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ZB, N.A. v. Superior Court (SC S246711 9/12/19) Plaintiffs can recover Civil Penalties under PAGA not individual wage penalties

On Behalf of | Sep 12, 2019 | in Uncategorized

This case concerns a PAGA action seeking civil penalties under California Labor Code section 558.  The core state law issue in the is whether the California Legislature intended the designated “civil penalties” recoverable by the State in a public enforcement action under California Labor Code Section 558 to be recoverable in a private, qui tam-like representative enforcement action under PAGA.

Under the Private Attorneys General Act of 2004 (“PAGA”) (California Labor Code, § 2698 et seq.), an employee may seek civil penalties for Labor Code violations committed against her and other aggrieved employees by bringing –– on behalf of the state –– a representative action against her employer.  (§ 2699, subd. (a).)  In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian), we held that a court may not enforce an employee’s alleged pre-dispute waiver of the right to bring a PAGA claim in any forum.  We also found that where such a waiver appears in an employee’s arbitration agreement, the Federal Arbitration Act (“FAA”) (9 U.S.C. § 1 et seq.) does not preempt this state law rule.

Brought by real party in interest Kalethia Lawson, the action named as defendants Lawson’s bank employer, ZB, N.A. — with whom she agreed to arbitrate all employment claims and waive class arbitration — and its parent company, Zions Bancorporation (collectively, “ZB”).  Before the enactment of the PAGA, Labor Code section 558 gave the Labor Commissioner authority 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.”  (Id., subd. (a), italics added.)  The Supreme Court here granted review to decide whether Iskanian controls, and the FAA has no preemptive force, where an aggrieved employee seeks the “amount sufficient to recover underpaid wages” in a PAGA action.

To resolve this case, the California Surpreme Court decided it needed to answer a more fundamental question: whether a plaintiff may seek that amount in a PAGA action at all.  The Court of Appeal thought so.  It concluded section 558’s civil penalty encompassed the amount for unpaid wages, and Lawson’s claim for unpaid wages could not be compelled to arbitration under Iskanian.  It accordingly ordered the trial court below to deny ZB’s motion to arbitrate that portion of her claim.

What the Supreme Court conclude is that the civil penalties a plaintiff may seek under section 558 through the PAGA do not include the “amount sufficient to recover underpaid wages.”  The opinion suggests that is more appropriate for the Labor Commissioner. Although Labor Code section 558 authorizes the Labor Commissioner to recover such an amount, this amount –– understood in context –– is not a civil penalty that a private citizen has authority to collect through the PAGA.  ZB’s motion concerned solely that impermissible request for relief.  Because the amount for unpaid wages is not recoverable under the PAGA, and Labor Code section 558 does not otherwise permit a private right of action, the trial court should have denied the motion.  We affirm the Court of Appeal’s decision on that ground.  On remand, the trial court may consider striking the unpaid wages allegations from Lawson’s complaint, permitting her to amend the complaint, and other measures.