U.S. Supreme Court gives employers a lifeline from lawsuits. Now it’s California’s turn

Patrick Semansky/AP
·3 min read

The U.S. Supreme Court recently tossed California employers a litigation lifeline. The state Legislature should not yank it back.

The case, Viking River Cruises v. Moriana, concerns the state’s Private Attorneys General Act, which gives employees the state’s power to sue their boss for any violation of the state’s 1,100-plus-page Labor Code.

Signed into law in 2003 by then-Gov. Gray Davis, PAGA lawsuits were modest at first, with just 700 filed in the law’s first year. That changed starting in 2014, after the state Supreme Court ruled in a case known as Iskanian that PAGA lawsuits could not be waived in an arbitration agreement. (Arbitration is a process whereby an individual employee agrees to settle a grievance with an employer through a third-party arbitrator, rather than the courts.)

Plaintiff lawyers sensed an easy pay day — the scale of a class-action lawsuit without the work required to certify a class. By fiscal year 2019, nearly 7,000 PAGA lawsuits had been filed, with countless more threatened via extortionate letters warning employers to settle lest they too receive a dreaded PAGA notice and risk a multimillion-dollar liability.

The Viking case challenged the Iskanian decision directly, arguing that the PAGA waiver prohibition was a violation of the federal Arbitration Act. In a nuanced decision, the court agreed with Viking, making clear that PAGA can be waived through an arbitration agreement with a class-action waiver.

This outcome is a win for employers and employees — neither of whom is well-served by the status quo. In an amicus brief to the court, one of us (CABIA) cited state data showing that PAGA-decided cases cost employers $1.1 million on average, versus $790,000 for a case decided by the Labor and Workforce Development Agency (LWDA). The difference in cost? Attorneys fees, which average $372,000 per case across hundreds of PAGA settlements analyzed.

Employees also fare worse under PAGA: The average per-employee award in a PAGA case is $1,300, compared to $5,700 per employee in an LWDA-decided case. Workers also get their money quicker: LWDA cases result in payments nearly a year sooner than those pursued via a PAGA lawsuit. Following the Viking decision, aggrieved employees should similarly be able to enjoy a quicker resolution (and quicker payment) through an arbitration proceeding instead of a PAGA complaint. (Employers who need an arbitration agreement can obtain one for free at CABIA.org/arbitration.)

The Supreme Court’s ruling does not fully relieve California employers of the PAGA threat. Labor Fed chief (and former legislator) Lorena Gonzalez tweeted after the court’s announcement that the Legislature should “modify the scope of statutory standing” to retain PAGA’s power. She may mean lifting the law’s current requirement that PAGA complaints can only be brought by employees. This could create a perverse situation where anyone can file a claim under PAGA, regardless if they’re an employee.

California voters have already given thumbs-down to such a scheme. In 2004, California voters approved Proposition 64, which ended bounty-hunter lawsuits where lawyers regularly filed complaints under the state’s unfair competition law even if they had suffered no harm. Similarly, the legislative history of PAGA shows that the state’s powers were deliberately given to employees, rather than third-parties, to reduce the risk of profit-seeking lawsuits.

In the months ahead, thoughtful legislators should use this opportunity to improve and refine PAGA, rather than make it worse. And further reforms may wait: A measure seeking qualification for the 2024 ballot would replace the PAGA process with a new one through the LWDA. For today, California employers can rest easy; tomorrow, the fight continues.

Scott Miller is CEO of the Fresno Chamber of Commerce. Genelle Taylor Kumpe is CEO San Joaquin Valley Manufacturing Alliance. Tom Manzo is president of the California Business and Industrial Alliance.