The California Labor Code Private Attorneys General Act (PAGA) authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for alleged Labor Code violations. In other words, PAGA gives a private citizen the right to pursue fines that would normally only be available to the State of California, thereby allowing a private citizen to act as an “attorney general”. Defending these claims can be time consuming and costly for employers, and a California appellate court recently made things even more challenging for business owners across the state when it affirmed that arbitration is not permitted for PAGA claims. Indeed, arbitration clauses are undergoing a change up in employment agreements across the state, read more here.
In the case at hand, a nonexempt hourly employee filed a PAGA action against her employer, alleging numerous violations of state labor law. The plaintiff, who worked in a Ross Stores, Inc. warehouse, filed a single-count representative action under the state’s Private Attorneys General Act alleging that Ross Stores had violated numerous Labor Code laws, including failure to pay all appropriate wages, failure to properly itemize hours worked and paid, and failure to pay overtime. She sought recovery under the PAGA civil penalties.
PAGA as a Class
When an employee brings a PAGA action against an employer, it is on behalf of all the employees who suffered labor violations by that employer. Thus, if the employer was not paying appropriate wages, the fines would be on behalf of all employees who were not paid appropriately.
Ross, the employer, argued that the plaintiff had to first arbitrate her individual dispute to show that she was an “aggrieved party” under PAGA before the representative action could proceed in court, referencing an arbitration agreement the plaintiff signed when she was hired that supported this argument. According to Ross, the determination of whether or not the plaintiff was an “aggrieved party” involved the resolution of whether she was subject to a Labor Code violation. Furthermore, Ross believed that this question was a “dispute” that must be arbitrated.
Side note: The question of whether a worker must bring a PAGA claim as a representative action, or may bring such a claim as an individual action for her PAGA penalties only, has not been resolved. A number of federal courts have held that PAGA claims must be representative; others have permitted PAGA claims to proceed individually. In 2014, the California Supreme Court noted that this was an open question, but declined to resolve it (Iskanian v. CLS Transportation).
A trial court denied the employer’s motion to compel arbitration and the employer appealed, arguing that the Federal Arbitration Act (FAA) allows an employer and employee to individually arbitrate discreet disputes underlying a PAGA claim, which can then be collectively litigated. The appellate panel affirmed the lower court’s ruling, stating that “this dispute does not involve an individual claim by [the plaintiff] but rather an action brought for civil penalties under PAGA for violating the Labor Code.”
The court went on to say that “the dispute between Ross and [the plaintiff] is not a dispute between the employer and the employee. Rather, this is a representative action and [the plaintiff] is acting on behalf of the state. This dispute does not involve an individual claim by [the plaintiff] regarding the Labor Code violations but rather an action brought for civil penalties under PAGA for violating the Labor Code. There are no ‘disputes’ between the employer and employee as stated in the arbitration policy. The trial court properly determined it had no authority to order arbitration of the PAGA claim.”
Furthermore, and of note to employers across the state, the court elaborated that the determination of whether the party bringing the PAGA action is an aggrieved party should not be decided separately by arbitration. Indeed, the use of the word “dispute” in the employment agreement rather than “claim” was, according to the court, “a distinction without a difference.”
“The term ‘dispute’ is clearly intended in the agreement to refer to all claims, disputes, and actions brought by the employee against the employer for personal Labor Code violations,” the court wrote. “Again, this case involves a dispute, claim or action brought on behalf of the state by [the plaintiff]. [She] did not allege any individual claims or disputes.” Employers would be well-advised to look over their employment agreements.
For more information on PAGA claims, including how to defend your business against one, contact experienced attorney Drew E. Pomerance today.