PAGA PENALTIES DO NOT INCLUDE UNDERPAID WAGES

On September 12, 2019, in a rare pro-employer decision, the California Supreme Court in ZB, N.A. v. Superior Court held that Private Attorney General Act (PAGA) plaintiffs cannot recover back wages in addition to civil penalties.  Despite the fact that the Labor Commissioner could collect unpaid wages under California Labor Code section 558, the Supreme Court stated that “this amount – understood in context – is not a civil penalty that a private citizen has authority to collect through the PAGA.”  This would limit PAGA plaintiffs (and their counsel) to cumulative penalties in the amount of $50 to $100 per pay period.

This decision is important because California plaintiffs are increasingly attempting to skirt valid arbitration agreements with class action waivers by bringing PAGA-only claims.  Current case law in California holds that employers cannot mandate arbitration of PAGA claims because technically, private litigants are stepping in the shoes of the State, who did not agree to the arbitration agreements.  Accordingly, there are an increasing number of PAGA-only claims that forego a putative class action and instead solely pursue a collective action where the putative plaintiffs get only 25 percent of the penalties collected, but the attorneys receive fees based on the full recovery.   While those claims have only a one-year statute of limitations, some courts had held that in addition to PAGA penalties, litigants could also recover back wages – essentially finding a backdoor around mandatory arbitration agreements to collect wages on behalf of a group of putative “aggrieved parties.”  This decision puts a stop to this practice, as a private plaintiff solely bringing a PAGA claim will no longer be able to recover unpaid wages.