With the U.S. Supreme Court’s recent decision in Viking v. Moriana, which found PAGA (Private Attorneys General Act) claims subject to arbitration, questions are being raised about further reform to the law and new legislation state lawmakers may propose to reflect the high court’s ruling.
The 8-1 SCOTUS decision has raised awareness about the controversial PAGA statute, which was signed by Gov. Gray Davis before he left office, and remains a law exclusive to California, Tom Manzo, founder and president of the California Business and Industrial Alliance (CABIA), told the Northern California Record.
The SCOTUS ruled that the Federal Arbitration Act (FAA) preempts the California court decision, Iskanian v. CLS Transportation, which had kept PAGA claims out of arbitration.
“The Supreme Court ruling reverses a terrible Iskanian decision that only enriched the trial lawyers,” Manzo said. “Having PAGA back in arbitration agreements is a big help in curbing the abuse of PAGA from the trial lawyers that has taken place for so many years. However, this isn’t a complete kill shot to PAGA, but it is a form of relief.”
Even though the SCOTUS did not overturn PAGA, the chair of the California Senate Labor Committee, Dan Cortese, D – San Jose, told the Record by email that new legislation is in the works.
“We are continuing stakeholder discussions, especially with our workers, to craft policy in response to the Supreme Court’s decision,” Cortese said. “As we are in recess this month, we must wait until August before we can move forward any legislation.”
But the high court’s action may make more people see how PAGA has impacted California’s small businesses, Manzo said.
“Anybody that's advocating for this type of change does not understand how severely this law is being abused,” Manzo said. “And if they want to have these laws, then help people implement them; don't educate them through greedy trial lawyers that are going to extort them for a million and half dollars – that doesn't help anybody.”
There has long been a chasm in how PAGA is viewed by trial attorneys and the business community.
In a recent PAGA demand letter, a law firm known as a top PAGA filer characterizes a $1 lottery ticket included in an employee welcome basket as a wage and hour violation; California Labor and Workforce Development Agency data shows the firm, Gaines & Gaines, has filed nearly 800 PAGA cases since 2008. In a recent case against a Puente Hills auto dealership, the firm received more than $125,000 in fees.
“The more people that are aware of it and understand, they should see the changes that need to be made to PAGA,” Manzo said.
A CABIA Foundation study is key to understanding the negative impact of PAGA on Californians, and now CABIA is working to educate businesses on arbitration, Manzo said. Meanwhile, the trial lawyer lobby works to promote legislative advocacy on behalf of plaintiffs’ attorneys in Sacramento.
Manzo noted it remains to be seen how the ruling’s limits on PAGA will impact attorney demand letters, and the extension of PAGA to plaintiffs who have not experienced the issues asserted in the claims.
In its decision, the SCOTUS states PAGA’s mechanism for joining together of claims is incompatible with federal arbitration rules, citing AT&T Mobility LLC v. Concepcion among other precedents.
“This combination of standing to act on behalf of a sovereign and mandatory freeform joinder allows plaintiffs to unite a massive number of claims in a single-package suit,” the court wrote. “But as we have said, ‘[a]rbitration is poorly suited to the higher stakes’ of massive-scale disputes of this kind. Concepcion, 563 U. S., at 350. The absence of ‘multilayered review’ in arbitral proceedings ‘makes it more likely that errors will go uncorrected.’ Ibid. And suits featuring a vast number of claims entail the same “risk of ‘in terrorem’ settlements that class actions entail.”
PAGA has become so devastating to certain industries that two have so far been able to secure PAGA exemptions through state legislation – construction with AB 1654 and janitorial services with SB 646, and the Viking case gives further proof that PAGA isn’t working, Manzo said.
An amicus brief by CABIA was distributed to the SCOTUS prior to the Viking v. Moriana oral arguments in March.
“People need to see what happens in these PAGA cases,” Manzo said. “They need to sit down and talk with some of the small business owners that are put out of business, or ones that survived PAGA but needed to take out loans to pay for these things and are still paying for them.”