New PAGA rule will cost employers more time and money, California lawyer says
Recent changes to the way Private Attorneys General Act (PAGA) claims are compelled to arbitration will likely result in more money and time spent for employers, a California Chamber of Commerce (CalChamber) lawyer said.
PAGA was created in 2004 to allow “an aggrieved employee” to bring civil action against an employer they allege is violating the California Labor Code. They may act on their own individual behalf, or on behalf of other employees in a representative claim, as proxy representatives of the state Labor and Workforce Development Agency.
On July 17, 2023, in a ruling on Adolph v. Uber Technologies, Inc., the California Supreme Court decided that individuals who have their PAGA claims compelled to arbitration may still file another representative PAGA claim in civil court.
Previous to this decision, individuals who had their complaints compelled to arbitration would not have been able to also pursue a representative PAGA action in civil court. That is no longer the case.
New PAGA rule making expensive process more expensive
Bianca N. Saad, Vice President of Labor and Employment at CalChamber, said this is going to make an already expensive process worse for employers.
“It really is just adding to the time and the expense of defending claims,” Saad told HRD. “I think one takeaway is really to do what you can to stay out of these lawsuits to begin with, like focusing on complying with wage and hour, which is what a lot of these PAGA claims are getting at.”
Saad recommended also taking a close look at any arbitration agreements or clauses employers may be using with hires, as this decision affects the way those types of contracts are interpreted. Whether or not these agreements apply to PAGA claims has been under discussed in courts for years, she says.
How PAGA and arbitration agreements interact
In a 2014 California Supreme Court ruling on Iskanian v. CLS Transportation Los Angeles, LLC, it was decided that not only could non-individual, representative PAGA claims not be compelled to arbitration, even with an agreement, but that individual PAGA claims could not be separated for arbitration if they were brought by the same person. This essentially meant that all PAGA actions could only be resolved in civil courts.
The U.S. Supreme Court amended that rule in 2022, with its decision on the Viking River Cruises v. Moriana suit. This decision gave precedence to the Federal Arbitration Act (FAA) deciding that individual PAGA claims could in fact be compelled to arbitration. However, the ruling maintained that pre-dispute, wholesale PAGA waivers by employers were still unenforceable, and representative PAGA claims would still have to be decided in civil court.
This was a win for employers, Saad says, as it meant plaintiffs could not have an individual PAGA claim in arbitration and a representative, non-individual claim in the courts as well. But this latest California decision on Adolph meant that they can.
Takeaway for employers: review arbitration agreements, focus on compliance
There are several things employers should be considering in light of this latest decision, Saad says.
If PAGA claims are included in arbitration agreements, employers should prepare to defend civil actions in two separate arenas: individual claims in arbitration, and representative claims in civil court. This added complexity should also be addressed with legal counsel, by closely examining arbitration agreements with the Viking and Adolph rulings in mind.
Also, examine the cost effectiveness of including PAGA claims in arbitration agreements, said Saad.
“Before we had Viking River, all of these cases were being kept out of arbitration completely, because if they had PAGA attached to them in any way, the rule was that PAGA cannot be compelled to arbitration,” Saad told HRD.
“Therefore, anything attached with PAGA was only going to court. Viking River changed that. But then, that is when the question formed: what does that mean for an individual standing? We haven't really had that question until the Viking River decision. And that's what this California Supreme Court answered, roughly a year later.”
One small silver lining for employers, Saad noted, is that individual PAGA claims can still be challenged; for example, if it was decided during arbitration that the individual was not an “aggrieved employee” under the PAGA definition, and the action was dismissed, that plaintiff would not be able to pursue non-individual PAGA civil action, due to lack of standing.
