PAGA: The Cousin to Class Action Lawsuits

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California often makes the news headlines. That is no less so with respect to legal affairs. Just recently, the United States Supreme Court heard a matter that should be of utmost interest to employers in the Golden State. The case, known as Viking River Cruises, Inc. v. Moriana (“Viking River”), concerns a law that has beguiled and harassed California employers since its inception in 2004­—a law known as the Private Attorneys General Act of 2004 (“PAGA”).

PAGA Basics

What is PAGA? At its most basic level, PAGA is a California law that allows employees to sue—on behalf of the State of California—their employers for violations of California’s Labor Code. PAGA empowers employees to sue their employers and seek—on a per employee and a per pay period basis—onerous civil penalties for an employer’s violation of the Labor Code (e.g., meal and rest periods, overtime, and minimum wage). PAGA sets a default penalty rate of $100.00 for an “initial violation” and a $200.00 default penalty rate for “subsequent” violations”—assessed (again) on a per employee, per pay period basis. Penalties that are collected via the PAGA statute are distributed as follows: 75% to the State, with the remaining 25% going to the aggrieved employees.

Another critical thing to know about PAGA claims is that they are “representative” in nature. That means an employee (a lead plaintiff) sues under PAGA not just individually but on behalf of all of their colleagues. If PAGA sounds like a class action suit, that is because PAGA is a cousin to “class” action lawsuits (to be sure, there are differences between the two, but we can gloss over them for now). And it is this representative aspect of PAGA suits that makes them have potentially draconian effects on employers.

The Viking River Case

As you can imagine, employers would like to limit an employee’s ability to bring PAGA claims on a representative basis (doing so could drastically reduce PAGA penalties). To that end, employers have attempted to channel PAGA claims through arbitration on a non-representative basis by having employees execute written waivers to that effect.

And that is where the Viking River case comes in. At issue is whether such waivers are legally enforceable. The California Supreme Court has said they are not. Now the U.S. Supreme Court will decide whether our State’s Supreme Court was right—or not.

If the U.S. Supreme Court reverses the California Supreme Court, that reversal could have profound impacts on California. In that case, employers could minimize liability under PAGA by forcing employees to sign waivers to that effect. Alternatively, if the U.S. Supreme Court affirms the State Supreme Court’s decision, California employers will continue to operate under the existing, no-such-waivers-are-allowed rule.

But That’s Not All

Regardless of how the U.S. Supreme Court rules in Viking River, the case will not be the final decision on PAGA and arbitration. For one thing, the future of the PAGA law is uncertain. At present, there is a petition in California to repeal the law. If that repeal is ultimately approved, the U.S. Supreme Court’s decision would be effectively moot for California employers. Notwithstanding, California employers should be mindful of the ever-increasing hostility towards arbitration agreements in the employer-employee context. As discussed a few weeks ago, the U.S. Congress has drafted a bill that, if enacted into law, would further limit an employer’s ability to execute arbitration agreements with employees.

Where Does This All Leave Us?

It leaves us with a lot of uncertainty. But the best way employers can respond to this uncertainty is to proactively ensure that they are following the law. Doing so will ensure that they can defeat claims against them, regardless of how the U.S. Supreme Court rules in Viking River and regardless of the fate of PAGA and arbitration.

If you need assistance on how this impacts your business, please contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.

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