On September 12, 2019, the California Supreme Court ruled that an aggrieved employee bringing a representative action under California’s Private Attorneys General Act (PAGA) cannot recover unpaid wages. In ZB N.A. v. Superior Court, the plaintiff, Kalethia Lawson, brought a lawsuit alleging a sole cause of action under PAGA. She based her PAGA claim on several underlying allegations of Labor Code violations, including failure to provide overtime and minimum wages, meal and rest periods, timely wage payments, complete and accurate wage statements and payroll records, and reimbursement of business-related expenses. In addition to the civil penalties available under PAGA, Lawson sought unpaid wages and premium wages under Labor Code Section 558. The employer moved to compel arbitration of Lawson’s claim for unpaid wages, arguing that unpaid wages are the kind of “victim-specific relief” that Lawson had agreed to submit to binding arbitration.

The California Supreme Court previously held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), that PAGA claims cannot be compelled to arbitration—even if the employee agreed not to pursue claims on a class-wide or representative basis. Since then, plaintiffs have increasingly resorted to PAGA claims as a way to avoid arbitration and proceed in court on behalf of all so-called “aggrieved employees.” As part of this trend in PAGA claims, plaintiffs, like Lawson, often include Labor Code 558 as a basis for the PAGA claim in order to seek additional penalties in the form of unpaid wages. In response, employers have argued that employees who agreed to arbitrate their claims on an individual (not representative) basis should not be able to recover victim-specific relief in the form of unpaid wages on a class-wide or representative basis under PAGA and should instead pursue that relief only on an individual basis in arbitration.

The California Supreme Court sided with the employer position by concluding that PAGA does not allow an employee to recover unpaid wages. PAGA’s legislative intent was to delegate the enforcement of Labor Code provisions by allowing employees to seek civil penalties on behalf of all aggrieved employees and requiring 75% of those penalties to be paid to the state. In contrast, the unpaid wages under Section 558 are compensatory in nature, specific to each employee, not shared with the state, and separately recoverable without PAGA. Thus, employees may still pursue an individual action for unpaid wages alongside a PAGA claim, but employees cannot use PAGA to pursue—in court or arbitration—unpaid wages on behalf of aggrieved employees.

Despite this positive result which narrows the relief available under PAGA, courts applying PAGA can and do impose substantial penalties against California employers on behalf of all aggrieved employees, without satisfying the requirements for class certification. While employees are now precluded from recovering unpaid wages under PAGA, employees may still pursue PAGA’s substantial penalties in court, and employers cannot compel them to arbitrate these claims. California employers can expect the trend for increased PAGA litigation to continue, and employers should ensure their wage and hour policies and practices comply with these laws.

ZB, N.A., et al. v. Superior Court, No. S246711 (Sept. 12, 2019).