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2 Steps Forward, 1 Step Back: California Supreme Court Nixes Plaintiffs’ Ability to Recover Unpaid Wages Under PAGA, but Forecloses Defendants’ Path to Arbitration

On Sept. 12, 2019, the California Supreme Court in ZB, N.A. v. Superior Court of San Diego County (Lawson) delivered a victory for California employers, clarifying that a plaintiff bringing a Private Attorneys General Act (PAGA) action may not recover as a “civil penalty” the “wages” referenced in Cal. Labor Code section 558, and thereby limited the monetary recovery workers can seek under PAGA.

PAGA allows a plaintiff-employee to seek civil penalties on behalf of the plaintiff and other “aggrieved employees” for a Labor Code violation, if the Labor Commissioner first receives proper notice of the claim and declines to take action on it. Among the Labor Code sections often relied on by plaintiffs in such cases is Labor Code section 558, which enables the Labor Commissioner to collect $50 and $100 in civil penalties against employers that unlawfully deny overtime compensation to workers, and allows the Commissioner to recover “an amount sufficient to recover underpaid wages.” Though PAGA provides that amounts recovered by a private litigant are to be distributed 75% to the state and 25% to “aggrieved employees,” section 558 provides that any wage-based recovery under section 558 goes entirely (100%) to the workers.

In ZB, N.A., the Supreme Court definitively held that a plaintiff may not seek the “underpaid wages” component of section 558. Having first noted that section 558 does not create a direct private right of action, the court further held that the “wage” component of a section 558 penalty is not a civil penalty, and therefore cannot be pursued derivatively through PAGA: “Although section 558 authorizes the Labor Commissioner to recover such an amount, this amount – understood in context – is not a civil penalty that a private citizen has authority to collect through the PAGA.” Simply, because the unpaid wages are “damages” rather than penalties, it is not within the scope of PAGA, for which recovery is limited to civil penalties. Employees, of course, still are able to sue directly on substantive underlying Labor Code sections addressing the obligation to pay all wages earned (but not via PAGA or section 558).

Although this is a win for California employers, it does take away a procedural tactic often used by defendants to gain leverage in PAGA actions. Specifically, many defendants had used plaintiffs’ assertions of a section 558 “wage” claim as a means to force that portion of the claim into arbitration, and to stay the balance of the PAGA claim pending resolution of the arbitration. Until yesterday’s Supreme Court’s decision, there was split-authority between the California Courts of Appeal as to whether the “unpaid wage” portion of a PAGA claim could be severed and arbitrated while the remaining PAGA remedies were stayed. The court’s ruling makes the arbitration argument moot, since such unpaid wages are not available to plaintiffs through a PAGA claim at all.

On balance, the decision is a win for defendants, who no longer have to defend against the prior oddity of a PAGA claim – expressly a claim for civil penalties – seeking wages that could inflate plaintiffs’ monetary recovery. While the court took that claim out of plaintiffs’ quiver, in so doing it also took from defendants any ability to use it to stay the rest of the PAGA claim in favor of an arbitration on the “unpaid wages” claim.

©2020 Greenberg Traurig, LLP. All rights reserved.


About this Author

Mark Kemple, Greenberg Traurig Law Firm, Los Angeles, Labor and Employment Litigation Attorney

Mark D. Kemple is an attorney the firm’s Labor & Employment Class and Collective Action practice and leads the Southern California Labor & Employment Practice. He has broad trial experience in many areas of the law, including employment class and individual litigation, consumer class litigation, false advertising, and unfair competition, where he focuses on the defense of wage/hour class actions and individual employment claims. Mark has handled disputes for companies of all sizes, and has tried numerous lawsuits and arbitrations throughout the United States. He...

Ashley M. Farrell Pickett Labor & Employment Lawyer Greenberg Traurig Law Firm

Ashley M. Farrell Pickett focuses her practice in the areas of labor and employment and general business law. She has deep experience in both state and federal courts, ranging from individual claims to nationwide class actions.

In her employment practice, Ashley represents employers with respect to a wide range of employment discrimination and retaliation claims, sexual harassment, leaves of absence, employee accommodations, personnel policies, wage and hour compliance, and employment agreements, along with other labor and employment issues. Ashley is also skilled in advising employers on various issues to ensure compliance and avoid potentially costly litigation before it can arise.

Michael Wertheim Employment Attorney Greenberg Traurig

Michael Wertheim represents employers in workplace matters, including employment litigation, wage and hour class actions, California Labor Code actions, Private Attorneys General Act actions, and traditional labor law. He also represents companies in a wide range of employment disputes in both state and federal court, including cases alleging discrimination, harassment, wrongful termination, and retaliation. In addition, Michael handles labor arbitrations, unfair labor practice charges, and other labor proceedings before the National Labor Relations Board and Public...