In Kim, California Supreme Court Protects Employees' Rights to Bring PAGA Claims

Earlier this month, the Supreme Court of California ruled that an employee does not lose standing to pursue a claim under the Private Attorneys General Act of 2004, California Labor Code § 2698, et seq. (PAGA) where that employee settles and dismisses his or her individual claims. In Kim v. Reins International California, Inc. (full opinion here), the Court rejected the employer’s injury-focused argument that an employee who settles his or her individual claims is no longer a “person aggrieved” for purposes of PAGA. The result is a positive judicial step in the right direction in ensuring that PAGA will continue to be a viable tool that may be used to protect the public interest in enforcement of the State’s labor laws.

The Plaintiff in Kim brought a putative class action claiming that he had been misclassified as exempt from overtime laws. The operative complaint alleged claims for failure to pay wages and overtime (Cal. Labor Code § 1194), failure to provide meal and rest periods (Cal. Labor Code § 226.7), failure to provide accurate time statements (Cal. Labor Code § 226(a)), waiting time penalties (Cal. Labor Code § 203), and unfair competition (Cal. Bus. & Prof. Code § 17200). It also sought civil penalties under PAGA. The employer compelled Plaintiff to arbitration and the PAGA litigation - which could not be compelled to arbitration, under Iskanian v. CLS Transportation Los Angeles (as explained here) - was stayed pending arbitration. While the PAGA action was stayed, the employer made a statutory offer to settle Plaintiff’s individual claims pursuant to Cal. Code Civ. Proc. § 998. Despite the settlement encompassing only Kim's "individual claims" (as discussed in footnote 7 of the Supreme Court opinion), the company sought and the court granted summary adjudication on the PAGA claim, concluding that Plaintiff lacked standing because his rights had been completely redressed by the settlement of his individual claims. The Appellate Court affirmed, leaving the California Supreme Court to weigh in on standing in PAGA cases.

Looking to the statutory language, the Supreme Court concluded that the settlement of individual claims does not strip an individual employee of standing to bring a PAGA claim. First, the plain language of PAGA only requires that a plaintiff be an aggrieved employee – someone “who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.” In rejecting the employer’s argument that a continuing injury was required to meet this definition, the Court explained that an injury-centric focus was misplaced as PAGA standing is defined in terms of an employer’s violations rather than an employee’s injuries. PAGA does not require an employee to claim any economic injury resulted from a labor violation, only that the labor violation itself occurred. Whereas the employer’s reading would read in requirements not found in the text itself, PAGA’s language only requires that an employee have suffered “one or more of the alleged violations” committed, which permits an employee to serve as a PAGA representative for violations that the employee did not personally experience, as the Court of Appeal in Huff v. Securitas had explained (see our amicus brief here for discussion of Huff).

The Court went on to discuss that injury is not a requirement for civil penalties; damages and civil penalties serve different purposes. In the case of PAGA, the statutory purpose is to remediate present violations and deter future violations as a matter of public interest, not to redress employees injuries. The Court also distinguished PAGA actions from class actions, emphasizing that whereas in a class action the representative only possesses his or her own claim for relief, a PAGA claim is brought on behalf of all affected employees as the state’s designated proxy, as in a qui tam action.

Turning to broader policy considerations, the Court explained that a narrower interpretation of who was an aggrieved employee for purposes of PAGA would have the effect of eliminating employees that settled their claims from the group of individuals eligible to receive a share of the penalties, which in turn would mitigate or potentially completely eliminate the amount of penalties that the state could collect. The Court also reasoned that, in light of plaintiffs' recognized ability to bring stand-alone PAGA claims, standing for a PAGA claim cannot be dependent on the maintenance of an individual claim as PAGA-only cases are not cases in which individual relief has been sought. Further, as there are numerous Labor Code violations that do not have a private right of action (for example, Cal. Labor Code § 558, which we previously discussed here) but can be vindicated in a PAGA action, it would be inconsistent to require a plaintiff to have an unredressed injury to have standing. Finally, the Court rejected as unsupported the employer’s arguments that the legislative history supported its argument or that Plaintiff should be precluded from raising his claim.

Notably, the Court also described Reins's conduct as "troubling." Specifically, Reins explicitly carved out Plaintiff's PAGA claim and made its settlement offer pursuant to California Code of Civil Procedure § 998, which permits defendants to recover defense costs if a jury awards a smaller award to the plaintiff than the defendant previously offered in settlement. The Court opined that "if Reins's prior conduct did not amount to an estoppel, this turnabout was hardly fair play," and observed that reaching a contrary holding would present plaintiffs with a difficult choice: "either reject the offer and risk incurring substantial liability for costs or accept the offer and lose the ability to pursue the PAGA claim."

Ultimately, the Court’s ruling in Kim is an important step in protecting employees’ rights by upholding a system designed to ensure that California’s Labor laws are properly enforced. PAGA remains an important and efficient tool in curbing an employers’ widespread misconduct. If you are seeking to assert wage claims representing your co-workers, contact Bryan Schwartz Law.

You Can’t Split This Baby—Employees Cannot be Forced to Arbitrate Parts of PAGA Claims, Appeals Court Rules

Arbitration agreements are more and more popular among employers (and the United States Supreme Court) as a way to get out of concerted actions brought by wronged employees. In California, they cannot be enforced to stop state prosecution of wage claims through qui tam representative plaintiffs under the Private Attorney General Act (“PAGA”), Cal. Lab. Code § 2698 et seq. See Iskanian v. CLS Trans. Los Angeles, LLC (2004) 59 Cal.4th 348, 382-92.

Nevertheless, employers have sought ways to force PAGA actions out of court and into arbitration, arguing that PAGA claims for wages should go to arbitration, while only the statutory PAGA penalties could remain before a court. A handful of cases in the Courts of Appeal have dealt with this issue, one of which, Lawson v. ZB, N.A., (2017) 18 Cal.App.5th 705, is pending before the California Supreme Court. Bryan Schwartz Law has submitted an amicus brief to the California Supreme Court in this case.

On March 28, 2019, a California appellate court issued another decision rejecting this argument, adding to the list of decisions protecting PAGA enforcement in this rapidly developing area of the law.  See Zakaryan v. The Men’s Wearhouse, Inc. (Mar. 28, 2019) __Cal.App.5th__. To understand why Zakaryan is noteworthy, we must understand the legislative intent behind PAGA. Before PAGA was enacted in 2003, California struggled to enforce the worker protections in the Labor Code. The financial crisis was in full effect, and the state government could not afford to oversee California’s massive workforce. So it decided to let employees enforce the Labor Code themselves, on behalf of the state, provided that first they comply with some straightforward procedures and the state decides not to take the case itself. Cal. Lab. Code § 2699.3. A PAGA action is “brought by an aggrieved employee on behalf of himself or herself and other current or former employees.” Cal. Lab. Code § 2699. PAGA also provides for penalties to be assessed against liable employers. Cal. Lab. Code § 2699(f). The state gets 75% of any PAGA award, while the employee gets 25% plus reasonable attorney fees and costs. Cal. Lab. Code §§ 2699(g)(1), (i).

Employers have tried to contract around PAGA using arbitration agreements. It hasn’t worked. Although arbitration agreements can waive employees’ class action rights (Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018)), employers cannot force the state to arbitrate its claims, which are vindicated through PAGA. Iskanian, 59 Cal.4th at 378-92. The suing representative plaintiff just stands in the state’s shoes. Id at 386-87. Because an employee cannot contractually waive a right belonging to the state, an arbitration agreement cannot waive an employee’s right to proceed under PAGA.

Despite this, The Men’s Wearhouse tried to argue that a PAGA claim for wages should go to arbitration. The California Court of Appeals didn’t buy it in Zakaryan (Mar. 28, 2019) __Cal.App.5th__.

Plaintiff Zakaryan worked for The Men’s Wearhouse as a store manager from 2002 until 2016, before suing under PAGA, alleging that the company wrongfully misclassified its store managers as exempt from California’s overtime and meal and rest break laws. The Men’s Wearhouse moved to send the portion of Mr. Zakaryan’s claims involving underpaid wages to arbitration. It lost, and appealed.

After a careful analysis of PAGA and arbitration law, the appellate court rejected The Men’s Wearhouse’s argument for two reasons. First, splitting the PAGA claim would violate California’s “primary rights theory,” under which “one injury gives rise to only one claim for relief.” A PAGA claim, the court ruled, involves “one and only one ‘particular injury’—namely the injury to the public that the ‘state labor law enforcement agencies’ were created to safeguard.” Therefore, a PAGA claim cannot be split between a court and arbitration.

Second, sending part of the case to arbitration would run contrary to labor and arbitration law. PAGA awards the state 75% and the aggrieved employee the remainder of “a single civil penalty,” the court observed, which could not be properly heeded if portions of the civil penalties were syphoned off to arbitration. Moreover, “a PAGA claim is, fundamentally, a representative claim,” in which the suing employee represents other aggrieved employees in a suit brought on behalf of the state. As such, there was no individual portion of the claim to break off in an arbitration proceeding. In addition, Mr. Zakaryan had elected to pursue claims under PAGA’s representative action mechanism rather than his individual claims. Forcing him to arbitrate as if he had brought individual claims would effectively hijack his case. Finally, splitting the PAGA action would send the most important aspect of the claim to be determined—the employer’s liability—to the arbitrator, thereby circumventing the state’s right to have its enforcement action heard in court.

The California Supreme Court will soon decide this issue in Lawson.

If you have California wage claims and your employer is trying to force you into arbitration, contact Bryan Schwartz Law.

Bryan Schwartz Law Submits Amicus Curiae Brief on Behalf of California Employment Lawyers Association: the California Supreme Court Should Rule in Lawson v. Z.B. that Employers Cannot Compel any PAGA Claims into Arbitration

When a worker stands in the shoes of the State of California, prosecuting wage violations under the Labor Code Private Attorneys’ General Act (PAGA), that representative plaintiff cannot be forced into arbitration, because the State did not agree to arbitrate. See Iskanian v. CLS Transportation of Los Angeles, LLC, 59 Cal.4th 348 (2014).

In Lawson v. ZB, N.A., 18 Cal. App. 5th 705 (Cal. Ct. App. 4th Dist. Dec. 19, 2017, as modified Dec. 21, 2017), the Court of Appeal rejected the attempt by the defendant Bank to force a PAGA plaintiff into arbitration as to the PAGA penalty requiring restitution of underpaid wages, under Labor Code §558. On March 23, 2018, the California Supreme Court granted review. On August 29, 2018, Bryan Schwartz Law, on behalf of the California Employment Lawyers Association (CELA), submitted an amicus brief supporting affirmance of the Court of Appeal decision.

PAGA civil-enforcement claims invoking Labor Code §558 include both the default civil penalty plus the penalty concerning underpaid wages. Lawson created a split with Esparza v. KS Industries, 13 Cal.App.5th 1228 (5th Dist. Aug. 2, 2017), which held that Labor Code §558(a)’s reference to a penalty including “an amount sufficient to recover underpaid wages” created a “private dispute,” to which the Iskanian rule does not apply.

Bryan Schwartz Law’s brief on CELA’s behalf demonstrates that Lawson was correctly decided, and Esparza was wrong, because all PAGA actions are representative actions, not individual actions. The amicus brief illuminates the breadth of the State’s police power, which cannot be limited by a mandatory, pre-dispute arbitration agreement with an individual worker. The language, legislative history, and purposes of PAGA and Labor Code §558 demonstrate the Legislature’s clear intent to permit PAGA plaintiffs to recover the full measure of relief that would be available to the State in a public enforcement action. Defendant ZB Bank’s contention that PAGA and Labor Code §558 would be preempted by the Federal Arbitration Act (FAA), 9 U.S.C. §§1, et seq., clearly contravenes the Supreme Court’s analysis in Iskanian and McGill v. Citibank, N.A. (2017) 2 Cal. 5th 945. The FAA does not strip the State of its enforcement authority, or strip employees of their non-waivable, substantive state law right to pursue vital workplace protections.

CELA is an organization of approximately 1400 California attorneys whose members primarily represent workers in a wide range of employment cases, including wage and hour actions and PAGA actions. CELA and its members have taken a leading role in protecting the rights of California workers, including by submitting amicus briefs and oral argument in such groundbreaking employment rights cases such as Iskanian, Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, Gentry v. Superior Court (2007) 42 Cal.4th 443, Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, and Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903. Bryan Schwartz Law has been instrumental to CELA’s amicus briefing in a host of key California cases.

The California Supreme Court’s decision in Lawson will have widespread ramifications for California workers. If the State’s PAGA penalty provisions forcing restitution to victims of wage theft can be shunted to individual arbitration, it will deeply undermine PAGA’s goal to strengthen the State’s enforcement power against wage law violators who steal from workers and unfairly compete against law-abiding businesses.

If you are seeking to assert wage claims representing your co-workers and are facing an employer who seeks to force you into individual arbitration, contact Bryan Schwartz Law.

U.S. Supreme Court Denies Certiorari Review of Bridgestone, Declining for a Second time to Consider a Challenge to PAGA

PAGA stays on track after Bridgestone

cert petition denied.

On June 1, 2015 the U.S. Supreme Court denied a petition for certiorari in Bridgestone Retail Operations, LLC v. Brown (“Bridgestone”), 2015 WL 86028, No. 14-790. The Bridgestone petition challenged the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles (“Iskanian”) (2014) 59 Cal.4th 348, holding that representative claims under the California Labor Code Private Attorneys General Act, Labor Code section 2698, et seq., are not preempted by the Federal Arbitration Act (FAA) and may not be compelled to individual arbitration since they, like qui tam claims, are brought on behalf of the state. Earlier this year, the U.S. Supreme Court declined to consider a petition for certiorari of the Iskanian decision itself.  By declining to accept a second challenge to Iskanian, the High Court has given employee advocates a reason to feel renewed confidence that they may proceed in court with PAGA actions, whether or not their clients are otherwise subject to individual arbitration agreements.

PAGA permits an employee to recover civil penalties for wage violations on behalf of California’s Labor Workforce Development Agency, for redistribution to the State and all aggrieved employees. As Bryan Schwartz Law has discussed in previous blog posts, Iskanian holds that employees cannot waive the right to bring representative actions under PAGA in a court of law by signing mandatory arbitration agreements. AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740 and its progeny interpret the FAA as permitting employees to give up the right to bring class actions asserting other claims by signing agreements to individually arbitrate those claims. However, in Iskanian, the California Supreme Court reasoned that PAGA is an enforcement mechanism designed to carry out California’s interest in ensuring compliance with state wage laws, and not merely a private litigant’s claim. Therefore, while employers may argue under AT&T Mobility that employees have signed away their rights to bring ordinary class claims alleging wage violations, employees’ representative PAGA claims remain unaffected.

On June 3, 2015 the Ninth Circuit heard oral arguments in three cases presenting questions of whether the FAA requires enforcement of PAGA waivers. See Hopkins v. BCI Coca-Cola Bottling Company of Los Angeles, No. 13-56126; Sakkab v. Luxottica Retail North America, Inc., No. 13-55184; and Sierra v. Oakley Sales Corp., No. 13-55891. Like the U.S. Supreme Court when presented with Iskanian and Bridgestone – the Ninth Circuit should not interfere with California’s right to enforce its own wage laws. Stay tuned.