A woman and her lawyers can continue pressing a claim under a controversial California law on behalf of all of her coworkers that home improvement chain Lowe's violated workers' rights under California labor laws, even though an arbitration clause in her own employment contract prevents her from suing on her own behalf, a federal appeals court has ruled.
In the decision, entered Feb. 12, the U.S. Ninth Circuit Court of Appeals specifically ruled that a controversial trial-lawyer-friendly ruling from the California Supreme Court, which would allow such seeming incongruous legal maneuvers under the California Private Attorneys General Act (PAGA), doesn't conflict with a U.S. Supreme Court ruling, which appeared to many observers to forbid it.
The ruling from the three-judge appellate panel revives the class action lawsuit brought by plaintiff Maria Johnson against the nation's second largest home improvement retailer.
The lawsuit, filed in 2021 in Solano County Superior Court, asserts that Lowe's violated a number of California labor laws in how it allegedly treated its employees. The lawsuit was filed by attorneys Larry W. Lee and Simon L. Yang, of the Diversity Law Group, of Los Angeles; and William L. Marder, of Polaris Law Group, of Hollister.
Johnson's lawsuit was filed under the PAGA law, a controversial California statute which empowers workers to sue their employers on behalf of their coworkers for violations of California labor law, in place of California labor officials. Before enactment of the PAGA law, only California state officials were empowered to bring such enforcement actions on behalf of entire workforces.
Employers targeted by such actions could be forced to pay penalties, the bulk of which would go to the state of California. But if a judgment is entered against them, or if they agree to settle, employers could also be made to pay another large chunk to the lawyers who sued them.
This has generated a cottage industry of plaintiffs' lawyers who critics say rake in fees from such PAGA actions, while generating relatively few real benefits for workers.
Indeed, a recently published analysis from the law firm of Duane Morris revealed that 2023 was a record-breaking year for such PAGA lawsuits, with nearly 8,000 notices of actions filed against California employers last year.
Such dizzying lawsuit numbers have spurred a ballot initiative, which will give voters this November the chance to force reform of the law, steering all recovery to affected employees, and eliminating the "windfall profiteering" plaintiffs' lawyers have enjoyed through the law for years.
However, for now, courts appear poised to allow the PAGA-related lawsuits to continue.
In the case against Lowe's, the company removed the lawsuit to federal court in the Eastern District of California in Sacramento.
The lawsuit appeared to meet a relatively quick end in 2022, when U.S. District Judge Troy Nunley, an appointee of former President Barack Obama, sided with Lowe's and dismissed the case.
In that ruling, Nunley noted Johnson's employment agreement included a provision that would force her to take any such claims for violation of local labor laws to arbitration, rather than in a lawsuit in court.
Nunley noted the U.S. Supreme Court addressed that very topic in its 2022 decision in Viking River Cruises v Moriana, in which the court declared that federal law makes such arbitration agreements enforceable, even under California's unique PAGA regime.
Nunley then ruled that his reading of the Viking River decision and other applicable law also prevents Johnson from serving as the lead plaintiff on a class action or representative action on behalf of others under PAGA, as well.
Johnson's lawyers appealed that decision to the Ninth Circuit.
In the meantime, the California Supreme Court also weighed in on the question, and shot down the reasoning used by Nunley and other judges to allow arbitration agreements to end PAGA lawsuits. In the decision known as Adolph v Uber, the state Supreme Court declared that, while federal law may require individual plaintiffs to go to arbitration, that law doesn't prevent those same plaintiffs from leading representative or class actions against employers under PAGA.
In the case against Lowe's, the Ninth Circuit judges agreed with the California Supreme Court's reasoning, finding the Adolph decision doesn't conflict with the U.S. Supreme Court's Viking River ruling, saying the state Supreme Court did not overstep its authority by declaring the U.S. Supreme Court's interpretation of PAGA was wrong.
The appeals judges agreed that Johnson must arbitrate her individual claim. But they also agreed that did not shut down Johnson's class action against Lowe's.
"There is nothing in Adolph that is inconsistent with the federal law articulated in Viking River," the Ninth Circuit judges wrote. "As required by the FAA and Viking River, the California Supreme Court in Adolph compelled the plaintiff to arbitrate his individual PAGA claims.
"Further, as permitted by the Federal Arbitration Act and Viking River, the Court held in Adolph that PAGA prevented the plaintiff from waiving his right to pursue his non-individual PAGA claims in court. Finally, as may or may not have been required but was certainly consistent with the FAA and Viking River, the Court held that if the plaintiff lost on the merits of his individual PAGA claims in arbitration, he no longer had standing to pursue his non-individual PAGA claims in court."
The court's opinion was authored by Ninth Circuit Judge William Fletcher. Circuit Judge Richard Tallman concurred.
Circuit Judge Kenneth Lee offered a special concurrence, to state he believed questions still remain on whether even a loss at arbitration for the named plaintiff could help a defendant escape a class action under PAGA.
Judge Lee said such a finding could violate the rights of plaintiffs to a "full and fair opportunity to litigate." Lee said the court should continue watching future cases to ensure the "lurking tension" doesn't "[morph] into an irreconcilable conflict."
Lowe's has been represented in the action by attorney Jason Schwartz, and others with the firm of Gibson Dunn & Crutcher, of Irvine, Los Angeles, San Francisco and Washington, D.C.
Lowe's could yet choose to seek to appeal the ruling to the U.S. Supreme Court, where other companies have sought to challenge the California Supreme Court's reasoning in Adolph.
The Northern California Record reached out to Schwartz for response to the Ninth Circuit's ruling. Schwartz declined comment.