[California] California Supreme Court restricts PAGA

Earlier this month the California Supreme Court held that PAGA may not be used to recover unpaid wages, The National Law Review reports on the decision.

The California Supreme Court decided that private litigants will not be allowed to recover unpaid wages under the Labor Code Private Attorneys General Act (PAGA). The Court’s opinion is detailed here:  ZB, N.A. v. Superior Court (Lawson) (link via The National Law Review).

Plaintiffs’ lawyers have reportedly been filing PAGA representative actions as a way to stay in court and out of arbitration. Employment arbitration agreements usually include class action waivers and this was a strategic way to fight them

Plaintiffs used Thurman v. Bayshore Transit Management, Inc., 203 Cal. App. 4th 1112 (2012) (link via original reporting), to argue that they could recover underlying unpaid wages under Section 558 of the Labor Code in addition to obtaining the PAGA penalties. In so doing, Plaintiffs have been asking for the recovery they would have got through a class action.

By swerving their class action waivers and looking for unpaid wages in the PAGA action, Plaintiffs have tried to revive class action claims for unpaid wages which has turned PAGA claims into “sloppy class actions”, resulting in overinflated settlement demands and the potential of higher verdicts. The Lawson decision closes off this opportunity to swerve class action waivers and prevents the misinterpretation of Labor Code Section 558.

The Supreme Court rejected Thurman’s conclusion, it noted that “[d]eeming … unpaid wages … to be a civil penalty … cannot be squared with the understanding of that term under the PAGA.”  The Court held that “the civil penalties a plaintiff may seek under … [the Labor Code] through the PAGA do not include the ‘amount sufficient to recover underpaid wages.’”

Lawson will significantly reduce potential exposure employers face from lawsuits brought under the PAGA. While PAGA penalties can eclipse the potential underlying wage liability, Lawson will keep recovery to civil penalties rather than unpaid wages and remove the workaround of class action waivers in arbitration agreements from plaintiffs’ lawyers.