by Michelle R. Ferber and Julie Ann Giammona

In a sweeping victory for employers, the California Supreme Court announced on September 12, 2019, in ZB, N.A. v. Superior Court (Lawson), that employees cannot recover unpaid wages in actions brought pursuant to the Private Attorney General Act (PAGA).  PAGA allows employees to commence representative actions to recover civil penalties on behalf of themselves and other similarly situated employees under Section 558 of the Labor Code. Damages include penalties in amounts equal to $50 to $100 dollars per pay period for each underpaid employee (of which 75 percent goes to the State and 25 percent goes to the employee), plus an additional amount sufficient to recover underpaid wages. Unlike the PAGA penalties, the underpaid wages recovered are not split with the State – the employee keeps all monies determined to be underpaid wages.

The Supreme Court’s ruling represents an unanticipated surprise because the Court had originally granted review to resolve a split in authority as to whether employees could be forced to arbitrate the portion of their PAGA claims relating to unpaid wages. Instead of simply answering this question, the Supreme Court went a step further and concluded that PAGA does not authorize employees to seek unpaid wages at all – in civil court or via the arbitration process, thereby rendering the question of arbitration moot.

The impact of the Lawson decision cannot be overstated. The holding is expected to greatly reduce class-wide, representative PAGA actions because the damages recoverable have been limited to the flat rate penalty provisions of Labor Code Section 558.  PAGA is no longer a weapon to allow one employee to sue on behalf of other employees for unpaid wages. While PAGA is still available for pursuit of penalties on behalf of other employees, the 2004 PAGA statute has finally taken a big hit in favor of employers. Notwithstanding, the California Supreme Court’s 2014 holding in Iskanian v. CLS Transportation Los Angeles, LLC still stands: arbitration agreements do not apply to PAGA claims, thus an employee executing such an agreement can still bring a PAGA claim for flat fee civil penalties as a representative action against an employer in civil court.

The interplay between class actions, representative actions under PAGA, and the enforceability of arbitration agreements in such contexts continues to present complex legal issues. Ferber Law is well equipped to decipher such multifaceted topics. We welcome your questions and concerns as we continue to partner with you in protecting your business.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.