On September 12, 2019, the California Supreme Court issued its decision in ZB, N.A. v. Superior Court, which resolved a split of authority regarding whether an employer may compel arbitration of an employee’s Private Attorneys General Act (“PAGA”) claim seeking unpaid wages under Labor Code section 558. In reaching its conclusion, the Court first answered the “more fundamental question” of whether a plaintiff may seek unpaid wages under PAGA: to which the answer is no. Therefore, ZB’s motion to compel arbitration should have been denied.
Background and Procedural History
In February 2016, Kalethia Lawson filed a complaint against her former employer alleging it violated a host of labor laws and regulations regarding overtime, meal and rest periods, minimum wages, final pay, timely pay, accurate wage statements, payroll records and expense reimbursement. Lawson alleged she was acting as a PAGA representative and was entitled to recover penalties under section 558, subdivisions (a)(1) and (2), including in particular unpaid wages allegedly owed to her and others allegedly aggrieved. Lawson had an arbitration agreement with ZB. ZB filed a motion to compel Lawson to arbitrate her PAGA section 558 claim for unpaid wages on an individual basis and to stay the civil representative action.
The trial court generally agreed with ZB’s position, bifurcating Lawson’s action and granting ZB’s motion to compel arbitration of the “unpaid wages” issue. However, it ordered the issue to arbitration “as a representative action.” ZB filed an appeal and a petition for writ of mandate. The Court of Appeal concluded that Lawson’s request for unpaid wages through section 558 could not be arbitrated at all, finding that an employee may pursue the entire, indivisible civil penalty, which includes unpaid wages, through PAGA in court. The California Supreme Court granted ZB’s petition for review.
The California Supreme Court’s Ruling
Affirming the appellate court’s decision to deny the motion to compel, but disagreeing with its reasoning, the California Supreme Court held that the civil penalties a plaintiff may seek under section 558 through PAGA do not include the “amount sufficient to recover underpaid wages.” It reasoned that, although section 558 authorizes the Labor Commissioner to recover such unpaid wages, it is not a civil penalty that a private citizen can collect through PAGA. Thus, ZB’s motion, which sought to compel individual arbitration of the PAGA section 558 unpaid wages claim, should have been denied.
The Court’s ruling is a win for employers, clarifying that PAGA plaintiffs do not have a private cause of action for unpaid wages under section 558 and may not seek these same wages under section 558 in any forum. Thus, this decision reduces potential PAGA exposure for employers.