Unanimous California Supreme Court: Employee Covered by an Arbitration Agreement Can’t Use PAGA to Recover Unpaid Wages
Posted on Categories Arbitration, Arbitration Agreements, Business & Employment, Court DecisionsTags , , ,

By George H. Friedman, SAA Editor-in-Chief

An employee’s claim for unpaid wages brought under California’s Private Attorneys General Act must proceed to arbitration, holds a unanimous California Supreme Court.

We have written many times about California’s Private Attorneys General Act (“PAGA”), which allows employees to sue individually and on behalf of others for penalties under California Labor Code (“CLC”). Recall that in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 327 P.3d 129 (Calif. 2014), cert. den., 135 S. Ct. 1155 (2015), a divided 4-3 California Supreme Court – replete with partial concurrences and dissents – held that an employee could pursue statutory penalties against his employer under PAGA, despite the existence of an arbitration agreement waiving such claims. (ed: Under PAGA, the State gets 75% of the employee’s civil damages recovery, and 25% goes to the impacted employees.) ZB, N.A. v. Superior Court, No. S246711 (Calif. Sep. 12, 2019), focuses on a narrow issue: can an employee sue under PAGA for unpaid wages, when a predispute arbitration agreement with a class action waiver is present? “No,” says a unanimous California Supreme Court.

A Bridge Too Far

The employee’s suit sought recovery for overtime violations of CLC § 558. The Court took up the case “to decide whether Iskanian controls, and the FAA has no preemptive force, where an aggrieved employee seeks the ‘amount sufficient to recover underpaid wages’ in a PAGA action.” But, says the Court, it first “must answer a more fundamental question: whether a plaintiff may seek that amount in a PAGA action at all?” The Court concludes that a private citizen cannot use PAGA in this manner. Says the Court: “What we conclude is that the civil penalties a plaintiff may seek under section 558 through the PAGA do not include the ‘amount sufficient to recover underpaid wages.’ Although section 558 authorizes the Labor Commissioner to recover such an amount, this amount – understood in context – is not a civil penalty that a private citizen has authority to collect through the PAGA. ZB’s motion concerned solely that impermissible request for relief. Because the amount for unpaid wages is not recoverable under the PAGA, and section 558 does not otherwise permit a private right of action, the trial court should have denied the motion.”

Squaring this Decision with Iskanian

The Court notes that the facts here were different than those present in Iskanian, and that it is carving out an exception: “An employee’s predispute agreement to individually arbitrate her claims is unenforceable where it blocks an employee’s PAGA claim from proceeding. But a PAGA claim does not include unpaid wages under [CLA] section 558. Because ZB’s motion to compel arbitration concerned relief that was not cognizable under the sole cause of action in Lawson’s complaint, we affirm the judgment of the Court of Appeal and remand for proceedings consistent with this opinion.”


(ed: *Makes sense, based on the language of PAGA and the CLA. **Note that Iskanian was a 4-3 decision, with sharply divided views. Not so here.)

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