There has long been a split of authority among California Courts of Appeal as to whether a PAGA claim seeking civil penalties and unpaid wages must be arbitrated pursuant to an employment arbitration agreement. In mid-September, the California Supreme Court issued its long-awaited decision in ZB N.A. v. Superior Court (Lawson), finally resolving the split, albeit in an unexpected manner.
Prior to the Supreme Court’s ruling, plaintiffs’ attorneys regularly brought PAGA claims seeking not only civil penalties, but unpaid wages under California Labor Code section 558. Although, pursuant to Iskanian v. Superior Court, the civil penalties portion of such claims was not subject to an employment arbitration agreement, California Courts of Appeal were split as to whether the unpaid wages portion was arbitrable.
On September 12, 2019, the California Supreme Court issued its decision in Lawson, holding that the California Courts of Appeal need not ever have reached the issue of whether the unpaid wages portion of a PAGA claim was subject to arbitration. Rather, the preliminary issue that should have been determined was whether a plaintiff asserting exclusively PAGA claims could even recover unpaid wages in the first place. The Supreme Court in Lawson said “no” – a private plaintiff asserting exclusively PAGA claims is limited to seeking civil penalties, not unpaid wages.
While Lawson is beneficial for California employers, who now face lesser monetary exposure on PAGA-only claims, it’s long-term effect may be limited. Plaintiffs may still assert claims for unpaid wages against employers, but must do so in connection with non-PAGA claims (that are subject to arbitration) and/or via a class action.