PAGA Pulls Ahead of FAA

December 14, 2017

California workers received an early holiday present as the United States Supreme Court denied a petition from Prudential Overall Supply – an employer seeking to force workers from state court and into a forum where workers’ claims must be brought on an individual basis.  The petition followed the March 7, 2017 decision of Betancourt v. Prudential Overall Supply, 9 Cal. App. 5th 439 (Cal. Ct. App. 2017), in which a California appellate court held that a pre-dispute arbitration agreement does not compel arbitration where an employee raises a claim under the California Labor Code Private Attorneys General Act of 2004 (“PAGA”).  By the Supreme Court denying certiorari to the employer, workers in California maintain their rights to bring claims in state court and on a collective basis regardless of a signed arbitration agreement to the contrary.

PAGA was enacted by the California Legislature in 2004 to authorize employees to act as private attorneys general and recover civil penalties for Labor Code violations.  In a lawsuit brought under PAGA, the employee plaintiff “represents the same legal right and interest as state labor law enforcement agencies” and brings a claim on behalf of the State of California.  Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 380 (Cal Ct. App. 2014).  In Betancourt, the court held that the State of California is not bound by a 2006 pre-dispute arbitration agreement exclusively signed by the employer and employee.  Furthermore, an employee cannot waive the right of a non-party, the State of California, to bring PAGA claims in state court.  Additionally, the court found the Federal Arbitration Act (“FAA”) does not preempt PAGA as a PAGA dispute is not between the employer and the employee, arising out of their contractual language, but a dispute between an employer and the State of California.   

The impact of the Supreme Court’s decision could prove significant for workers outside California as well.  Workers, workers’ advocates, and lawmakers know all too well how mandatory arbitration clauses stifle the rights of workers.  California’s PAGA statute may provide a solution for state legislatures working to preserve a worker’s right to fight systematic wrongs on a collective basis and in a public forum.  A PAGA-based model would unburden state agencies from dedicating significant resources to pursue employment claims and free state agencies to prosecute other wrongs.  Other states, including New York, may look to model legislation on California’s PAGA statute and give workers every opportunity to seek justice.  

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, shareholder derivative actions, merger litigation, antitrust, employment law, wage and hour, and consumer class actions.  The firm is headquartered in New York, and maintains offices in Delaware, Pennsylvania, Georgia, and California.  Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers, and employees.

To contact the author of this blog or the offices of Faruqi & Faruqi, please call us at (212) 983-9330 or (877) 476-7797.

About Patrick Joseph Collopy

Patrick Collopy is an Associate in Faruqi & Faruqi’s New York office and focuses his practice on employment law and wage and hour class action litigation.

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Posted by Patrick J. Collopy

Associate at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331

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