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September 19, 2022

Death of PAGA Claims Greatly Exaggerated

When the U.S. Supreme Court ruled in June that the Federal Arbitration Act supersedes California’s Private Attorneys General Act (PAGA), at least in part, employers and their attorneys rejoiced.

In a nutshell, the Supreme Court ruled in Viking River Cruises, Inc. v. Moriana that employees, who are subject to an arbitration agreement, can be compelled to arbitrate their PAGA claims on an individual basis. The arbitration of an employee’s individual claims, in turn, will deprive that employee of standing to bring a representative claim under PAGA. By an 8-1 vote, the U.S. Supreme Court held that the FAA preempts the California Supreme Court ruling in Iskanian v. CLS Transportation that had invalidated the division of PAGA actions into individual and non-individual claims.

The ruling seemed to put a damper on class action lawsuits for wage and hour errors, as well as other California Labor Code violations. “And for the time being it has,” said Ana C. Toledo, an attorney with the Salinas, Calif., law firm of Noland, Hamerly, Etienne & Hoss. “For the last three months, there have been no new class action suits, at least not in the Salinas area.”

But Toledo said in its ruling, the U.S. Supreme Court effectively laid out a blueprint as to how California can change its law to follow the latest decision and still allow class action PAGA claims. “We know there is a lot of energy around changing the law to be in compliance,” Toledo said.

Western Growers Senior Vice President & General Counsel Jason Resnick reported that before the Supreme Court issued its decision in the Viking River Cruises case “we hoped it would signal the death knell for PAGA. But it is not going to give the relief employers hoped for.”

The decision, he said, was written in a manner that will give the California Legislature and California courts the ability to lessen its impact via legislation and carefully worded decisions. “Our best hope is the passage of a ballot measure in 2024 that will repeal the California Private Attorneys General Act,” Resnick said.

In July, California’s Secretary of State announced that the ballot measure did qualify for the 2024 ballot. Resnick said business interests need to get involved and fund the campaign. The effort to qualify the proposition for the ballot was largely funded by California New Car Dealers Association and Western Growers and its members. “In qualifying the initiative, Western Growers punched above its weight,” he said. “We’ve got to build a larger coalition for the election fight. It’s going to be an expensive campaign.”

But he believes it is a well-written proposition with a good chance to pass. “It was written to benefit employees and employers. It balances the interests of both groups, which is absolutely necessary if it is to pass.”

In the meantime, Resnick advised employers to take a good look at their employee arbitration agreements to make sure they are in sync with the U.S. Supreme Court’s Viking River decision. He said that decision will offer some respite, at least until the California Supreme Court rules on the PAGA collective-action standing issue, which the state high court is poised to do soon in Adolph v. Uber Technologies, Inc. among other cases.

Toledo agreed that companies should clearly sharpen their pencils regarding arbitration rules, but she added that they should also tighten their procedures on Labor Code violations. “We continue to see a steady stream of wage and hour cases. Some of them are class action cases with a PAGA claim and others are just individual PAGA claims.”

She said these types of cases typically deal with the core issues such as meal breaks, rest periods and business expense reimbursements. Concerning the breaks, the California Labor Code is specific as to when these breaks must be granted.  “If you are consistently starting the meal break late every day, it is very difficult to argue that’s unintentional.”

Toledo said there is usually a disconnect between the company’s leadership and what’s happening in the field. “The violations can be caused by a new supervisor, a new foreman, the payroll clerk…any number of things. But you need to double check and triple check. It’s never redundant to go back to the basics.”

She noted that when companies are in violation and forced to settle, it’s an expensive lesson. “The cost can range from several hundred thousand dollars to more than $1 million,” she said. “These are never a $50,000 problem.”

Nonetheless, she often sees companies falling into the same pattern of violations several years later as crew leads change or new accounting practices take hold.

Resnick agreed, noting that companies cannot become complacent after settling such a claim. “There is a tendency to think that now it is someone else’s turn to get hit. But we see these plaintiff attorneys going back to the same employers time and time again.”

Toledo said it is a good business model for a plaintiff’s attorney. “You have to be vigilant,” she said. “I had a case last year where it was a simple change in payroll codes that caused a major problem. You just have to triple check.”

It is this area of labor law that both attorneys said is the number one issue in production agriculture. Toledo said unionizing activity is almost non-existent and she couldn’t think of any other ag legal issue that has been especially noteworthy in the past year.

Resnick did say that H-2A activity—securing temporary foreign agricultural workers through applications with the U.S. Department of Labor—continues to increase the workload of WG’s legal department as well as that of other attorneys specializing in the practice. “More and more employers are relying on H-2A to bring in workers as labor shortages worsen,” he said. “Western Growers has been providing H-2A services for the past 17 years and it is getting easier every year as we have a proven process for a timely approval.”

He added that Western Growers is well-versed on the obligations, assurances and guarantees that an applicant must adhere to avoid problems. Resnick remains cautiously hopeful that the bipartisan Farm Workforce Modernization Act that passed the House last year can gain traction in the Senate before the current term ends. “It would create a pathway for foreign farmworkers to obtain legal status for year-round work and provide much needed wage relief, including a freeze on the adverse wage rate, but it’s a longshot that the bill will get out of the Senate.”

Another attorney weighing in on labor issues was Jonathan Siegel of Jackson Lewis P.C., Irvine, Calif. Siegel agreed that at least in the ag space union organizing has not been very active, but he believes that will change. He explained that union organizers learned a valuable lesson as they attempted to unionize Starbucks’s workers. “I believe about 260 petitions for elections have been filed all across the country,” he said. “The organizing drive focuses on social media…using TikTok to push out the message.”

Siegel said there were only about 20 organizers working on this campaign and they have achieved tremendous success using sophisticated tactics, including smart phone technology, to reach workers. He expects the same tactic to be used by other organizers and noted that it seems to be tailor-made for organizing in small towns and out-of-the-way places.

“Being located in a rural area, and especially on a farm, used to be an advantage for employers as it was logistically more difficult for an organizer to connect with the workers,” Siegel said, adding that the use of a smart phone and advanced software can mitigate that disadvantage, and offer a low cost way to organize.

He said there has been an uptick in organizing campaigns under the purview of the National Labor Relations Board and he anticipates the same thing happening under California’s Agricultural Labor Relations Board.

Siegel said many ag employers—such as food processing plants and distribution facilities—are governed by the NLRB while California’s on-farm employers fall under the ALRB. “In both organizing situations, we expect to see union organizers switch their tactics and use smart phones to reach workers. Basically, every worker has a smart phone and employers are already using that technology to connect with those workers.”

The labor attorney advises employers to be cognizant of their employees’ emotional and financial needs. “Now more than ever, employers should train their management teams to manage with empathy,” he said, opining that there is still a lot of emotion and stress in the workplace surrounding the pandemic.

Siegel said there are several areas in which employers should make sure they are responsive to the needs of their work force. “Inflation has hit everyone,” he said. “Employers have to be proactive with wage inflation. Employers should also recalculate their recognition and retention programs. Some of those programs have dollar signs, but some don’t. You have to understand your employees and what they are looking for.”