The yearlong wait on the future of California’s Private Attorneys General Act (PAGA) has yielded a conflicting opinion from the state Supreme Court, which recently ruled that collective PAGA claims can proceed in court even when an individual employee’s case is already in arbitration, deepening the perception among employers and the business community that California remains a less than welcoming place to do business, critics say.
The Adolph v. Uber decision was premised on how California's high court saw standing, which countered the U.S. Supreme Court’s June 2022 decision in Viking River that found someone involved in arbitration could not pursue joint employee claims in court, said Elizabeth Milito, executive director of the National Federation of Independent Business (NFIB) Small Business Legal Center.
NFIB, along with many other business groups, filed a friend of the court - or, amicus - brief on behalf of the defendant Uber.
Elizabeth Milito
| https://nfib.com
“The decision really exposes California employers, and unfortunately, small business owners to greater uncertainty now and greater liability in the state,” Milito said. “Even though the court mentioned PAGA abuse, it did not address it head on, and we think that is something they should have factored in more.”
PAGA claims have grown exponentially in recent years, driven by boilerplate complaints. Some law firms wouldn’t exist without the work they do on PAGA claims, a manifestation of concerns argued even before the law was passed in 2003. While some PAGA cases go to court, other defendants have to settle because they can’t afford the expense of fighting in court.
In Adolph, the main issue was whether an employee, after being compelled to arbitration for their individual PAGA claim, could maintain their non-individual claims (on behalf of all the other employees of the company) in court, Alden Parker, Regional Managing Partner, Co-Chair Hospitality Industry Group Fisher & Phillips, which also filed an amicus brief for the Restaurant Law Center and California Restaurant Association, said in an email response to the Record.
“The U.S. Supreme Court said their reading of the statute was that the non-individual claims would be dismissed after sending the individual PAGA claims to arbitration, but deferred to the State of California to give their opinion,” Parker said. “The California Supreme Court disagreed with the U.S. Supreme Court’s take on the standing requirement under PAGA.”
The PAGA law is unique to California, and the California Supreme Court stated in its ruling that fundamental changes should come from the state’s lawmakers: “These arguments are best directed to the Legislature, which may amend the statute to limit PAGA enforcement if it chooses,” the court wrote.
But the Legislature thus far has only passed PAGA relief for certain unionized workers in two industries: construction and custodial services.
“It is very concerning. The legislature so far has been unwilling to address the concerns of their constituents that are inundated by these types of wage and hour claims,” Parker said. “It will likely take the passing of the PAGA reform initiative in November 2024 to get some relief.”
The U.S. Supreme Court's 8-1 ruling last year in Viking River, which found PAGA doesn’t supersede the Federal Arbitration Act, was only a brief reprieve. State data shows that since the start of 2023, more than 100 PAGA cases have been filed against businesses in San Francisco, another 50 in San Jose, and dozens more in Menlo Park, Palo Alto, Cupertino, Santa Clara, and throughout the Silicon Valley. The companies include Meta, Rayethon, and SolarJuice Technology Inc.
PAGA’s original sponsors include one of the state’s most powerful unions, the California Labor Federation, and California Rural Legal Assistance, which advocates for PAGA plaintiffs.
The methods of some PAGA attorneys keep businesses from staying in California, Tom Manzo, founder and president of CABIA (California Business and Industrial Alliance), told the Record.
“If you own a business, if you run a nonprofit, if you’re a university, or a religious institution – anybody with an employee can be hit with one of these PAGA lawsuits,” Manzo said.
“The frustrating part is so many people know this is a bad law, but the only people who’ve gotten any kind of relief are the labor unions,” Manzo said. “This law continually gets abused, and we need some relief, or more and more employers are going to continue to leave the state.”
The Adolph ruling means employers may face more litigation costs because employees can still pursue PAGA claims in court, even if they have a valid arbitration agreement in place, Bianca Saad, CalChamber Vice President, Labor and Employment, told the Record by email.
“It highlights the need for PAGA reform,” Saad said. “The topic of PAGA continues to be an area of concern for employers and may continue to evolve through future court decisions or ballot initiatives, or both.”
When local and state government agencies are hit with PAGA claims, it’s at taxpayers’ expense. Recent PAGA claims have been filed against the City of Los Angeles Department of Recreation and Parks and the L.A. County Department of Mental Health.
Parker, of Fisher & Phillips, noted that PAGA’s application seemed to change after the SCOTUS issued a strong opinion in Epic v. Lewis (2018) that enforced bilateral arbitration agreements with class action waivers.
“Before this decision, plaintiffs’ practitioners seemed to value PAGA claims as a small tack on claim to a larger class action,” Parker said. “When the class claims went away due to the U.S. Supreme Court decision, miraculously the PAGA claims’ values jumped to match what many of the plaintiffs’ attorneys felt the class case was worth.”
Among the targets of prolific PAGA lawyers in the last year: restaurants in West Hollywood and Malibu, a San Diego barber, a Beverly Hills hotel, and an Orange County butcher.
Two days before Christmas last year, a prolific PAGA law firm gave notice to a San Francisco nonprofit that helps the homeless. Habitat for Humanity of Sonoma County has also been hit.
“It's become a treasure trove for an unscrupulous plaintiffs’ attorneys to make a quick buck,” Milito said. “Often it's used to extort settlements from small businesses, too, who cannot afford to litigate.”
Still, that hasn’t deterred law firms that specialize in PAGA claims from continuing to file them.
“I would say PAGA has hurt more than quite a few businesses," Milito said. “I think it has overall hurt the whole business environment there. This was not a good decision for businesses and the state, I think, is already not business-friendly, and this is just going to sort of underscore the perception that California is not open for business and do nothing to strengthen the economy in the state.”