In ZB, N.A. v. Superior Court (Lawson) (Sept. 12, 2019), the California Supreme Court held that plaintiffs cannot recover the unpaid wages described in Labor Code section 558 in a Private Attorneys General Act of 2004 (PAGA) claim.  This ruling drastically limits the amount of penalties that plaintiffs can attempt to recover in PAGA actions.  Here are five issues that employers should understand about PAGA and the Supreme Court’s ruling in Lawson:

1. General overview of the Private Attorneys General Act.

PAGA was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws.  At the time the legislation passed, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, PAGA allows aggrieved employees to act like a private attorney general in collecting civil penalties for Labor Code violations previously recoverable only by the Labor Commissioner. The employee must give 75% of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations.

2.PAGA cases are representative claims, which are different than class actions.

Because a plaintiff bringing a PAGA claim can only seek penalties, a one year statute of limitations applies to these case.  This varies drastically from the four-year statute of limitations that apply to most wage and hour class actions under Business and Professions Code section 17200.  Also, the California Supreme Court held in Arias v. Superior Court that a plaintiff does not have to have a class certified in order to recover penalties under the PAGA.

3. In a prior case, Iskanian v. CLS Transportation Los Angeles, LLC, the Supreme Court held that PAGA claims cannot be waived in arbitration agreements.

In Lawson, the Supreme Court explained its prior holding in Iskanian:

In Iskanian, we declared unenforceable as a matter of state law an employee’s predispute agreement waiving the right to bring these representative PAGA claims.  Requiring employees to forgo PAGA claims in this way contravenes public policy by “serv[ing] to disable,” through private agreement, one of the state’s “primary mechanisms” for enforcing the Labor Code.  (Iskanian, at p. 383.)  We then concluded the FAA did not preempt this rule or otherwise require enforcement of such a waiver in an arbitration agreement.  (See id. at pp. 384-389.)

4. Difference between civil penalties and statutory penalties.

The Court in Lawson explained that civil penalties were “ ‘previously enforceable only by the state’s labor law enforcement agencies’ ” before the PAGA.  Actions to recover civil penalties are basically a law enforcement action, which the primary goal is to protect the public – not to benefit private parties.  The Court explained that other remedies, such as restitution of unpaid wages, were always recoverable by employees before the PAGA.  The Court set forth that the primary difference between civil penalties and statutory damages as follows:

[Civil penalties] are intended “to punish the employer” for wrongdoing, often “ ‘without reference to the actual damage sustained . . . . ’ ”  (Ibid.)  Statutory damages, on the other hand, primarily seek to compensate employees for actual losses incurred, though like penalties they might also “seek to shape employer conduct” as a secondary objective.  (Id. at p. 1112.)

5. Labor Code section 558 only permits plaintiffs to recover civil penalties, not any recovery of unpaid wages in PAGA actions.

Labor Code section 558 provides the Labor Commissioner  power to issue overtime violation citations for “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.”

The parties in Lawson all agreed that the $50 and $100 citations permitted by section 558 are civil penalties, which could be recovered in a PAGA action.  The issue presented in Lawson was whether the language permitting “an amount sufficient to recover underpaid wages” in Labor Code section 558 is a civil penalty, which means it would be recoverable in PAGA actions.  The Supreme Court found that section 558 does not permit recovery of underpaid wages under PAGA actions, which dramatically limits the range of damages recoverable by plaintiffs.