California helps workers sue their bosses. New York has noticed

Next week, the U.S. Supreme Court will consider whether employees have the right to bring class actions against their bosses. With the court’s Republican majority restored this year by President Donald Trump, labor advocates aren’t holding their breath.

Instead, they’re pursuing a work-around pioneered on the West Coast. A decade-old California law allows people to act as “private attorneys general,” bringing cases against companies on behalf of the government. Activists are urging other states and cities to follow suit.

It’s the latest skirmish in a long war. Over the past couple of decades, companies have increasingly required their employees — and their customers — to surrender the right to class action in a courtroom, and instead bring any grievances to individual arbitration hearings.

The California model helps plaintiffs to get around such agreements. “The worker isn’t acting just as a worker – they’re acting as an agent of the state, and the state isn’t a party to that forced arbitration agreement,” says Meg Fosque, lead organizer for the community group Make the Road New York. “It’s kind of poetic justice.” Her organization is backing a pair of bills to give New York’s workers and consumers a similar option.

Consumer complaints

More than half of non-union private-sector employers now make their workers sign mandatory arbitration agreements, and 30 percent of those include class-action waivers, the Economic Policy Institute said this week. The left-of-center think-tank carried out a review of arbitrators’ disclosures in 2015, and found that corporations engaging in the practice included industry leaders like Anheuser-Busch InBev SA, J.C. Penney Co. and Wells Fargo & Co.

It’s becoming a common requirement for consumers, too. The Consumer Financial Protection Bureau estimated in 2015 that 53 percent of outstanding credit-card loans went to borrowers who’d signed an agreement for any complaints to be handled via arbitration. For pre-paid cards and storefront payday lenders, such terms were even more widespread.

In July, the agency issued a rule that would stop banks and credit-card companies from making customers relinquish their rights to class action, though congressional Republicans are rounding up votes to overturn the rule.

Business advocates argue that courtroom class actions are often frivolous shakedowns, and that arbitration represents a cheaper, faster alternative with better outcomes for all parties except attorneys.

‘Money for themselves’

“Trial lawyers want to eliminate arbitration as an option in as many spheres as possible, to bring more business and money for themselves,” says Ted Frank, who directs the Center for Class Action Fairness at the Competitive Enterprise Institute. “If somebody really prefers to avoid arbitration, they can find a job that doesn’t have an arbitration clause.”

But consumer and labor groups, and the attorneys who represent them, say that class actions are often the only financially feasible way for low-income plaintiffs with non-lucrative claims to redress wrongs. “A class action waiver is in many cases a waiver of rights altogether, practically,” says Justin Swartz, a plaintiff’s lawyer who’s among a group that provided input on the new bills proposed in New York.

Plus, they say, arbitrators can be biased — because their future earnings depend on companies agreeing to keep using them.

Recent Supreme Court rulings have favored the employers. In a landmark 2011 decision siding with AT&T, the court overturned a California rule invalidating arbitration agreements that prohibited class action. It found that an act passed by Congress in 1925 to promote the use of arbitration had priority. Also, in a 2013 ruling in favor of American Express that cited the same 1925 law, the court said that class-action waivers can’t be invalidated merely because it’s unrealistic for consumers to bring their cases one by one.

On Monday, when the court considers whether labor laws protect employees’ right to collectively sue their boss, activists expect a similar result.

Not in California

But arbitration advocates haven’t been winning everywhere – and especially not in California. Since the state passed the Private Attorneys General Act of 2004, its courts have repeatedly denied pleas by companies to handle claims in individual arbitration rather than collectively.

Under PAGA, employees can bring claims as agents of the state — though they first have to give their bosses a chance to resolve the case, and the labor commissioner’s office retains a veto. If a claim succeeds or gets settled, the payout is shared with the state government, which uses the funds for further labor law enforcement.

In a precedent-setting 2014 case, the California Supreme Court allowed a driver to proceed with a PAGA claim against a transportation company, for failing to pay overtime. The court acknowledged the 1925 arbitration act, but said it “does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf.”

PAGA has enabled some big-money settlements. Bank of America Corp. paid out $15 million for allegedly not providing proper seating for tellers. Wal-Mart Stores Inc. and a group of warehouse contractors reached a $22.7 million agreement to resolve claims including minimum-wage violations.

‘Changes the calculus’

“The possibility of a PAGA case changes the calculus for a company, so that they would invest more in compliance and not be as cavalier about the labor standards,” says Rachel Deutsch, a Los Angeles-based attorney for the Center for Popular Democracy, which plans to campaign for PAGA-like bills in four states next year. The group also held a conference in July for municipal lawmakers from around the country, who discussed pushing the measures at the city level. New York City’s public advocate’s office is considering the idea.

Business advocates say PAGA shouldn’t go viral. “It’s essentially open season on employers,” says Paul DeCamp, who led the federal Labor Department’s Wage and Hour Division under George W. Bush and now defends companies in employment suits.

The Supreme Court has declined repeated requests to consider whether California courts were wrong to keep PAGA cases out of arbitration. That will change if more states follow California’s lead, says Marshall Babson, a board member of the U.S. Chamber of Commerce’s litigation arm. And he says the court may decide to treat PAGA claims the same way as other suits filed by employees. “If it looks like a duck and sounds like a duck, there’s a chance it’s a duck,” Babson says.

Labor’s supporters say they’re confident the law is on their side, despite prior high court defeats.

“Arbitration has interfered with the private individual’s ability to protect themselves,” says attorney David Seligman, who has drafted a model PAGA-like bill for the National Consumer Law Center. “So the state has to figure out a new way to enforce its laws.”