On September 12, 2019, the California Supreme Court decided in a unanimous decision that in a Private Attorneys General Act (PAGA) action seeking to recover penalties under California Labor Code Section 558, a plaintiff may recover civil penalties but may not recover actual unpaid wages. This is an important decision, which now clearly prevents a plaintiff from seeking both statutory penalties and wages under PAGA (as is often argued by the plaintiff). The high court did, however, reinforce that actions seeking statutory penalties under PAGA cannot be compelled to arbitration.

In the underlying action, plaintiff Kalethia Lawson sued defendants Zions Bancorporation (collectively “ZB”) via a PAGA action, seeking recovery of both statutory penalties and unpaid wages based on Labor Code section 558. ZB moved to compel arbitration of Plaintiff’s individual wage claims, which the trial court granted. In granting ZB’s petition compelling arbitration, the trial court bifurcated Plaintiff’s underpaid wage claims from her claim for the specific $50 and $100 statutory penalty amounts imposed by section 558. The trial court further held that because Plaintiff’s PAGA wage claim was “representative” in nature, it required representative adjudication. Even though Plaintiff had signed a class or representative action waiver, the court ordered arbitration of the wage claim on a representative basis. ZB filed both an appeal and petition for writ of mandate with the Court of Appeal. The Court of Appeal reversed, holding the trial court erroneously bifurcated Plaintiff’s PAGA claim between the specific $50/$100 civil penalties and underpaid wages. It further held the trial court erroneously ordered and directed the underpaid wages be arbitrated on a representative basis.

Labor Code section 558 provides in relevant part:

(a) Any employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of this chapter or an provision regulating hours and days of work in any order of the Industrial Welfare Commission shall be subject to a civil penalty as follows:

(1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.

(2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.

(3) Wages recovered pursuant to this section shall be paid to the affected employee.

(d) The civil penalties provided for in this section are in addition to any other civil or criminal penalty provided by law.

(§ 558, subds. (a), (d).)

The Court, in its analysis, viewed and defined the two categories of relief Lawson sought separately. First, the Court defined “civil penalty,” which is available to an employee under 558 to be the $50/$100 amount proscribed by statute and specifically intended to punish an employer for wrongdoing. In the second category, was compensatory relief which seeks to compensate an employee’s actual damages or “unpaid wages.” The Court, however, held that employees cannot recover unpaid wages under section 558 in a PAGA claim, and – importantly – this category of damages would be based on a private right of action.

Ultimately, the California Supreme Court affirmed the Court of Appeal’s decision indicating ZB’s motion to compel should have been denied, but did so on different grounds. Namely: Lawson had a PAGA action for penalties which could not be compelled to arbitration. As to Lawson’s wage claim, Section 558 did not allow for a private right of action for the recovery of unpaid wages. In sum, the Supreme Court reached the same end result as the Court of Appeal in affirming the trial court’s decision to deny ZB’s motion, but for different (important) reasons.

As a result of this decision, plaintiffs in PAGA actions should be dissuaded, if not fully foreclosed, from arguing for and seeking the recovery of “stacked” penalties and wages in a PAGA action under Section 558 and avoiding an agreement to arbitrate or agreement to waive class actions.