California Supreme Court Limits Scope of Private Attorneys General Act

In a unanimous decision issued today in the closely-watched case of Lawson v. ZB, N.A., the California Supreme Court held that employees who file claims against their employers for penalties under the Private Attorneys General Act ("PAGA") to enforce the Labor Code may not seek to recover unpaid wages under Labor Code section 558 on behalf of employees.  In the lower courts, the parties fought about whether a PAGA plaintiff subject to an arbitration agreement seeking both penalties and unpaid wages through Labor Code section 558 would be required to arbitrate the unpaid wages portion of their claim. The Cal Supremes cut off this argument at the knees, holding that a PAGA plaintiff may not even seek unpaid wages under Section 558 because the statute authorizes only the State, not a private plaintiff, to bring such a claim. Because the Court previously held that a PAGA plaintiff seeking penalties may not be compelled to arbitration, the Lawson plaintiff -- now stripped of her claim for unpaid wages -- could not be compelled to arbitration. 

Sadly, this case is a big victory for employers. It limits the scope of the remedies a private plaintiff may seek under PAGA, the only remaining claim that can be brought in court (as opposed to arbitration) for Labor Code violations.  The Supreme Court issued a bright-line ruling that private plaintiffs may seek only penalties (which have a one-year statute of limitations and which must be shared with the State) and can't seek unpaid wages (which arguably have a three-year statute of limitations and which go 100% to the employees).  The case is a victory for employees only to the extent that the Court reaffirmed its previous ruling that PAGA claims for penalties may not be compelled to arbitration. 

The practical effect of this ruling will be to send much more PAGA settlement money to the State. Previously, in a PAGA-only settlement, the plaintiff could designate a significant portion of the settlement money as unpaid wages and distribute that portion 100% to the employees. The plaintiff could designate the remaining portion as pure PAGA penalties, 75% of which must be shared with the State. Now, PAGA plaintiffs will no longer have the option to designate any portion of a PAGA-only settlement as unpaid wages, which means that 75% of the settlement must go to the State. This means less money in the hands of employees who actually suffered the violations. Hopefully, the State will use the money to hire more attorneys to enforce the Labor Code. 

For you legal eagles out there, the critical passage of Lawson states:  [T]he amount for unpaid wages referenced in section 558 is not part of that section’s civil penalty and is not recoverable through a PAGA action. Instead . . . this part of a section 558 citation represents compensatory damages. Section 558, in other words, authorizes only the Labor Commissioner to issue a citation that includes both a civil penalty and the same unpaid wages Lawson can alternatively recover under section 1194 through a civil action or an administrative hearing. But section 2699, subdivision (a) does not authorize employees to collect section 558’s unpaid wages through a PAGA action."

If you believe that you have not been paid all of the wages owed to you by your employer, contact us today for a free consultation.