Private settlements framed as hybrid settlements of class action claims and PAGA claims helped recalibrate the incentives for employers and employees to comply with the Labor Code. Settlements tend to be allocated mostly to non-PAGA claims such that the worker keeps one hundred percent (100%) of that portion with a small amount allocated to PAGA claims for which the worker retains only twenty-five percent (25%). In cases that end in a settlement, the worker has similar prospects of recovering allegedly stolen funds. However, very recently, particularly since the failed Uber settlement, courts and the State are tightening the rules which have thus far allowed litigants to craft settlements where workers recover most of the money. New restrictions were added in the summer of 2016, and enforcement of the old rules has become stricter. The current trend is sharpening the edges of the jagged legal pill.
Has the era of PAGA ended? Since 2011, PAGA claims have been the workers’ hero or, perhaps anti-hero would be more accurate. After all, PAGA may help workers recover lost wages, but it sure does a lot of damage to companies along the way—arguably too much damage. The age of this anti-hero may be coming to a close. On August 22, 2016, the Ninth Circuit relied on the National Labor Relations Act to stop companies from forcing workers to agree to individual arbitration of Labor Code claims. See Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S. Ct. 809 (2017). The NLRA’s purpose is to guarantee workers’ rights to “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.” On its face, this opinion would appear to revive employment class actions. If upheld by the Supreme Court, it will. But it hasn’t happened yet.
In January 2017, the U.S. Supreme Court agreed to review Ernst & Young. Unlike review by the California Supreme Court, this grant of review does not alter the precedential effect of the Court of Appeal’s order. Thus, in theory, Ernst & Young should be changing the landscape already. In reality, many judges are simply staying cases until the Supreme Court rules on Ernst & Young. For instance, on March 30, 2017, the Northern District stayed McElrath v. Uber Techs., Inc., No. 16-CV-07241-JSC, 2017 WL 1175591, at *1 (N.D. Cal. Mar. 30, 2017) pending the Supreme Court’s decision. And that decision is nowhere in sight at this time. Further briefs are due in August 2017, and no date has been set for oral argument.
Unless or until the U.S. Supreme Court affirms Ernst & Young, plaintiffs’ class action regiment will include the jagged legal pill that is PAGA. The principle that PAGA claims cannot be forced into arbitration was made clear in a California Supreme Court case in 2014 and in a Ninth Circuit case in 2015, yet nothing on the horizon suggests either opinion will be overturned anytime soon. See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014); Sakkab v. Luxottica Retail N. Am., Inc., 2015 U.S. App. LEXIS 17071 (9th Cir. 2015). If the current trend continues and the government increases supervision of PAGA claims, litigants will need to attribute a larger percentage to PAGA claims or, in some cases, the entire settlement will need to be deemed PAGA penalties. Plaintiffs and defendants alike will be eagerly awaiting the U.S. Supreme Court’s decision this term in Morris v. Ernst & Young. If it is affirmed, it would mean the pendulum in traditional class actions has swung almost completely in the direction of the worker as suddenly as it did for employers with the 2011 Dukes and Concepcion opinions. If it is affirmed, it will also likely result in PAGA’s almost immediate disappearance from dockets throughout California.