Possible changes in California’s Private Attorneys General Act could benefit employers

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For many employers, a key tool for in avoiding litigation costs is to require employees to go to arbitration rather than file disputes in Court. The California Private Attorneys General Act or “PAGA” remains a persistent threat to employers because current California law prevents arbitration of these claims. With a quick glance at the database on the California Department of Industrial Relationships, it is easy to see the consistent increase in these types of cases and the risk they pose to employers. But there may be a change on the horizon…

On December 15, 2021, the United States Supreme Court decided to hear the case of Viking River Cruises, Inc. v. Moriana. A case which asks whether the Federal Arbitration Act (“FAA”) preempts California’s law prohibiting arbitration of PAGA claims.

PAGA gives aggrieved employees the ability to step into the shoes of the State and file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. The act allows private attorneys to sue on behalf of California in exchange for giving a percentage of the winnings to the state.

California Courts hold that because the State has an interest in PAGA claims and they are brought for the public benefit, PAGA actions are outside the scope of employment arbitration. The State is not bound by an arbitration clause in an employment contract, unlike an employer and employee. However, Federal Courts are increasingly skeptical of that argument—believing that Federal law should override State law.

Given the makeup of the current pro employer/conservative Supreme Court, it seems there may be a shift in California employment law. The Court seems poised to hold that representative PAGA actions will be subject to employment arbitration agreements.

For an employee to file a PAGA lawsuit they first need to serve the State and violating employer a notice and give them a period of time to resolve the alleged issues. Most PAGA notice letters are not sent with the intent to resolve a case. They are sent with the intention of simply satisfying the necessary prerequisites of filing a PAGA lawsuit in State Court. In fact, some Plaintiff attorneys will even send PAGA notice letters at the same time they file the complaint. So, it is fair to assume a formal complaint will be filed if a PAGA notice letter is sent.

The decision by the Supreme Court will likely come down in Spring or Summer of 2022. So, what should employers do now when faced with PAGA lawsuits? For the most part, the initial response to receiving a PAGA notice should not change. The employer should promptly investigate the allegations, seek legal counsel, and respond to the PAGA letter in writing. But employers and defense attorneys should keep Viking River Cruises in mind when planning strategies for litigating these cases. The settlement value and viability of PAGA cases may change dramatically within a few months.