Supreme Court could toss California business owners a much-needed lifeline 

Between sky-high minimum wages and a convoluted labor code, California’s small and medium-sized businesses have the odds stacked against them. But a pending Supreme Court decision in the case of Viking River Cruises, Inc. V. Moriana could help spare employers from one of the state’s most harmful laws: the Private Attorneys General Act (PAGA).

PAGA is a misguided law that allows employees to sue their employer over any perceived violation of the state’s over 1,100-page labor code. Since becoming law, trial attorneys have used PAGA to leach onto Golden State businesses and suck out hundreds of thousands of dollars per case, even for minor infractions such as a typo on a paystub. Meanwhile, evidence suggests employees are worse off under PAGA than if the state stepped in to handle these cases.

Outside of California, businesses can protect themselves from frivolous and financially damaging lawsuits by having employees sign arbitration agreements that ensure legal disputes are resolved outside of the courtroom – saving both sides time and money. These arbitration agreements are protected under the Federal Arbitration Act.

But in California, the state supreme court ruled in Iskanian v. CLS Transportation Los Angeles LLC that arbitration agreements cannot be enforced under the Federal Arbitration Act during PAGA lawsuits, since the employee who files the lawsuit is technically representing the state. Since that ruling in 2014, the number of PAGA cases has skyrocketed, devastating businesses throughout the state.  

Take Rockreation Sports Climbing Centers, for example. Rockreation is a small chain of climbing gyms that used to allow workers to maintain a flexible schedule. Sometimes, this meant breaks and lunchtimes were later than scheduled. One disgruntled employee turned this perk into a class-action PAGA lawsuit in which the employee’s trial attorneys sought $250,000 in fees alone. As a result, the owner struggled to keep his business open and his employees on the payroll.

A similar situation happened to Coast to Coast, a computer products supplier known for hiring staff who needed a second chance at life. After being hit with a million-dollar PAGA lawsuit, management was forced to eliminate the flexibility employees enjoyed out of fear of another costly lawsuit. 
But the Supreme Court could soon set a new course for California businesses.

The Court is set to hear oral arguments for Viking River Cruises, Inc. on March 30. The ruling will clarify whether arbitration agreements signed in California can be enforced under the Federal Arbitration Act. If the Court rules with the plaintiff, the number of PAGA cases would very likely plummet across the state.

This outcome would be a win for business owners and employees alike. Research from the CABIA Foundation – which provided the backbone for several PAGA-related arguments and amicus briefs – shows that the average PAGA-decided case costs an employer $1.1 million. For many business owners, especially those struggling to recover from the pandemic, that’s a devastating sum. But trial attorneys have little sympathy – after all, they’re walking away with an average of $372,000 per case.

It turns out workers aren’t reaping similar rewards. Aggrieved employees receive far less in PAGA cases than if they went through the state’s Labor and Workforce Development Agency (LWDA). Workers who filed LWDA cases pocketed an average of $5,700 compared to $1,300 from PAGA cases. And employers spent less money on average in LWDA-decided cases. Unsurprisingly, it looks like the only winners under PAGA are trial attorneys.

The Supreme Court has an opportunity to provide meaningful relief to California business owners while protecting workers from being exploited by greedy attorneys. As for the several other states that are considering similar PAGA laws, this ruling could ensure that small and medium-sized businesses across the country don’t have to suffer the consequences of privatized injustice. 

Tom Manzo is the president and founder of the California Business and Industrial Alliance (CABIA).