On September 12, 2019, the California Supreme Court issued its decision in ZB, N.A. v. Superior Court of San Diego County which further clarified the boundaries of California’s Private Attorney General Act of 2004 (PAGA). (Lab. Code, § 2698 et seq.) In the decision, the Supreme Court held that private citizens cannot use PAGA actions to recover unpaid wages, a holding that severely limits employees’ ability to circumvent arbitration agreements.
PAGA actions allow private citizens to seek civil penalties on behalf of themselves and other employees in order to aid the state’s efforts to enforce the provisions of the California Labor Code. In 2014, the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 that arbitration requirements in employment agreements do not apply to PAGA actions. Kalethia Lawson, real party in interest in ZB, N.A. v. Superior Court of San Diego County, had signed an agreement with her employer to arbitrate employment disputes and waive class arbitration. However, she brought a PAGA action in San Diego Superior Court seeking recovery of wages for overtime pay. Her employer, ZB, N.A., moved to compel arbitration. The trial court denied the motion on the grounds that Iskanian prohibited compulsory arbitration of PAGA actions. The Fourth Appellate District agreed.
The California Supreme Court affirmed the denial of the motion to compel arbitration but disagreed with the lower court’s reasoning. Lawson brought her claims under California Labor Code section 558, which authorizes the Labor Commissioner to seek a civil penalty of fifty or one hundred dollars from employers “in addition to an amount sufficient to recover underpaid wages.” The Court held that the “amount sufficient to recover underpaid wages,” which is paid in full to the affected employee, is a measure of compensatory damages rather than a civil penalty. Under PAGA, individuals can only seek civil penalties, and therefore Lawson could not rely on PAGA to seek unpaid wages or circumvent an arbitration clause for such a claim.
The Court further explained that Labor Code section 558 authorizes the Labor Commissioner, not private parties, to seek recovery from employers. Thus, while PAGA would authorize a private party to effectively step into the shoes of the Labor Commissioner to seek civil penalties under section 558, there is no such authorization for a private party to do so for compensatory damages. As such, real party in interest Lawson was not a proper party to seek recovery under the statute because section 558 does not provide a private right of action.
The Court’s holding limits the type of recovery a plaintiff may seek in PAGA actions, and reinforces the acceptance of the use of arbitration in employment disputes. The law surrounding the use of arbitration clauses in employment contracts is consistently developing through both case law and legislation. The Kronick Labor and Employment team will continue to update this subject as developments warrant.
If you have any questions concerning this Legal Alert or this or any other labor or employment-related matter, please contact the following from our office, or the attorney with whom you normally consult.