THE PAGA CASE AND ARBITRATION: BACKGROUND.
Whether ‘tis nobler to endure the slings and arrows of outrageous fortune, and thereby to represent the public good, or to submit to the charge of leech feeding upon the lifeblood of the California economy, that is the question. And it will be decided by an appellate court one day, but until then, we have defense attorneys, and not a few judges, who would transmute a pure “Private Attorney General Act” into some hybrid of class action, with all its attendant obstacles and pitfalls for Plaintiffs.
“PAGA” in a nutshell is a set of California Labor Codes that tosses the ball to private attorneys to do what the California legislature felt the state wage enforcement agency could not or would not do: hold employers accountable for Labor Code violations. The statute has a built-in incentive for private attorneys to act as “Attorneys General” to file such suits, and to recover attorney’s fees for their efforts if they win. As part of the “deal” the employees and State split the proceeds of recovery.
The procedural battle now is in the dark valley between a clear PAGA based statutory action for penalty that ordinarily would be recovered by the State of California, and the specific individual Labor Code claims that allow a direct cause of action without sharing the bounty with the State. The reasoning of prior courts is that an arbitration claim signed by an employee does not extend to a Labor Code penalty case recoverable only by the State of California pre-PAGA. California and the employee(s) are effectively equity partners of 75% and 25% respectively in the case, and the employer cannot force the State of California into an arbitration. But as for that overtime claim, or rest break violation, for example, the employee has a separate, direct right to recover those amounts as “wages” rather than penalties. Those claims can be made subject to an arbitration agreement signed by the employee.
CALIFORNIA PAGA CLAIMS ARE NOT SUBJECT TO “CLASS ACTION” WAIVER AND ARBITRATION.
Current California law is that a pre-dispute PAGA waiver is not enforceable even if there was intent to waive. Waiver is simply unenforceable because it is contrary to the fundamental policy of the PAGA statutes to redress and remedy employer labor violations through the penalty statutes by enforcement action of the State. Securitas Security Services USA, Inc. v. Superior Court (Edwards) 2015 Cal.App. LEXIS 190 (Cal. App. 4th Dist. Feb. 27 2015). Because the waiver with arbitration agreement had a clause that prevented severing out the illegal PAGA waiver, the entire agreement was invalid because it was contrary to public policy.
The situation arises when a Plaintiff’s attorney crams multiple causes of action into a first filed court document called a “Complaint.” The Complaint alleges some violations that are unique because, in the past, those causes of action are for civil penalties that were recoverable only by the State of California, through the Department of Industrial Relations.
Now, if the Plaintiff-employee meets certain conditions notifying the Department, and the Department consents, the Plaintiff may proceed to collect statutory penalties from the Defendant-Employer. But suppose the Plaintiff has filed other causes of action which employees have always been allowed to sue upon without Department approval, such as overtime or rest-break violations, or perhaps actions for discrimination, whistleblower retaliation, or defamation.
Let’s assume the Plaintiff has included such causes of action in his or her Complaint, along with the penalty based causes of action, and let’s further assume that when Plaintiff started employment, before any dispute arose, he or she signed an Arbitration Agreement that all disputes between employer and employee would be resolved by private binding Arbitration. That is, there is to be no jury, no judge, and no Court of Appeal. Instead, a private company, known an an arbitration service, is hired by the parties to resolve the dispute. The employee’s signed contract includes an onerous and ornery waiver: no class action allowed.
For the final link in the chain of assumptions: assume the Defendant persuades the Court that the Arbitration Agreement is enforceable, and the Court orders the case into Arbitration, with an exception. The claims for statutory penalty, by case precedent, are not subject to arbitration, and those the Court severs out of the Agreement, sending the remaining causes of action to Arbitration. These non-arbitratable causes of action for penalty are called the “PAGA” claims. These claims usually involve many employees who sue as a group, but for technical reasons, the group is not considered a “class” requiring an order of the court approving the class by “class certification.” This is important because the PAGA claims can produce hefty verdicts in the millions of dollars.
PAGA CASES STALLED BY ARBITRATION, EVEN THOUGH NOT SUBJECT TO ARBITRATION.
The stage is set: do courts order the individual wage claims into arbitration while staying the PAGA case, and thereby “wait and see” if the employee has viable PAGA claims? Maybe the PAGA representative will simply go away if he or she obtains his or her full recovery in arbitration or by settlement.
The Court may stay the PAGA case because it does not want parallel proceedings that would produce inconsistent results, and that may produce some collateral estoppel as to facts/issues in the PAGA case. The trial court may take the position that it has no jurisdiction over the Arbitration Agreement and the timing of how that Arbitration is to proceed because that is a matter of separate private agreement between employer and employee. The trial court may also hope that the PAGA case will settle out in the course of arbitration even if that case is still within the Court’s jurisdiction.
The defense bar’s main argument: to appeal to the self-interest of overburdened courts dealing with the complexities of a multi-party litigation, and the self-interest of the PAGA representative. The first fissure in the defense argument: trial courts, until relieved by the appellate courts, ought not sacrifice the purpose and directive of PAGA for the sake of administrative efficiency.
“Handing off” the case piecemeal, especially to a non-judicial officer, is a solution, but also a miscarriage of justice. It is a common military tactical offensive and one now urged by the defense: divide and conquer, and increase by attrition the cost of war, but of course, in the name of efficiency.
But “piecemeal” is one thing, and case management another. It is reasonable to expect a court to control its own proceedings to assure due process and to contain the cost and complexity of litigation. It is not yet clear how much restraint and control that may be in PAGA cases, or what statutory or case law will support “case management” even to the potential extent of denying the PAGA case to go forward? The classical Post-Brinker v. Restaurant Group situation is whether rest break violations are so variable employee-by-employee that class certification is not indicated. Could and should the same be said of a PAGA case for penalties?
JUDICIAL RESPONSES TO COMBINED PAGA AND NON-PAGA CLAIMS
More trial courts will be deciding “which goes first” – the arbitration of the non-PAGA wage claims or the PAGA case for civil trial? That question has a very practical feel to it. If arbitration first, issues are explored by discovery that may well impact the trial court case. It would be the classical “tail wagging the dog.” Logic would indicate you place the time and energy on the bigger issues, and that the small case for individual overtime will be subsumed in an eventual settlement. Of course, the simple solution, subject to client consent, is to forego individual claims subject to arbitration and file a “clean” PAGA case. That is, do not include minor or high-risk individual wage and discrimination claims. Also, Private Attorney Generals, i.e., Plaintiffs’ attorneys, should focus on those cases having a high degree of commonality based on company wide violation. Such, for example, was in the case of Bright v. 99 Cent Only Stores 189 Cal.App4th 1472 (2010) where the failure to provide sitting stools at retail clerk check out stations was the result of a company policy that stools were impractical.
RESTARTING THE ENGINES OF STALLED PAGA CLAIMS
Courts will fashion their own case management rules that will be something less than strict class action certification procedures, but something more than full freedom to litigate the matter as a single party case. Experienced jurists already handle these kinds of “complex” cases, and they will likely use complex multi-party litigation guidelines to control the costs and extent of discovery, and to arrive at expeditious, efficient ways of resolving interim logjams in the litigation. But I also predict the California Supreme Court will resolve the ultimate character of these disputes as “for the public good” and as if brought by the State’s elected Attorney General. The result will be unsatisfying to either plaintiff or defense bar, but will allow PAGA cases to be expeditiously heard and concluded without the impediment of Arbitration or some variation of Class Action Certification procedures.
Greed in the paraphrased words of Adam Smith, is what makes the world go round. The defense bar seems to denigrate both the intelligence and foresight of the California legislature by stating this is not a “private attorney general” case, but a Plaintiffs’ attorneys’ “Get Rich Act.” Well, okay, but that is surely incidental to the real incentive of the PAGA statutes: an incentive for employers to change their operations to be compliant with law with each news release of another verdict for employees. If employers want to put PAGA cases out of business, let them comply with the law.