PAGA is down, but not out! Before explaining why, you need to understand how PAGA works and how the U.S. Supreme Court decided federal law can preempt it.

A PAGA claim allows an “aggrieved employee” to file a case on behalf of other aggrieved employees. PAGA claims allow the plaintiff to step into the shoes of California Agencies, such as the Labor Commissioner, and seek civil penalties on behalf of the state for violations that happen to many aggrieved employees. As an incentive, the aggrieved employees receive 25% of the penalties, but the remaining 75% goes to the state. Assuming that the employer makes the same mistake over a long period of time, the penalties accumulate during that period.

To calculate PAGA penalties, a statute determines the amount of a fine for a certain violation. Many violations have fines of $200. That amount is then multiplied by each aggrieved employee times the number of pay periods over which the violation occurs. For instance, if 100 aggrieved employees suffer a paystub violation under Labor Code §226 and the paystubs repeat that same violation for 52 weeks, then a $200 penalty for 100 employees over 52 pay periods (assuming weekly pay periods) is $1,040,000!

Before Viking, The U.S. Supreme Court ruled in other cases that the Federal Arbitration Act (FAA) could preempt state wage laws. It gives businesses the ability to have a provision in an arbitration agreement that waives an employee’s right to file a class action. In other words, the FAA preempts a state’s right to allow employees to file class actions against employers, if the employee and employer agree, in an arbitration agreement, to waive that right.

In Iskanian, the California Supreme Court, said two important things. (Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014).) One, the FAA does not preempt the state of California from regulating businesses. Because PAGA allows a single aggrieved employee to step into the shoes of California, the FAA cannot prevent the aggrieved employee from collecting fines that the state of California can level against employees. Two, the PAGA claims of a single plaintiff, who is an aggrieved employee, cannot be separated from the PAGA claims of the other aggrieved employees. That’s because the single plaintiff is representing a larger group of aggrieved employees and is bringing their PAGA claims for them, on behalf of the state.

In Viking, the U.S. Supreme Court overruled the Iskanian notion that a plaintiff’s individual PAGA claim could not be separated from the PAGA claims of the represented group of aggrieved employees. (Viking River Cruises, Inc. v. Moriana, 596 U.S. __ (2022).) In fact, it said the opposite, that a plaintiff’s claims could be separated from the group claims in a properly drafted arbitration agreement that waives the right to PAGA claims. After the individual plaintiff’s claims are ordered out of court and into arbitration, the Court said that the group PAGA claims cannot survive because of California standing rules.

In a concurring opinion, Justice Sotomayor, said that PAGA could possibly be saved by two separate mechanisms. One, the California courts could determine that the U.S. Supreme Court misunderstood the PAGA standing rules. Two, the California legislature could repair the PAGA statue as to standing, or another significant way, that would revive PAGA claims.

Based in San Diego, California the Employment Law Office of Ward Heinrichs represents both employers and employees in almost all areas of labor law. He and his firm litigate cases that have been filed in many different parts of California. Ward appears on Big Blend Radio every 4th Wednesday. Visit www.BestEmploymentAttorneySanDie

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