Lesson Last Updated: February 29, 2024

Lesson Highlights

If you’ve never heard of “PAGA,” buckle up! Because in this lesson, we’re going to teach you all about it and explain why it’s worth considering arbitration agreements if you are a California employer.

In this lesson, we'll cover the following topics:

• What PAGA Is;
• Claims Covered Under PAGA;
• What Arbitration Agreements Do; and
• The Important History of Arbitration Agreements (and Their Future).

What is PAGA? 

A law called the “Private Attorneys General Act” or “PAGA” has been on the books in California since 2004, but it’s been getting more and more risky for employers every year as it evolves. So what is PAGA? In essence, the law empowers “aggrieved” employees to file lawsuits (acting as a “private attorney general” of sorts) to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations of their employer. [1] PAGA does not create any substantive rights and it does not impose any new legal obligations on employers. Rather, it is "simply a procedural statute allowing an aggrieved employee to recover civil penalties—for Labor Code violations—that otherwise would be sought by state labor law enforcement agencies." [2]

Ogletree Deakins, a law firm with national reach, has been tracking PAGA claims throughout the years, and according to their data, “through the end of 2023, there have been more than 5,000 employment class action filings, marking a 20 percent increase from the total number of filings in 2022 and more than doubling of the number of filings in 2017. The year 2023 also set a new high-water mark in class action employment filings in California. Further, while the data indicates that class action filings shot up during the pandemic, there has been no slowing down since the loosening of pandemic-related restrictions. To the contrary, the number of class action filings per year has skyrocketed 47 percent over the past three years from 2020 to 2023.” [3]

You may be asking yourself, “why is this happening?!” Well, nobody can say for sure, but it’s important to understand how broad sweeping PAGA is. 

Which Claims are Covered Under PAGA?

PAGA encompasses claims for “civil penalties,” but not “statutory penalties.” Before PAGA, only the Department of Labor Standards Enforcement had authority to collect civil penalties for certain Labor Code violations. We’ll explain why the distinction between civil and statutory penalties matter later below.

PAGA actions can be grouped into three general categories of violations:

1. Specified Labor Code violations;
2. Workplace health and safety violations; and
3. Unspecified Labor Code and wage order violations.

Certain Labor Code violations are specifically identified within PAGA, which are the Specified Labor Code violations, and include: 

• Retaliation for lawful activities outside of work;
• Retaliation for filing a labor complaint;
• Failure to pay wages due on termination;
• Payroll check lacks sufficient funds;
• Failure to pay wages on regularly scheduled pay days;
• Unlawful paycheck deductions;
• Pay stub violations;
• Failure to provide required meal breaks;
• Failure to provide time off for jury duty and other specified protected activities; and
• Failing to provide suitable seating, among other things. [4]

There are over 100 different Specified Labor Code violations, so you can see that there are plenty of avenues for an aggrieved employee to embark down. Because PAGA is so sweeping, every time a court decision interprets the law in an employee’s favor in a new way, that’s another door opening for a PAGA claim.

Workplace health and safety violations involve violations of the California Occupational Safety and Health Act of 1973 (or “Cal/OSHA”). Among the many possible violations that fall under this umbrella, there are two (2) particularly important violations to be aware of: 

• Failure to provide a safe and healthful workplace; and
• Failure to implement a workplace injury prevention program. 

In our experience, most employers do not have a workplace injury prevention program in place, or if they do, they haven’t really implemented it in any meaningful way. You have to ensure that your employees are safe at work, because (among other reasons) if they’re not, there may be a PAGA claim in your future. 

Last but not least, “unspecified violations” is basically a "catch-all." Examples of claims that would be unspecified violations include, but are not limited to:

• Misclassifying employees;
• Failure to provide paid sick leave;
• Requiring disclosure of employee social media passwords (yes, this is a real thing employers try to do!);
• Failure to permit inspection or copying of employee personnel records; and
• Failure to provide notice required under the Wage Theft Act.

In addition, employees claiming to be aggrieved may sue not only on their own behalf but on behalf of other current and former aggrieved employees. There are a handful of exceptions to PAGA’s reach, but in general, it’s a very dangerous beast. Don’t underestimate it.

This is where arbitration agreements come into play.

What Do Arbitration Agreements Do? 

Arbitration agreements are among one of an employer’s most important hiring documents. An employee arbitration agreement is a contract between an employer and an employee to resolve disputes through arbitration rather than litigation. You can require employees to sign arbitration agreements at the time of hire to protect yourself from any disputes that may arise in the future. 

If you aren’t familiar with arbitration, it’s an alternative dispute resolution method where, rather than sitting in front of a judge or jury, the parties work with an arbitrator to come to an agreement for settlement or solution. Arbitration can be a great alternative to litigation because not only does it usually cost less, you can also potentially pick your arbitrator. This is appealing because, if the issue involves something related to a niche industry, you can sometimes pick an arbitrator with more intimate knowledge about that industry; when you’re in court, you have no options for choosing your judge. 

However, it’s important to understand that California law requires employers to pay for the costs of arbitration. While arbitration is usually less expensive than civil litigation, it can still range in the tens of thousands of dollars in some cases. Settling the dispute sooner rather than later will keep costs down.

The History (and Future) of PAGA Arbitration 

Arbitration agreements can help avoid some potential liability, but not all. In our lesson “The Back and Forth of Arbitration Agreements in California,” we talked about some of the issues that we’ve seen with trying to require arbitration agreements in employment generally. However, there has been separate litigation surrounding the possibility of arbitrating PAGA claims specifically! Here’s some additional background information about the history of PAGA arbitration if you’re a huge nerd and don’t mind feeling a little bit turned around for a few days; if you don’t want the headache, skip through the bullet points entirely:

• Previously, California state courts have ruled that an employer cannot compel arbitration of PAGA claims based on a pre-dispute arbitration agreement, and that agreements may not divide PAGA claims into individual and non-individual (sometimes called “representative”) claims. [5, 6] 
• However, in 2022, the United States Supreme Court held that PAGA claims can be divided into individual PAGA claims and representative PAGA claims, and that PAGA claims may be compelled to arbitration. In the same decision, the Court held that if an employee’s individual claims are compelled to arbitration, the employee no longer has “standing” (or in non-legalese, the “legal ability”) to make representative PAGA claims. [7] Because the United States Supreme Court is a higher court, its decision reversed California’s state law. Temporarily…. Basically, the law is like a game of ping pong, with the ball going back and forth from different law-making or law-interpreting bodies all the time. This is why it’s great to stay educated and to stay in contact with your lawyer!
• In 2023, the California Supreme Court rejected the interpretation of standing for representative PAGA claims. The California Supreme Court noted that because standing under PAGA was a matter of state law, it was not bound by the Supreme Court's interpretation of standing. Ultimately, this isn’t very important for non-lawyers to understand, but if you see something online or in the news that says that the United States Supreme Court’s decision was reversed, you should know that it was only partially reversed.
• This reversal means that, while employers can still compel arbitration of individual PAGA claims under arbitration agreements, they will not have the same luck compelling representative claims.

So does this mean arbitration agreements aren’t worth it? No, not at all. Arbitration agreements can help protect you from individual PAGA claims or claims that fall outside of PAGA (like statutory claims). The arbitration agreement is an arrow in your quiver, and while court decisions can influence how straight that arrow will shoot, it’s better to have it than not.

It’s important to understand that, even if we get to a point in our legal framework where an employee doesn’t want to sign an arbitration agreement for PAGA claims, arbitration can save everyone money. Litigation is expensive and risky, and even if an aggrieved employee prevails on their PAGA claims, 75% of the PAGA judgment will go to the California Labor & Workforce Development Agency! [8] The aggrieved employee doesn’t get to keep the full amount won. And like most fields of law, most PAGA lawsuits settle anyway, so it can be more efficient to avoid the route of litigation in several ways and an employee may agree to this even if they are not compelled. 

Regardless of everything we just discussed, the best way to avoid PAGA claims is compliance. This means:

• Running big, structural changes by your attorney whenever possible before implementing them;
• Conducting regular audits of employee time and payroll records for wage and hour compliance, like meal and rest breaks and overtime, as well as business expense reimbursements; 
• Review your policies and revisit them for legal changes every year at minimum. Every 6 months is even better, as many legal changes are typically effective in January and July;
• Train managers on all of your policies and make sure they really understand what they’re supposed to require from anyone within their ranks; and
• Keep paper trails of everything you do! This can help minimize liability in almost all aspects of employment.



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This Lesson's Sources:

[1] California Labor & Workforce Development Agency, Private Attorneys General Act (PAGA)

[2] Amalgamated Transit Union, 46 Cal. 4th at 986

[3] Ogletree Deakins, The Data Is In—California Class Action and PAGA Filings to Hit New Highs

[4] Cal. Lab. Code § 2699.5

[5] Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348

[6] Kim v. Reins, 9 Cal. 5th 73 

[7] Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906

[8] Cal. Lab. Code § 2699