Wage and Hour Case Notes

• Publication year: 2018
• Author: By Leonard H. Sansanowicz

Wage and Hour Case Notes

By Leonard H. Sansanowicz

Leonard H. Sansanowicz is Senior Counsel at Feldman Browne Olivares, APC and represents employees in all aspects of employment law. He has been a Southern California Rising Star each year since 2013 and has for the past three years been named to the Up-and-Coming 100 list. He can be contacted at: leonard@leefeldmanlaw.com

All Labor Code §558 Claims, Including Claims for Underpaid Wages, Are Civil Penalties Under PAGA and May Not Be Compelled to Arbitration

Lawson v. ZB, N.A., 18 Cal. App. 5th 705 (2017)

In a repudiation of the Fifth Appellate District Court of Appeal's decision in Esparza v. KS Indus., L.P., 13 Cal. App. 5th 1228 (2017) (previously reviewed in this column), the Fourth District held that claims for unpaid wages under Labor Code § 558 constitute a cognizable claim under the Labor Code Private Attorneys General Act of 2004 (PAGA).¹ And, the trial court erroneously compelled plaintiff's wage claim under § 558(a)(3) to arbitration on a representative basis, in contravention of the California Supreme Court's ruling in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014) (Iskanian rule),² which prohibits compelled arbitration of a plaintiff-representative's PAGA claims.³

The Fourth District split with the Fifth in its interpretation of Thurman v. Bayshore Transit Mgmt., Inc., 203 Cal. App. 4th 1112 (2012). In Thurman, the Fourth District previously held that "the language of section 558, subdivision (a) is more reasonably construed as providing a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages" and that the underpaid wages were a part of the $50 and $100 penalties provided for by the statute.⁴ The Lawson court upheld and reinforced this decision, finding that "nothing in Arias suggests that the Legislature did not intend that the LWDA be able to recover 'underpaid wages' on behalf of employees under section 558 as part of a civil penalty for Labor Code and [Industrial Welfare Commission] order violations that result in underpayment of wages."⁵ By contrast, the Esparza court rejected Thurman and applied its own statutory interpretation, holding that the language of Labor Code § 558(a)(3) ("Wages recovered pursuant to this section shall be paid to the affected employee") should be treated separately from the penalty amounts ($50/$100) of § 558(a)(1) and (a)(2). Therefore, the wage claim was a private dispute between an employee and her or his employer (as opposed to a representative claim of the state), the Iskanian rule should not apply, and such claims could be compelled to arbitration. The Esparza court's reasoning for rejecting Thurman included the fact that Thurman was decided two years before Iskanian and did not involve an arbitration provision subject to the Federal Arbitration Act (FAA). The court also recognized that certain claims involved an "overlap" of private and state disputes, and that "[w]hen there is overlap, the claims retain their private nature and continue to be covered by the [FAA]." Moreover, Esparza held that wage disputes necessarily were private disputes because they "could be pursued by [the employee] in his own right."⁶

In response, the Lawson court reviewed the holdings in both Iskanian and the United States Supreme Court's decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011) and noted that the California Supreme Court was well aware of Concepcion when it held in Iskanian that a PAGA claim did not interfere with arbitration's purposes and therefore was not preempted by the FAA. In light of those decisions, the Fourth District challenged the Fifth District's conclusion that a plaintiff could pursue relief for underpaid wages under § 558 as a private, rather than representative, matter, arguing that the Fifth District had offered no supporting authority for its conclusion. Instead, the Lawson court held, "In general, where, as under section 558, there is no express right of private enforcement and instead a regulatory agency has expressly been given the right to enforce the statute, no private right of action will be implied."⁷ As set forth in Iskanian, the test for whether relief under a statute should be characterized as a civil penalty recoverable by a state enforcement agency or as victim-specific statutory damages is whether, prior to PAGA's enactment, the relief could be recovered only by enforcing a regulatory scheme or through a private right of action. Since § 558 articulated no private right of action, it therefore could only be enforceable by the state's Labor and Workforce...