California Workers Try to Avoid Arbitration With ‘Headless PAGA’

California employees that believe they’ve been treated unfairly by their employers are sometimes explicitly declining to bring their own cases under the state’s Private Attorneys General Act.

That technique—often known as a “headless PAGA” case—is a bid to avoid forced arbitration by skipping individual claims in favor of filing a case only on behalf of an employee group. It was bolstered by a state appeals court’s Balderas v. Fresh Start Harvesting opinion, published in April, which held that an employee who doesn’t bring an individual claim can still bring a PAGA action for herself and other employees of a company.

In the six months since Balderas was published, more than a third of 122 PAGA cases filed in California Superior Court, Los Angeles County were clearly “headless.” And 17 of the 122 cases, or about 14%, specifically cited Balderas.

California’s PAGA law allows workers to act as deputies of the state government and, subbing in for an under-resourced agency, file suits on behalf of themselves and other “aggrieved employees” to enforce labor code. Businesses have tried to curtail it for years, pointing to a study that says it cost them $10 billion over a decade.

The state’s employee-side lawyers have turned to class action-like PAGA cases to keep labor claims in open court, as the use of agreements to funnel cases into employer-favored arbitration has increased.

California Gov. Gavin Newsom (D) signed a PAGA reform package into law in July that increases standing requirements, imposes some caps on penalties, and boosts the share of penalties workers can keep.

Balderas itself largely hasn’t received pushback in L.A. state court filings from employer-side attorneys over the past six months, according to Bloomberg Law’s data analysis. And Ruben Escobedo of Atascadero, Calif., the Balderas plaintiff’s lawyer, said he hasn’t received a notice of intent to appeal the ruling to California’s Supreme Court.

But some defense attorneys contend that arbitration agreements can still force a group-only PAGA case into arbitration. They say a worker’s status as an “aggrieved employee,” which is necessary to bring a PAGA case, should be decided behind closed doors.

Pasadena-based employees’ lawyer Lauren Teukolsky said a majority of the 20 trial court orders she’s reviewed post-Balderas have cited the opinion in denying arbitration in PAGA cases without individual claims.

But significantly, some have sent parts—like the “aggrieved employee” question—of the PAGA group claim to arbitration.

“Given this split, I anticipate we will see more decisions from the Court of Appeals in the next year or two about whether a PAGA plaintiff can stay out of arbitration by disclaiming all individual claims,” Teukolsky said.

Pros, Cons for Workers

The benefit to workers who file headless PAGA claims is that they may be able to avoid getting their group claim paused.

Stays of group claims are otherwise common when individual PAGA claims are severed from group cases and pushed into arbitration, which the California Supreme Court allowed in its 2023 Adolph v. Uber Techs. Inc. ruling.

Those pauses can delay discovery for years, which can disadvantage workers who file PAGA cases in industries with high turnover, such as food service.

“If you have to wait two years before getting contact info, maybe they’ve scattered to the winds, they don’t work there anymore, don’t have the same phone numbers,” Teukolsky said.

Escobedo, who represents the Balderas plaintiff, said lawyers and workers should weigh the value of an individual claim before deciding whether to file a group-only case.

Sometimes, individual claims can be worth hundreds of thousands of dollars, and in those cases it wouldn’t be advisable to drop them, he said.

“I’m always on the lookout for people who tell me in intake calls, I don’t care about the money, I just want this fixed so it doesn’t happen to somebody else,” Escobedo said. “That’s the group claim.”

Employer Strategy

The Balderas opinion hasn’t received a lot of explicit pushback yet, but a few signals indicate that employer opposition is brewing.

A group of Sheppard Mullin attorneys, defending Zara USA Inc. in a PAGA lawsuit filed in June without an individual claim, argued that Balderas doesn’t allow workers to get around an arbitrator’s authority to decide whether they are “aggrieved” under PAGA or have experienced a labor code violation.

“California courts have consistently held that it is the Labor Code violation itself, not the availability of individual relief, that confers standing,” the attorneys wrote in a demurrer filing.

Balderas itself didn’t center an arbitration dispute; the justices were weighing a motion to strike the group PAGA claim, said Gary McLaughlin, an employer-side attorney with Mitchell Silberberg & Knupp LLP.

The case was decided before California’s PAGA law was amended in June, which strengthened requirements for plaintiffs to prove their standing, McLaughlin said, emphasizing that this question should be arbitrated.

“I don’t think you can sidestep the question of whether the main plaintiff experienced a violation,” McLaughlin said.

Still, Escobedo, the lawyer for the plaintiff, said the fact that the legislature overturned some PAGA case law that “had been pretty expansive” when crafting reforms to the law this spring, while keeping Balderas intact, indicates the ruling’s strength.

“That is an implicit endorsement, which makes sense,” Escobedo said. “The legislature wants people to be able to file these cases.”