Monday, April 18, 2022

The Supreme Court’s Chance to Curtail California Crazy

By Jackson Reese

Monday, April 18, 2022

 

They clearly weren’t prepared for the bitter cold of late March in Washington, D.C., but the California businessmen and women standing on the marble steps of the Supreme Court seemed positively thrilled to be there.

 

Inside, attorneys delivered their oral arguments in Viking River Cruises, Inc. v. Moriana. The issue: a California supreme court decision called Iskanian and a unique law called the Private Attorneys General Act (PAGA). Attorneys for the Viking River Cruises say that the California court’s Iskanian decision violates their federal right to bring employee grievances to an arbitrator. Attorneys representing plaintiff Angie Moriana would prefer to use PAGA to address such grievances, which might create a windfall for the State of California and the plaintiff’s attorneys.

 

While the arguments were heard in the courtroom, businessmen and women from California hoisted signs and shouted that classic of picketers everywhere, “Hey! Hey! Ho! Ho! This PAGA Law Has Got to Go!

 

Many Americans have only recently been introduced to PAGA-styled laws because of its application in Texas’s Heartbeat Act, which similarly allows citizens and attorneys to bring suit against those assisting with abortion. Feigning shock, California governor Gavin Newsom has proposed using the same tactic to target guns.

 

“We’re going to start playing by their rules now,” Newsom said during a February news conference. “If Texas can use a law to ban a woman’s right to choose and to put her health at risk, we will use that same law to save lives and improve the health and safety of the people in the state of California.”

 

It was all theater. California has been using precisely that strategy for decades to go after those who violate pet state regulations.

 

Through PAGA, California has deputized aggrieved employees and their attorneys to sue small businesses on behalf of the state for even the most minuscule violation of California labor law. A typo on a pay stub, unstructured breaks, or miscalculated overtime could result in a million-dollar infraction for your local diner, muffler shop, or salon. And the possibilities for private attorneys are endless: California’s sprawling 1,100-page labor code is too vast and bloated for state attorneys to enforce on their own. As a consequence, the state outsources to — some might say incentivizes — private attorneys to sue on behalf of the State of California.

 

The worst part: PAGA lowers the litigation bar so dramatically that even a new employee can demand fees on behalf of every employee within a firm, even if they aren’t affected by the code infraction.

 

Consider the story of Blaine Eastcott. After graduating from college, Eastcott worked at Rockreation, a climbing-gym franchise, in Southern California. Over the course of 13 years, he earned enough to buy the company from its owner. He was almost immediately thanked for his hard work by a PAGA suit. His sin: allowing employees the flexibility to take their breaks whenever they wanted — a violation of the California labor code. Even more ridiculous, the aggrieved employee had worked at Rockreation for just two months but demanded $3.3 million under PAGA — more than Blaine’s gym earns in two years.

 

Blaine settled out of court but even that cost him hundreds of thousands of dollars. “The worst part,” he said, “is that PAGA law hurts other employees. That money was set aside for raises, upgrades to the facilities and bonuses for the rest of staff. Now it’s all gone.”

 

California Democrats marketed the Private Attorneys General Act as a law built to protect workers. In fact, it does the opposite. Workers who sue their employers owe 75 percent of the PAGA penalties to the state with the remainder divided among the attorneys and their clients — according to a formula crafted by the state attorney general.

 

In one of the more classic cases, a California judge in 2018 approved a $7.75 million settlement between PAGA attorneys and Uber. The dollars involved are eye-popping but the division of spoils is not: The state took $3.6 million and attorneys earned $2.3 million. For their injuries, drivers received $1.08 each.

 

Bruce Wick, the risk manager of the Housing Contractors of California, a trade association, says that PAGA attorneys have encouraged employees to file PAGA claims rather than class-action cases because the burden of proving a grievance is so low.

 

“One employee worked for a member of mine for only two hours, and still filed a PAGA claim,” Wick said. “He hadn’t even qualified for a break, yet he qualified to sue on behalf of the rest of the employees.”

 

Wick sits on the board of the California Business and Industrial Alliance (CABIA), which recently catapulted to the forefront of conversations surrounding California labor reforms.

 

“The real problem is that the penalty never fits the crime,” said Tom Manzo, who founded CABIA three years ago. “Three million dollars for a flexible work schedule? For a typo on a pay stub? These attorneys don’t care that they are hurting businesses. And no one is safe. They are even going after social non-profits.”

 

Now the case is in the hands of the justices, who will publish their decision this summer.

 

“Several of the justices said little or nothing of substance in the argument, so there is room for doubt about how the case ultimately will be resolved,” wrote Ronald Mann at SCOTUSblog, shortly after the Court heard oral argument. “But the tenor of what was said, together with the historical backdrop of the Supreme Court’s repeated rejection of California intrusions on the Federal Arbitration Act, presages a strong majority to validate the Viking River agreement.”

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