33 days of being notified of the violation. Under PAGA employee (s) bringing the suit are entitled to 25% of the penalties and the remaining 75% is to be paid to the LWDA.
If the Labor Code section at issue does not provide a civil penalty, the PAGA penalty is $100 per employee per pay period for the initial violation and $200 per employee per pay period for each subsequent violation. Plaintiffs bringing successful suits under PAGA are entitled to fees in addition to the penalties, making such suits extremely enticing to plaintiff's attorneys.
In PAGA's first five years of existence it was unclear if class certification was necessary for a plaintiff to pursue claims on behalf of other aggrieved employees. The class certification step in multi-plaintiff actions is a powerful tool for employers because if class certification fails the value of the suit is greatly diminished: the plaintiffs' bar is less interested in litigating claims on an individual basis.
In 2009 the California Supreme Court decided in Arias v. Superior Court that class certification requirements "need not be met when an employee's representative action against an employer is seeking civil penalties under the Labor Code Private Attorneys General Act . . ." While the Arias decision settled the certification in State court, there is a split of authority in federal courts: some federal courts follow Arias and others require class certification.
Iskanian Ruling and Class Action Waivers
Many employers require their employees, as a condition of employment, to agree to arbitrate employment related disputes and waive their ability to bring or participate in class actions suits. In June 2014 the California Supreme Court strengthened the enforceability of class action waivers generally in Iskanian v. CLS Transportation Los Angeles, LLC.
In Iskanian, a limousine driver brought a wage and hour class action lawsuit against his employer and included PAGA claims. The employer attempted to enforce its arbitration agreement which contained a class waiver provision. The lower court ordered the entire matter to arbitration pursuant to the agreement.
On appeal, the Supreme Court ruled that while mandatory class action waivers in arbitration agreements are generally enforceable in light of the U.S. Supreme Court's Concepcion ruling, class waivers are not enforceable with respect to PAGA claims because such waivers are counter to public policy. The difference, according to the Court, is that PAGA claims are brought on behalf of the State (LWDA) against an employer and therefore not preempted by the Federal Arbitration Act, which was the case in Concepcion.
The Court remanded the matter to the lower court to decide whether the individual claims will go to arbitration while the PAGA claims proceed in court (bifurcated), whether the PAGA claims will proceed in arbitration on a class basis, or whether the parties can agree on a single forum. If the suit is bifurcated it is unclear whether the court will stay one of the matters.
Counsel to Management: The Iskanian decision will no doubt encourage plaintiff's attorneys to file claims under PAGA in order to avoid class waiver provisions in arbitration agreements and to avoid the Concepcion ruling. Employers should not underestimate the value PAGA claims can have in a dispute both in terms of subverting class waiver provisions and in monetary value. The $100 or $200 penalty per employee per pay period for each violation over the course of a year can add up to significant liability.
Managers are advised to keep abreast of labor laws and remediate any violations immediately. Please contact The Saqui Law Group if you have questions pertaining to the enforceability of your company's employee arbitration agreement.