California Employers: An End To California's Private Attorneys General Act (PAGA)? – The Employer Report

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NAVIGATING US AND GLOBAL EMPLOYMENT LAW
Actions under California’s Private Attorneys General Act (PAGA) have long plagued employers, both large and small, but that all may change this year.
PAGA, enacted in 2004, permits a single employee to stand in the shoes of the state’s Attorney General and file suit on behalf of other “aggrieved” employees to recover penalties for California Labor Code violations. The potential recovery against employers can be substantial, with default penalties calculated as $100 “for each aggrieved employee per pay period for the initial violation,” and $200 per aggrieved employer per pay period for “each subsequent violation.” As such, potential PAGA awards commonly reach millions of dollars against small employers, and tens of millions against large employers, just for simple administrative oversights.
In addition to the potential for steep penalties, several California court decisions have expanded the reach of PAGA over the years. In 2009, the California Supreme Court held that employees bringing actions under PAGA need not comply with the strict procedural rules governing class actions. See Arias v. Superior Court, 46 Cal. 4th 969 (2009). Then, in 2014, the California Supreme Court held that employees could not waive their right to bring PAGA claims in court, paving the way for an increase in PAGA litigation. See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014).
Recently, California courts have provided some limits to the expansion of PAGA. In 2021, the California Court of Appeals provided a potential “manageability” defense for employers.  Specifically, in Wesson v. Staples The Office Superstore, LLC, the Court of Appeals held that trial courts have the discretion to strike claims for penalties under PAGA if the claims will be unmanageable due to individualized issues at trial. See 68 Cal. App. 5th 746 (2021).
However, the fate of PAGA may rest in the hands of California voters this year. In December 2021, California’s Secretary of State approved the distribution of a petition to put an initiative on the 2022 ballot called “the California Fair Pay and Accountability Act.” The California Fair Pay and Accountability Act aims to essentially repeal PAGA, and replace it with an alternative framework for the enforcement of labor laws.

Of importance to employers, the California Fair Pay and Employer Accountability Act endeavors to:
It remains to be seen whether the initiative will make it on the ballot, and, if it does, whether California voters will vote it into law. However, even if the initiative is unsuccessful, there are other recent PAGA-related developments employers should monitor.
On March 30, 2022, the Supreme Court of the United States (SCOTUS) is set to hear Viking River Cruises, Inc. v. Moriana, a case with potentially significant implications for employers.  SCOTUS will consider whether the Federal Arbitration Act (FAA) “requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.” A favorable ruling from SCOTUS would allow employers to enforce arbitration agreements with PAGA waivers- meaning PAGA claims may be compelled to arbitration, where the litigation of claims is often more cost-effective. Employers should keep an eye on this case (a decision is expected in summer 2022), and be prepared to work with counsel to update their arbitration agreements to include PAGA waivers if SCOTUS’ ruling is favorable to employers.
Through The Employer Report blog, our lawyers provide legal updates and practical insights to help clients understand, prepare for and respond to the latest domestic and cross-border Labor and Employment issues affecting US and multinational employers.
Baker McKenzie’s global Employment & Compensation team of over 700 lawyers in 45 countries has been ranked Band 1 by Chambers Global for Employment law for 12 consecutive years. Our unparalleled expertise is coupled with an ability to provide a single point of contact for full-service, seamless employment support.
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