Written by Ransom D. Boynton, Associate Koegle Law Group
If you have read my writing before, this article’s title might give you the impression that I am simply “re-packaging” old topics, or that employment litigation doesn’t provide me with ample subject matter on which to opine. I assure you, that is not the case.
Sadly (depending on how you look at it), Koegle Law Group is busier than ever. Even after Governor Gavin Newsom signed AB 2288 and SB 92 (what some have dubbed “New PAGA”) into law in July 2024, we continue to see more actions brought by Plaintiffs’ attorneys for “predicate” California wage and hour violations giving rise to civil penalties pursuant to the Private Attorneys General Act of 2004 (“PAGA”). I will spare you the gory details about the intricacies of PAGA, but in short, the statute allows former disgruntled employees to sue employers on behalf of themselves, and other “aggrieved employees” for monetary penalties on behalf of the state of California. What does this mean for California Employers? It means a continued increase in the cost of doing business in the state, with no end in sight.
Wage and hour litigation, including PAGA and class actions, continues to be a great concern for employers in California, because strict labor laws, including the California Labor Code and Wage Orders, create significant liability risks. Our clients often ask us, “what can we do to avoid falling prey to PAGA and/or class action lawsuits?” At least for me, the first words out of my mouth are always “Does your business ask your employees to sign an arbitration agreement as part of the onboarding process during employment?” If the answer is “yes,” I tend to breathe a bit of a sigh of relief. If the answer is “no,” my blood pressure goes up.
Arbitration agreements offer a powerful tool for businesses to mitigate these risks and avoid costly class action lawsuits. When properly drafted and implemented, arbitration agreements can provide a faster, more cost-effective, and confidential alternative to litigation while ensuring compliance with legal requirements.
Reducing Class Action Risk
One of the most significant benefits of arbitration agreements is the ability to prevent class and representative actions, which are common in wage and hour disputes. Under PAGA and class action lawsuits, employees can bring claims for unpaid wages, meal and rest break violations, and other labor law infractions on behalf of large groups of employees. These cases can result in millions of dollars in penalties and settlements.
A properly drafted arbitration agreement with a class action waiver can require employees to bring their claims individually rather than as a group. In Viking River Cruises, Inc. v. Moriana (2022), the U.S. Supreme Court ruled that employers can enforce arbitration agreements to prevent PAGA claims, at least in part. However, California courts continue to scrutinize such agreements, making careful drafting essential.
Cost-Effective and Efficient Resolution
Litigation in California courts is time-consuming and expensive. Wage and hour disputes can take years to resolve, with significant costs for attorney fees, expert witnesses, and discovery. In contrast, arbitration offers a streamlined process with typically lower costs. Arbitrators can set faster timelines, limit extensive discovery, and reduce procedural hurdles.
Additionally, arbitration generally results in lower settlement amounts compared to litigation, where jury awards can be unpredictable. The confidential nature of arbitration also helps businesses avoid negative publicity that could arise from wage and hour lawsuits.
Avoiding Jury Bias
California juries tend to favor employees in wage and hour disputes. This is so, even if your business is a “mom and pop” shop, with only a few employees. In arbitration, disputes are decided by a neutral arbitrator, often an experienced attorney or retired judge, rather than a jury. This can lead to more predictable outcomes based on legal principles rather than emotional bias.
Key Considerations for Enforceable Arbitration Agreements
To maximize the protection of arbitration agreements, California employers should ensure their agreements are legally enforceable. Courts closely scrutinize arbitration clauses, especially in employment contracts. Thus, consulting with an attorney that has experience with drafting and enforcing these agreements is crucial. This might sound self-serving on our part, but even in today’s ever-changing technological landscape, we have yet to see an arbitration agreement drafted by Artificial Intelligence that we couldn’t find fault with.
That said, well-drafted arbitration agreements have proven invaluable to our clients. Most recently, we were able to completely eliminate a wage and hour class action suit against our client’s business because their arbitration agreement explicitly prevented the Plaintiff from bringing such an action. This saved them tens of thousands of dollars in potential liability and legal costs.
Conclusion
For California employers, arbitration agreements serve as an essential risk management tool in preventing costly wage and hour litigation. When properly implemented, they offer a private, cost-effective, and predictable dispute resolution process, reducing exposure to class actions and excessive damages. However, given the evolving legal landscape, employers should at least annually review their arbitration agreements with legal counsel to ensure compliance with state and federal laws. If your business needs assistance with the drafting or implementation of an arbitration agreement, or indeed, any other policies and procedures that may help to insulate it against risk, feel free to contact us.
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Call us at (661) 362-0813
