California Supreme Court Issues Surprising Decision Limiting Employee Recovery of Unpaid Wages

September 23, 2019 by Sarah Kanbar

In a departure from its recent trend of employee-friendly decisions, the California Supreme Court unanimously held that employees cannot recover unpaid wages as part of a representative class action under the Private Attorney Generals Act or PAGA. (ZB, N.A. v. Superior Court, No. S246711, Sept. 12, 2019.) PAGA is a California law that allows an aggrieved employee to sue on behalf other aggrieved employees to collect civil penalties for violations of the Labor Code. In a PAGA case the plaintiff is in a sense standing in for the State Attorney General to enforce California law. Thus, 75% of the penalties collected in PAGA actions go to the State. PAGA is an important tool for plaintiffs because employers are prohibited from forcing PAGA claims into arbitration.

In ZB, N.A. v. Superior Court the employer argued that the Plaintiff should be compelled to arbitrate her PAGA claim for unpaid wages. To address this argument, the Supreme Court had to determine whether employees could recover unpaid wages as part of a PAGA claim.

The Court held that a claim for unpaid wages is not a claim for civil penalties and cannot be brought as a representative action under PAGA. The Court explained that the Labor Code section that provides for civil penalties and recovery of unpaid wages when an employer commits wage theft does not allow a PAGA plaintiff to recover unpaid wages for other employees, but only on behalf of the individual claimant. However, the PAGA plaintiff can still use the Labor Code section to collect 25% of the civil penalties.

The Supreme Court’s ruling is a set-back to employees, especially employees misclassified as independent contractors who would have unpaid wage claims with the passage of AB 5, which codifies the Court’s method of determining whether an individual is an employee or independent contractor. However, the decision does not close off other channels of recovering for unpaid wages. Employees may still pursue a legal claim with the Labor Commissioner or file a lawsuit seeking unpaid wages through other sections of the Labor Code.

Read the opinion here: https://www.courts.ca.gov/opinions/documents/S246711.PDF

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