The Future of PAGA Claims

The California Labor Code has always been a difficult area to litigate, but the landscape of one of the United States’ most contested areas of law may change drastically soon. Depending on the decision of the Supreme Court in the upcoming case of Viking River Cruises Inc. v. Moriana, PAGA (the Private Attorneys General Act) will either be upheld as is, or the Supreme Court will rule that the FAA (Federal Arbitration Act) precludes PAGA, allowing employers to reliably enforce agreed-upon arbitration terms.

The Effects of PAGA

For nearly two decades, PAGA has obstructed the ability of California businesses to arbitrate their issues and come to settlements with employees. The act was first commonly used in conjunction with class-action lawsuits until 2009, when the California Supreme Court ruled that the certification needed for a class action suit did not apply to PAGA. In 2014, the court also ruled that arbitration agreements could not allow an employee to waive their right to a PAGA claim. These two rulings helped result in a massive surge in PAGA claims, which have increased 1000% since PAGA went into effect in 2004, resulting in an environment where employers can face a lethal lawsuit due to a mistake in the enforcement of California’s complex Labor Code. 

Critics of PAGA frequently claim that much of the act is too broad, especially in the definition of an “aggrieved employee.” The courts have upheld that an employee may pursue claims for violations that they had no interaction with, due to the definition stating that an aggrieved employee is one for whom “one or more of the alleged violations was committed.” Because an employee who was affected by one violation necessarily falls under this definition, they are able to continuously make claims under several other violations.

 The allowance for continuous claims can create a massive issue for businesses under the California Labor Code. If a business is found to have allowed workers to work during a meal break, then they were also failing to pay the minimum wage due to that violation (and/or not paying the premium mandated for a missed break); if they were found to fail to pay minimum wage, they were also failing to timely pay their wages; and if they didn’t pay those wages, then they failed to list those wages on pay statements. This chain can continue for several more steps, due to the heavily intertwined nature of the Labor Code.

PAGA violations can generate a $100 penalty per employee, per pay period, and increase to $200 per subsequent violation. Because employees can chain PAGA claims, and multiple employees can claim for a single violation, even if they weren’t affected, this can add up quickly. This is an especially deadly issue for small businesses, who frequently lack the funds to hire business counsel to ensure they’re in compliance with every part of the California Labor Code, not to mention paying attorney fees for repetitive PAGA suits. 

PAGA and the Federal Arbitration Act

The Supreme Court’s decision won’t change the broad scope of PAGA, but it might give California companies a way to shield themselves by allowing them to arbitrate with their employees instead. If this proves to be the case, it may be in the best interests of your company to set arbitration terms with your employees as quickly as possible to protect yourself from future claims. And in the meantime, you should take steps to ensure that your wage-and–hour policies and procedures are in impeccable shape for the same reason. Give IGC a call at 925-399-1529 if you need help with this or if someone files a PAGA claim against you. Our firm has, unfortunately, become all too familiar with these in recent years, and we stand ready to assist you.

Integrated General Counsel