Retailer Macy's and other employers can't use arbitration agreements to defeat collective claims accusing them of violating the state's labor laws under California's controversial Private Attorney General Act, as federal appeals judges said a combination of decisions from the U.S. Supreme Court and the California Supreme Court must force such lawsuits into court, even if the lead plaintiff's "individual claims" must go to arbitration.
The decision marked the latest to lock retailers and other employers into potentially costly court actions under California's Private Attorney General Act (PAGA) under a controversial trial lawyer-friendly ruling from the California Supreme Court.
Under that ruling, known as Adolph v Uber, class actions against employers can continue under PAGA, even if arbitration agreements and federal law would prevent individual workers from bringing the same claims by themselves.
The case against Macy's has been pending since 2018, when attorney Armond M. Jackson, of Irvine, first filed the lawsuit in Orange County Superior Court on behalf of named plaintiff Yuriria Diaz.
According to the complaint, Diaz, of Bellflower in Los Angeles County, worked at a Macy's store in California.
The lawsuit accused Macy's of allegedly violating California labor laws, by allegedly shorting workers' overtime pay and other wages, allegedly failing to fully reimburse for work-related expenses, and other alleged violations.
The plaintiffs, however, sought to expand their action to include all non-commission hourly workers employed by Macy's since 2014.
Macy's removed the lawsuit to Los Angeles federal court. There, the plaintiffs amended the action to include claims under the PAGA law.
The controversial statute empowers workers to sue their employers on behalf of their coworkers for violations of California labor law, stepping into court in place of California state 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 under PAGA, employers could also be made to pay another large chunk to cover the fee demands of the lawyers who sued them.
This has generated 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 recent 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.
A ballot initiative will go before voters in November, seeking to reform the law to eliminate such "windfall profiteering" from plaintiffs' lawyers.
However, while such reform measures move forward, employers have attempted to use arbitration agreements to blunt the law's reach and potentially keep such PAGA actions out of court.
Employers appeared to score a significant win against PAGA at the U.S. Supreme Court in 2022. In the decision in the case known as Viking River Cruises v Moriana, the nation's highest court declared that federal law makes such arbitration agreements enforceable, even under California's unique PAGA regime.
However, in response to that decision, the California Supreme Court said the U.S. Supreme Court misinterpreted the PAGA law. In the Adolph decision, the state high court conceded federal law can force individual employees to arbitrate their individual claims. But the California Supreme Court said it believed nothing in federal law or the Viking River decision should be read to foreclose those same workers from moving ahead with "non-individual" class action claims on behalf of their co-workers.
That decision has promoted employers and their advocates to ask the U.S. Supreme Court to take up a new case, and once and for all declare that worker arbitration agreements also block "non-individual" claims from moving forward under PAGA.
According to the U.S. Supreme Court's website, that petition for appeal in the case known as Uber v Gregg remains pending before the U.S. Supreme Court. The high court had distributed the briefs in the case for the justices' conference on March 15. The court docket says the case was "rescheduled" on March 12, and no further action has been taken.
In the Macy's case, the retailer urged the Ninth Circuit to agree with a Los Angeles federal judge, who ruled in 2022 that Diaz's claims must proceed to arbitration and her "non-individual" claims should be dismissed.
The Ninth Circuit panel, however, said it cannot agree to that request.
Rather, the judges said, under the regime established by Viking River and Adolph, the arbitration agreement cannot apply to Diaz's "non-individual" class action claims.
"The combination of Viking River and Adolph places Macy's in an odd position," the judges wrote. "Having successfully shown that the arbitration agreement in this case does not encompass non-individual PAGA claims, Macy's has opened the way for Diaz to bring those claims in a separate court proceeding that Macy's surely did not desire.
"But there is no other tenable outcome. The California Supreme Court has held that the ability to bring non-individual PAGA actions cannot be waived by agreement, because such a waiver would frustrate the enforcement objectives of PAGA. An aggrieved employee must have a forum in which to bring non-individual PAGA actions. Because the agreement between Macy's and Diaz forecloses arbitration of those claims, court is the only option remaining."
The judges agreed Diaz's individual claims must head to arbitration, under federal law. But they sent her "non-individual claims" back to Los Angeles federal court for further proceedings, in line with Adolph.
They anticipated those PAGA class claims would be put on hold, until arbitration on her individual claims could be completed.
The decision was authored by Ninth Circuit Judge Jay S. Bybee, with concurrence from Ninth Circuit Judge Kenneth K. Lee and Third Circuit Judge D. Michael Fisher, who was sitting on the case by designation.
Diaz and the class have been represented by attorneys Ryan H. Wu, Melissa Grant and Robert J. Drexler Jr., of Capstone Law APC, of Los Angeles; and Armond Jackson and Andrea Fernandez-Jackson, of Jackson Law APC, of Irvine.
Macy's has been represented in the action by attorneys Felix Shafir and Peder K. Batalden, of Horvitz & Levy LLP, of Burbank; Fermin H. Llaguno and Pejmon D. Bodaghi, of Littler Mendelson PC, of Irvine; and Catherine S. Sison and Michael Christman, of Macy's Law Department, of St. Louis.