9th Circuit sides with state high court on labor arbitration
In a victory for workers in California, a federal appeals court ruled Monday that employees can use a unique state law, known as PAGA, to join and sue their employers for violations of labor laws, despite a U.S. Supreme Court ruling limiting access to that law.
The Private Attorneys General Act, enacted in 2004, allows employees to sue their employers in the name of the state for violating laws such as those regulating minimum wages, overtime, meal and rest breaks and sick pay. If their suit succeeds, the employees collect 25% of the penalties provided by the labor law, with the rest going to the state. PAGA suits have bolstered labor laws in a state that lacks the resources to fully enforce the laws on its own.
The U.S. Supreme Court ruled in June 2022 that PAGA violated the rights of employers whose contracts required workers to take disputes to individual arbitration rather than going to court, a common practice for large companies. Arbitrators’ decisions are virtually unappealable, and studies have found that they usually favor employers, their frequent customers.
But the California Supreme Court, the final authority on the meaning of state law, breathed new life into PAGA in July. In a unanimous ruling, the court said that while employees were bound by their agreements to arbitrate individual claims, they could still join their coworkers and sue collectively in the name of the state.
Advocates for businesses argued that the state court’s ruling conflicted with federal laws designed to promote arbitration. The 9th U.S. Circuit Court of Appeals disagreed Monday in the first federal court ruling to address the issue.
“A state court has the authority to correct a misinterpretation of that state’s law by a federal court,” including the U.S. Supreme Court, Judge William Fletcher wrote in a ruling reinstating a PAGA suit against Lowe’s Home Centers for allegedly underpaying workers who took sick leave. “There is nothing in Adolph (last year’s California Supreme Court ruling) that is inconsistent with the federal law.”
Judge Richard Tallman joined Fletcher’s opinion. Judge Kenneth Lee, in a separate opinion, said he agreed with the conclusion but warned that allowing
PAGA suits “might blunt the efficiency and informality of arbitration in some cases.”
State voters, meanwhile, will soon be asked to decide whether PAGA should remain on the books. Business organizations, which have argued that the law harms the economy, have qualified an initiative for the November ballot that would repeal PAGA and instead allow individual workers to sue their employers for labor law violations and collect all of the penalties but without attorneys’ fees, which are allowed under the 2004 law.
Jason Schwartz, a lawyer for Lowe’s Home Centers, declined to comment on Monday’s ruling. The company could seek review in the U.S. Supreme Court.