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The United States Supreme Court’s impending decision in Viking River Cruises, Inc. v. Moriana has the potential to reshape California labor law in a way that will harm workers in this state. In California, the state Department of Industrial Relations (itself a part of the Labor & Workforce Development Agency) is the government branch that prosecutes violations of state laws regulating minimum wage and working hours. The state has long had the power to enforce California labor law by collecting unpaid wages on behalf of workers and by collecting penalties that an employer in violation of the law would pay to the state. However, the state government has never had the manpower or resources to combat every Labor Code violation that occurs within the state.
The Private Attorneys General Act of 2004 (“PAGA”) increased the state’s power to enforce labor laws by empowering California workers to prosecute civil lawsuits on behalf of the state government. Under the PAGA, workers can sue when their employers violate California labor law, and an employer in violation of state labor law can be forced to pay a penalty to the state, with a portion going directly to the workers as an incentive to bring cases on behalf of the state. Most importantly, the PAGA permits workers to sue not only on their own behalf, but on behalf of all other similarly aggrieved employees. Thus, a single worker can protect the rights of all workers by collecting penalties for a large group of workers in a single lawsuit.
Since its inception, the PAGA has proven to be an effective tool for protecting workers’ rights. Not only does it help bring in millions of dollars in penalties that benefit the state, the PAGA has provided individual workers with a powerful tool to advocate on their own behalf by filing representative actions on behalf of the state when the state does not have the resources to fight its own battles.
This has been most acutely felt in California as a check against the rise of class action waivers imposed on employees as a condition of employment. From an economic perspective, many lawsuits to recover unpaid wages do not make financial sense because the amount of money at issue, although usually significant to the aggrieved worker, is often dwarfed by the time and expense of litigating a civil case to recover an individual workers’ unpaid wages. For many years, class action procedures offered a solution to this problem by giving workers a chance to aggregate their claims, which permitted courts to resolve disputes much more efficiently. As a means of avoiding liability, many employers have begun requiring their employees enter into so-called “class action waivers” as a condition of employment, which essentially nullify the class action procedure. By removing the possibility of a class action, employers are able to create a system where individual workers have no economic incentive to protect their rights, and they cannot count on the government to do it for them because the government lacks adequate resources.
As a consequence of class action waivers, many labor code violations might go unpunished because of the economic disincentives to litigating individual cases. The PAGA helped ameliorate this problem for workers because California courts have consistently ruled that, unlike the right to bring a class action, which can be waived by an individual litigant, the right to prosecute labor code violations on the behalf of the state government cannot be waived as a matter of fundamental public policy. Thus, even if an employer could deprive workers of class action procedures, the workers could still band together under the PAGA and obtain some relief for themselves (and some for the state) with efficiency similar to a class action.
Of course, the PAGA is not a 1:1 replacement for true class action procedures. In a traditional class action, all wages recovered would be paid directly to the workers. The PAGA recovers civil penalties, and 75% of the penalties recovered are paid directly to the state while the workers share the remaining quartile. But compared to the alternative—not filing a case at all because of the economic disincentive—the workers’ option with the PAGA is clearly superior.
Now, corporations are asking the United States Supreme Court to invalidate the rule that employers may not force workers to waive their right to bring representative actions under the PAGA. Their argument relies on the Federal Arbitration Act (9 U.S.C. §§1-16), a body of law that was originally enacted during the Roaring Twenties to facilitate resolution of private commercial disputes, but which has received a series of ever more expansive interpretations in the US Supreme Court.
Over the years, corporations have convinced the Supreme Court to interpret the Act expansively, so employers can force workers to arbitrate legal claims against their employers (as opposed to bringing those claims in court) even when forced arbitration would violate California law, and also to prevent workers from joining together in class actions. Now, corporations have asked the Supreme Court to issue a rule that, under the Act, employers can force employees to waive their right to bring representative actions, including actions under the PAGA.
As a matter of doctrine, federal courts have thus far agreed with California courts that (a) parties may not waive the right to bring a PAGA action because such waivers violate public policy; and (b) claims under the PAGA are not subject to arbitration agreements because a PAGA claim concerns a dispute between the employer and the state of California, and the state is not a party to any contract with the employer.
But the Viking River Cruises case has the potential to upend this rule because businesses are urging the Supreme Court to expand the rule permitting class action waivers to the point where it would also encompass waivers to bring representative actions. Although a representative or qui tam action is fundamentally different from a conventional class action, businesses hope the Court will rule the two devices are fundamentally interchangeable for purposes of federal arbitration law.
A favorable ruling on this case will substantially impede the rights of workers not only in California, but also in other states that have enacted, or are thinking about enacting, laws like the PAGA. Deprived of the ability to aggregate their claims in a representative action, workers will lose a powerful tool to combat wage theft, and businesses will continue to evade justice by using a 100-year-old law to make substantive legal rights procedurally impossible to assert.
