California employers last week got some relief from PAGA, the state law many businesses love to hate, when the U.S. Supreme Court struck down one important part of the controversial act.
PAGA, or the Private Attorneys General Act, is unique to the state and deputizes employees to file suit against their employers for labor code violations that normally would be handled by state regulators. Many businesses claim that because of PAGA, a violation can cost them hundreds of thousands or even millions of dollars instead of thousands.
The Supreme Court decision comes from an 8-1 ruling in the case of Viking River Cruises v. Moriana, which upheld the right of employers to use internal arbitration agreements to settle disputes with employees instead of having those disputes become expensive PAGA suits.
Angie Moriana, a former sales representative for Viking River Cruises Inc. in Woodland Hills, had filed a PAGA lawsuit against the company alleging that it violated several California labor codes. Moriana’s employment agreement contained a provision to resolve disputes through arbitration, not class lawsuits. Viking’s motion to compel arbitration was initially rejected under a precedent that PAGA claims could not be compelled to arbitration under state law.
A significant factor in the court’s decision was the Federal Arbitration Act, which provides the ability to have judicial facilitation over a private dispute resolution.
“After today, agreements to arbitrate PAGA claims on an individual basis will be enforceable under the FAA,” Theane Evangelis, global litigation co-chair at Gibson Dunn in Los Angeles, said in a statement. “Depending on the language of their particular arbitration agreements, many PAGA plaintiffs will be compelled to individual arbitration after this decision, and the result should be dismissal of the remainder of the non-individual PAGA claims.”
The ruling on June 15 was seen as a win by local business groups, particularly the San Fernando Valley-based California Business and Industrial Alliance, or CABIA. The group, founded by Tom Manzo, was formed to lobby explicitly against PAGA. It submitted an amicus brief in support of the company involved in the suit.
Manzo said that under PAGA, “you’re always forced to settle these types of lawsuits. So, I think now, if it can just be between the disgruntled employee and the employer, that’s the way it should be.”
Manzo added that in addition to the financial and time-based commitments needed by companies to take on PAGA lawsuits, another consequence comes in the form of stricter work cultures.
“Imagine if you’re somebody who’s been with a company for years and all of a sudden you have to take your lunch before five hours (of work) and you don’t do it a couple times in a row. Now you’re being written up,” Manzo said, positing that the theoretical employer adopted a stricter stance to avoid a PAGA claim.
“It’s counterintuitive to a flexible workplace,” Manzo said.
One of several local businesses supported by CABIA is Town & Country Event Rentals, which is based in Van Nuys.
Town & Country’s president, Richard F. LoGuercio, said his business had spent millions of dollars fighting and settling about 25 PAGA cases in the past few years, one of which resulted in a $900,000 settlement.
“I just settled with a bunch of bogus PAGA claims (and) had to write a settlement check for $75,000 just this morning,” LoGuercio said last week, adding that his business has arbitration agreements upon hiring.
“I think it’s going to be better (with the ruling). But still, it’s just ridiculous.”
However, the win for employers isn’t necessarily a clear-cut one, as the story of PAGA is far from over, according to Todd B. Scherwin, regional managing partner at Fisher & Phillips LLP in Los Angeles.
“I think everyone’s knee-jerk reaction, when you read the syllabus of the decision, was that this is a huge win for employers. And it is a win for employers, but there’s still more battling and nuances to be fought over down the road,” he said. “This includes whether the state legislature is going to do anything to amend the statutes or revise anything based on the concurring opinion that was written here.”
Scherwin said that Justice Sonia Sotomayor’s concurring opinion essentially gave the California legislature a roadmap to modify who has standing under PAGA, a point echoed by Lara Shortz, who leads the labor and employment practice group at Los Angeles-based Michelman & Robinson.
Shortz said that the ruling is not all that much of a blow to workers, noting that successful PAGA claims do not dish out massive amounts of money – at least to the employees.
“The aggrieved employees themselves really don’t recover much at all, as most of the money goes to the state,” Shortz said. “So PAGA in and of itself doesn’t provide some great avenue to the workers to recover monies that are purportedly theirs; I think it’s really more of a mechanism for large recovery of attorney’s fees.”
She added that a trickle effect of legal and legislative actions would arise given the ruling.
Scott Nelson, the Public Citizen Litigation Group attorney who represented Moriana, echoed Scherwin’s point in a statement provided to the Business Journal. Nelson and his team said they were disappointed with the ruling, but that Sotomayor’s concurring opinion made an important point.
“For now, the decision will allow enforcement of arbitration agreements that bar arbitration of PAGA claims for penalties attributable to violations suffered by other employees, but as Justice Sotomayor suggests, California may be able to protect its ability to ensure that those claims can be litigated by clarifying its standing law,” Nelson wrote, adding that the decision is not an unequivocal pro-arbitration ruling.
Justice Clarence Thomas, the lone dissenter, reiterated his opinion that the FAA does not apply to state court proceedings.
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