Sept. 12, 2019 California Supreme Court Rules Unpaid Wages Cannot Be Recovered Under PAGA Law

Today the California Supreme Court ruled that employees cannot recover unpaid wages in actions brought under the California Labor Code Private Attorneys General Act (PAGA).  As a result of today’s decision, unpaid wages can only be recovered in actions brought under other Labor Code provisions that, unlike PAGA, can be subjected to mandatory employment arbitration agreements, including agreements that require employees to waive the right to bring claims on a class or collective basis.

Discussion

Since 2004, the PAGA law has allowed employees to act as “private attorneys general” by bringing claims in court to recover “civil penalties” for violations of California Labor Code provisions.  PAGA allows employees to bring claims on behalf of themselves and on behalf of other “aggrieved employees.”  Before PAGA took effect, these “civil penalties” were recoverable only by the state’s labor law enforcement agencies.

In the fifteen years since the PAGA law took effect, the United States Supreme Court has issued a series of decisions upholding the enforcement of arbitration agreements, including agreements between employers and employees.  The U.S. Supreme Court has also repeatedly held that employment arbitration agreements can include provisions prohibiting employees from arbitrating claims on a class or collective basis, effectively requiring employees to arbitrate only individual claims.  As a result of these court decisions, many employers now encourage or require their employees to enter into arbitration agreements that include class and collective action waivers.

However, in 2014 the California Supreme Court ruled that employment arbitration agreements cannot prohibit employees from bringing PAGA claims in court on behalf of themselves and other “aggrieved employees.”  As a result, even where an employee subject to an employment arbitration agreement is barred from bringing claims on a class or collective basis in court or in arbitration, the employee can still bring a “PAGA-only” claim in court, forcing the employer to litigate claims for alleged violations affecting not only the plaintiff-employee, but other “aggrieved employees” as well.

Most of the Labor Code provisions providing for civil penalties recoverable under the PAGA law assess penalty amounts (typically $50 or $100) for each aggrieved employee affected by the violation, for each pay period in which a violation occurs.  But Labor Code section 558, which provides for civil penalties when an employer violates provisions of the Labor Code requiring employers to provide meal periods and overtime pay, is different.  Section 558 provides for a civil penalty of $50 for each underpaid employee for each pay period in which the employee was underpaid for an initial violation, and $100 for each under paid employee for each pay period in which the employee was underpaid for a subsequent violation, “in addition to an amount sufficient to recover underpaid wages.”

In recent years different districts of the California Court of Appeal have reached different conclusions about how to apply Section 558’s language regarding underpaid wages, with one district concluding that claims for underpaid wages under Section 558 are subject to arbitration, and two other districts concluding they are not.  Despite their disagreements, however, all three districts agreed that under the language of Section 558, the “underpaid wages” sought under Section 558 are part of a “civil penalty” recoverable under the PAGA law.

But today the California Supreme Court reached a different conclusion, confirming that the $50/$100 for each underpaid employee for each pay period is a civil penalty recoverable under the PAGA law, but holding that an employee’s lost wages are not part of that civil penalty, and is therefore not recoverable under the PAGA law. 

What This Means For Employers

As a result of today’s decision, plaintiff-employees cannot recover unpaid wages in PAGA-only cases.  Although employees may bring claims for unpaid wages under other, non-PAGA Labor Code provisions, those non-PAGA claims are subject to employment arbitration agreements that may require employees to arbitrate claims on an individual basis only.

This means employment arbitration agreements that include class and collective action waivers provide more protection to employers than they did before today’s decision.  Employers that already make use of arbitration agreements should consult with counsel about whether their existing agreements are sufficient, or should be revised.  Employers that do not have arbitration agreements with their employees should consult with counsel about whether to adopt a mandatory arbitration program.  

This E-Update was authored by Aaron Buckley. For more information, please contact Mr. Buckley or any other Paul, Plevin attorney by calling (619) 237-5200.