May 27, 2022

The Future of PAGA Claims in California

5 min

PAGA litigation has burdened California employers for almost two decades. Since PAGA's passage into law, the number of filed PAGA actions has continued to increase. The flooding of the dockets with such cases is largely due to court decisions over the years that have expanded PAGA's reach and allowed California employees to fairly easily bring claims for civil penalties for California Labor Code violations on behalf of themselves and other workers. However, there may be light at the end of the tunnel for California employers in 2022, as we wait for the U.S. Supreme Court to decide the case of Viking River Cruises, Inc. v. Moriana, which involves the issue of whether arbitration agreement waivers of employees' rights to pursue a PAGA representative action are enforceable. This article sets forth a brief history of PAGA's passage into law, the current legal landscape of PAGA, and what the future of PAGA may look like.

The Power of PAGA

The Private Attorneys General Act of 2004 (PAGA) is a California statute that allows private individuals to stand in the shoes of the state to bring representative actions on behalf of other "aggrieved employees" for alleged wage and hour law violations. PAGA penalties can get very high very quickly – often in the amounts of hundreds of thousands or even millions of dollars.

Since its passage into law, there has been a consistent flood of PAGA litigation in California. The large volume of PAGA cases continued after the Appellate Court in California held in Arias v. Superior Court that employees do not have to meet the stringent requirements for class certification in order for a case to proceed as a PAGA representative action.

Since the Arias court's holding, employers have commonly faced PAGA claims that cannot be fairly and efficiently litigated, because plaintiffs have not been limited by parameters similar to those required for class certification.

Last year, however, employers received some good news on this front after a California Appellate decision was issued in Wesson v. Staples the Office Superstore, LLC. The court in that case held that trial courts may limit or strike PAGA claims that are not "manageable" for a fair and efficient trial. The court in Wesson noted that courts should work with the parties to adopt a feasible trial plan or limit the PAGA claim's scope when possible. Thus, under the ruling in Wesson, employers can move to strike PAGA claims if they will be unmanageable because of individualized issues at trial.

While Wesson is a helpful case for employers, in this year's Estrada v. Royalty Carpet Mills, Inc. decision, another California Appellate Court recently found the opposite, holding that a trial court could not strike a PAGA claim based on manageability. Given the split legal landscape regarding arbitrability of PAGA actions, we expect the California Supreme Court to weigh in on this issue in the near future.

Arbitration Agreements to the Rescue?

Currently, employers in California are generally able to require employees to sign otherwise enforceable arbitration agreements containing class action waivers, which preclude signatory employees from bringing actions on a classwide basis in court or in arbitration. However, the same tool has not been available to employers in the PAGA context. As a result, the dockets have been flooded with "PAGA-only" cases (i.e., cases that are not filed as putative class actions).

In 2014, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC decided that a waiver of an employee's right to file a representative action pursuant to PAGA was not enforceable. The court in Iskanian ruled that arbitration agreements requiring waiver of PAGA actions are "contrary to public policy" and therefore unenforceable. The court also held that the Federal Arbitration Act (FAA) does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Soon, however, there may be some relief for employers on this front. In Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court granted petition for writ of certiorari to review whether a pre-dispute agreement in which an employee agrees to waive its rights to pursue a PAGA action is enforceable. Viking River Cruises bases its argument on two U.S. Supreme Court decisions, AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis, to assert that the FAA requires enforcement of bilateral arbitration agreements with PAGA waivers in the same way it requires enforcement of class action waivers. The Supreme Court's decision will determine whether plaintiffs who signed arbitration agreements waiving their right to bring representative PAGA claims will be able to proceed with those claims.

On March 30, 2022, the Supreme Court heard oral argument in Viking River Cruises. Although there has been no decision yet, the Court's questioning during oral arguments seems to indicate the potential for the Court to rule in favor of enforcing properly drafted arbitration agreements that waive a signatory's ability to proceed with a PAGA representative action.

From the Courts to the Ballots

If the ruling in Iskanian is overturned after a successful petition by Viking River Cruises, the legislature may revisit and amend PAGA legislation in the California Labor Code. As PAGA currently reads, employees may bring representative actions to recover substantial penalties with considerable payouts to the plaintiffs' lawyers. A ballot initiative called the Fair Pay and Employer Accountability Act (FPEAA) would repeal and replace PAGA. The FPEAA, if passed by California voters in November 2022, would remove the private right of action provided by PAGA and would give sole enforcement power back to the Labor Commissioner. It would allow aggrieved plaintiffs to receive all of the recovered penalties as opposed to only 25% of the penalties, as is the case pursuant to PAGA. The FPEAA would also provide resources to employers to ensure labor compliance and would aim to require field enforcement to maximize the efficiency and timeliness of enforcement and recovery of penalties owed to employees.

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Employers are encouraged to contact one of Venable's experienced Labor and Employment attorneys with questions regarding this ever-changing area of law. Please feel free to reach out to us to discuss how our attorneys can help you ensure compliance across your hiring and employment practices.

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