The following is a transcript of our recent podcast conversation with Aaron Blumenthal from Gibbs Law Group. Aaron is an attorney at Gibbs Law Group who represents employees, whistleblowers, and consumers in complex and class action litigation. Aaron represents thousands of workers pursuing individual arbitration claims against companies like DoorDash, Lyft, and Amazon. Aaron has also represented consumers in a number of notable matters, including the Anthem data breach and a $40 million dollar settlement involving video advertisers against Facebook. Aaron attended law school at the University of California at Berkeley, where he graduated Order of the Coif. Aaron is also a contributor to Law360 where he recently authored an article titled “Why Justices' PAGA Ruling May Not Be Real Win For Cos.”
This transcript has been edited for publication.
What is PAGA and how did we get to the ruling?
It seems like you might be thinking you're giving me an easy one here to start out with but explaining PAGA briefly is actually quite difficult. The Private Attorney General Act in California, which people call PAGA, oftentimes for short, is a law that deputizes an employee to sue on behalf of the state, essentially to step into the shoes of the state and collect labor code penalties that normally only the state can collect. So, there's several portions of the labor code that people with damages can collect penalties through individual lawsuits and class actions. And then there's these special labor code penalties that normally only the Labor Department can collect.
California noticed that there were so many labor code violations that its labor enforcement arm wasn't able to cover all of them and so what PAGA was intended to do was to enable private parties to bring these suits on behalf of the state and correct these violations.
In terms of the Viking River decision, the background is there are these PAGA claims that people are bringing and companies, as they often have done in other contexts, look at arbitration clauses and say, “we think by putting an arbitration clause in our employment contracts, we can get rid of a lot of these PAGA lawsuits” and a lot of companies did that.
They would write into the arbitration clause something to the effect of “you agree to bring any Private Attorney General Act claims against us individually in arbitration and you will not pursue claims on a representative basis.”
And then the next step in the history of this saga is that the California Supreme Court weighed in on this, and it said that in a Private Attorney General Act claim you're suing as if you're in the state's shoes, but you're also suing on behalf of yourself and other aggrieved employees.
It's kind of a double representative action. You're representing the state and you're representing others. And California Supreme Court says there isn't such a thing under PAGA of an individual claim. So, these arbitration clauses that say there's an individual claim that you should be pursuing in arbitration doesn't make any sense.
The California Supreme Court says to do all of the PAGA claims in arbitration, or you can do all of them in court, but you can't kind of bifurcate them—take this individual claim as separate and force it into arbitration.
And that finally gets us to Viking River and the U.S. Supreme Court decision where the U.S. Supreme Court considered is the Iskanian rule from the California Supreme Court
preempted by the Federal Arbitration Act?
And the court decided, yes, it is preempted under previous case law. The Supreme Court said parties have a right to determine contractually what matters.
And so the California Supreme Court, according to this Viking River decision, is not allowed to tell parties you have to either do all PAGA claims in arbitration or not. And so Viking River gives a green light to companies to say you can compel an individual PAGA claim into arbitration.
So any violations that relate to that one person who brought the claim, those go to arbitration. And then there's this open question of what happens to all the other claims, when that claim gets forced over there?
In the context of mass arbitration, we talk a lot about employee misclassification as one of those labor code violations, what are some other labor code violations underneath the PAGA umbrella?
PAGA is kind of an interesting statute in that regard. It attaches its own penalties to any labor code violation that doesn't already have penalties. So, if you take, let's say, a meal break violation. A company was supposed to provide meal breaks and didn't. First of all, the labor code provides that if you're suing on your own or in a class action, that you can collect up to an hour's pay for every day where you weren't given a meal break. The Private Attorney General Act adds on to that. You can collect for every pay period where you weren't given a meal break; $100 for the first violation and $200 for every subsequent violation.
And so these PAGA penalties can really, really stack up. In addition to misclassification, which you mentioned, that's a big one that you can't normally collect except under PAGA, is penalties of up to $25,000 for intentionally misclassifying workers.
From your perspective, how has the Viking River Cruises case changed the legal landscape?
I think in many ways it hasn't changed it that much in employers’ favor. One thing
it definitely does is it tells workers if you want to start out in arbitration and just bring your individual PAGA claims there, plus any other individual claims that you have, you can do that if that's what you want to do.
And so it could be companies are facing many workers in arbitration under PAGA now and facing substantial penalties that way. And it may not have altered things that much in the courts either because there's this open question of “what happens to all of these other employees' claims?”
The U.S. Supreme Court kind of weighed in, in an advisory way, saying we think the PAGA statute means this, but also ultimately it's for the California Supreme Court to decide.
And I think there's even some court decisions already from California courts saying we don't agree with the Supreme Court, that you can continue to pursue everyone else's claim in court, even though your individual PAGA violations have been compelled into arbitration.
Why can arbitrating individual PAGA claims be economically worse for companies?
The thing about arbitration is it's a private court system and someone has to pay for it. The normal court system is subsidized by taxpayers. You have a judge sitting there whose salary has already been paid by the taxpayers and you have a whole administrative staff there who are all already paid by taxpayers. So, access to the court systems really is really the initial filing fee and that tends to be it.
In arbitration, someone has to pay everything. So, the arbitration company is going to charge for administrating the cases and the administrative staff. The arbitrator is going to charge an hourly rate that needs to get paid. And in California, there's a rule that the defendant in an employment case has to be the one to pay all the fees that are different from what you'd pay in court.
So, you can still, as a worker, be required to pay the filing fee, but you can't be required to pay anything else.
The reason arbitration can be so much worse for defendants, especially if you're talking about a PAGA lawsuit, is facing 100 workers individually in arbitration versus in court is going to be incredibly expensive. Plus, you're on the hook for the same damages and penalties.
If you think about it there are arbitrators who charge $1,000 an hour. And so just for a one-day trial, 8 hours, you're already at $8,000. If you need them to write an opinion afterwards, they don't have clerks like judges do, so that’s another 20 hours. That's another $20,000. It adds up really quickly.
Other than the financial side of this decision, how else might this impact companies?
It's never fun to get sued as a company. And you can either see it as an opportunity to make things right and see it as a real issue or you can go another kind of scorched earth way with things.
I think that if I imagine myself as a company facing a PAGA lawsuit, I would much rather face one representative suit. I would want to hear this employee out. And there are things we can do to correct it and make it right.
I imagine it’s psychologically much more difficult to cope with many individual workers all suing you. From what I've seen, I think there’s an incredulity by defendants, and sometimes outside counsel, that this many people have signed up to sue these companies, even a giant company like Lyft. There's this incredulity, they sometimes make arguments in their briefing that they didn't necessarily know what they were signing up for. I can tell you from our side, that's definitely not it.
They knew exactly what they're signing up for. I think that comes from the companies just not believing that there are this many people who are so dissatisfied with what's been done to them and the way they've been treated and paid, that they are willing to individually step up and sue.
How will this affect the trend of mass arbitrations in employment cases from your perspective?
I think it's definitely an incentive for workers to bring more cases in arbitration. It substantially increases the penalties that can be recovered in these employment arbitrations. In a typical employment arbitration, it depends what kind of case it is, but there are ones that might be done for $10,000 or $20,000. And it's hard to estimate what the PAGA penalties are going to be in any particular case, but it's not atypical to see cases where PAGA penalties are ten times the class action or individual damages.
And so, if you take just the example of a case worth $10,000 or $20,000, multiply that by ten for the PAGA penalties, suddenly workers have this much stronger incentive to not only bring the claim, but to bring it on an individual basis in arbitration.
Are there any specific obstacles to litigating individual PAGA claims in arbitration?
There are the obstacles that are specific to arbitration that are going to exist in any arbitration case and then there are ones specific to PAGA. In any arbitration going in, your expectation kind of needs to be that you're probably not going to get as much discovery as you might be used to in court.
And you have an arbitrator who has an awful lot of power over how they administer and rule on the case--even more so than in court. It's important to know your arbitrator. Understand them; understand their preferences and way of thinking.
I would say in terms of specific obstacles for pursuing PAGA claims in arbitration, like in court, you need to give notice to the state before you file a PAGA claim for damages. And that ties into the whole regulatory scheme we discussed. The state has a chance to decide whether it would rather take over the case and do it. If they decide they don't want to do it or they don't respond, you can pursue the claim yourself.
So, you can imagine if a lawyer were representing 100 workers against a company, that's 100 PAGA notices that need to go out 65 days in advance of filing any claim for damages. The other potential obstacle with PAGA is the statute says that any PAGA settlement needs to be approved by a court and it's going to be an open question about what that means. It's highly likely that “court” can be interpreted to also mean “arbitrator”. Generally, in other situations where a statute contemplates a court doing something and didn't specifically contemplate arbitration, arbitrators are given the same authority as a court would.
So, there's that obstacle as well; if you file the claim in arbitration, you need to settle it. You may need to seek approval from the arbitrator in each case for the PAGA settlement.
How might workers benefit or potentially not benefit in arbitration?
There's definitely pros and cons to arbitration. I think the pros are the speed and efficiency. Oftentimes arbitrations will advance more quickly, can resolve more quickly, and workers can get justice more quickly through that process.
In terms of disadvantages, sometimes in arbitration in general, if you look at the resumes of a random sample of arbitrators, I would guess that what you would see generally is more people coming out of the defense bar and then becoming arbitrators, and that's going to have an effect in the aggregate on workers bringing claims.
So, it may not affect any particular worker, you may get a great arbitrator who's a former plaintiff's employment lawyer, but in general, there's a real possibility that you're pulling from a pool of people that are more defense oriented that may not be as favorable.
Arbitration is not like court, where in court part of the benefit of being a plaintiff is you get to oftentimes choose your filing forum. It's often a choice where you live versus where the defendant's corporation is headquartered.
And in arbitration, you don't get the same choice. You don't get to say, you know, I'd rather be in this region because I think it's generally more employee friendly. So that's kind of one of the disadvantages of arbitration.
In terms of actual time, tell me about how long this process might take compared to a class action lawsuit?
It's really hard to make predictions. And it really depends a lot on the defendant as well. They can choose to resolve these really quickly or they can choose to fight all of them, but same in a class action. I'd say general class actions in the employment space often take 2 to 3 years to resolve. Again, it's hard to find an average and this is just based on my own observation. I don't have any hard comprehensive data.
In arbitration cases, even mass arbitration, you get kind of a global resolution. Everyone gets their individual settlement, which can resolve much more quickly. More on a scale of about a year or year plus a bit more, but no guarantee.
Some defendants just battle it out for much, much longer. But I do think in general arbitration is a faster process.
What do you think will happen to arbitration clauses in the future? Will companies keep them?
I think they'll definitely keep them for the time being. It's kind of interesting to see what Amazon did recently with their consumer arbitration clause.
They got sued in arbitration by thousands and thousands of people over allegations that Alexa was listening in and recording conversations that it shouldn't have been. Amazon decided it wasn't too happy with having to pay all those fees and deal with all these individual cases. So, they decided to just retract their consumer arbitration clause--gone. So, moving forward, that clause is no longer in effect.
Now, what happened to those thousands of arbitrations that were already filed? May have been too late on that for Amazon, but I would kind of predict that employers would go the same route--they wouldn't immediately yank their arbitration clauses out. I don't think this opinion on its own is enough to push them over the edge to put one in if they don't have it.
But what I would expect is if a company is starting to face many arbitrations and it's building up, that's when they'll start thinking about “do I really want this in here? Should I take it out?”
And it's kind of a way, like in the Amazon case, to cut off the filing of the arbitrations moving forward. So, once they officially change it, it's gone. The next 100,000, whatever people that would have signed up and wanted to file arbitration can't do that. They are now forced to file a class action instead.
Any advice for firms looking to get into mass arbitration? What should they know, especially as it relates to employment litigation in general?
I think the first thing to think about is what states you're willing to take clients from. What state, which really means what state laws are you willing to litigate?
So, in the employment space, when you're talking about misclassification for example, there are certain states that have an ABC test, which is much more employee friendly than the more classic control tests in many other states. And so, one decision that you might make is to just take clients from ABC states and you do see that a lot currently.
In terms of on the arbitration side of things, something to consider is “what the filing fees are going to be?” The filing fees are the same as in court in some sense, but in court you can file a multi plaintiff complaint. So, if you have 200 clients, you can file once and pay one, $200, or whatever filing fee. In arbitration, because they are actually individual, that's going to be 200 filing fees.
But the other thing to consider is if you're in California, there's a rule that arbitration companies are required to waive the fees for any employee whose income falls within 300% of the federal poverty line.
So, if you limit yourself to cases in California now, you get the ABC test, you get the Private Attorney General Act, and you get this fee waiver requirement.
And I can tell you at least for cases against some of the gig companies like Lyft, for example, a huge proportion of the clients qualify for the fees to be waived.
How about the logistics and other resources firms need to be thinking about if they want to get into this kind of work?
I think it's really important that firms look at technology. Not just in terms of its time saving benefits, although automation and things like that have the potential to really make it more cost effective and efficient to litigate. But it also increasingly seems to be what clients want.
If you imagine, particularly these gig economy cases where the worker is interacting with the company mostly through a phone, if not exclusively through a phone app, many times their expectations of their lawyers is that same convenience and electronic aspect of how you're doing things.
And so, you know, I'd recommend that firms that are considering it to look into what technologies they can use not only to make it easier for them to litigate, but to make things easier on the clients.
Wes: We deal with that a lot, especially for the driver companies. Text messages seems to be the most powerful thing because that's what they're doing all day, every day. We don't even know if they look at their emails. So that's a very interesting point.
Well, Aaron, I don't have any more questions today. I really appreciate your time.
Aaron: Well, it's been great being here Wes and I enjoyed talking to you.
If you have questions for Aaron, you can email him at firstname.lastname@example.org.
The opinions expressed in this podcast and transcript are the views of our guest and do not necessarily reflect the views of the firm, its clients, or Simpluris, or any of its or their respective affiliates. This podcast and transcript are for general information purposes and is not intended to be and should not be taken as legal advice.