To the dismay of California employers and labor-and-employment attorneys, the U.S. Supreme Court last week refused to take a case that could have gutted a controversial state law that businesses often complain is widely abused.

The Private Attorney General Act, passed in 2004, allows workers to file complaints against their employers for alleged labor code violations. The problem is, businesses say, it allows employees to make claims on behalf of larger groups without the hassle of obtaining a class-action certification.

What’s more, the claims frequently allege technical labor code violations such as issuing paychecks that don’t include pay period start and end dates.

“There can be technical violations that don’t harm anybody but they can lead to millions and millions of dollars in fines,” said Jack Sholkoff, a shareholder in the downtown L.A. office of law firm Ogletree Deakins Nash Smoak & Stewart.

The law, often called PAGA, calls for a $100 fine for each employee affected by a violation. If an alleged offense continued through multiple pay periods, the fine jumps to $200 an employee for each pay period until the matter is resolved.

In recent years, many employers started asking workers to sign agreements requiring them to settle disputes through mediation or arbitration rather than filing costly lawsuits.

But the California Supreme Court ruled last year that employers cannot use these requirements as a defense to PAGA claims. The federal district courts, however, have taken another view. Several federal court justices last year ruled the Federal Arbitration Act protects employers’ rights.

“There’s a direct conflict between the way federal district courts handle them and the way state courts handle them,” said Kenneth Sulzer, president of the L.A. chapter of the Federal Bar Association. “It’s a huge practical problem here, where the only thing that matters is which court you’re in. If you’re in federal court, you win; if you’re in state court, you lose if you’re an employer.”

The opposing views eventually led to last year’s petition to the U.S. Supreme Court. Now that the high court has declined to hear the issue, California employers should be prepared for a new rush of federal PAGA lawsuits, Sholkoff said.

“PAGA is becoming a sword for plaintiffs to use to avoid arbitration obligations and the U.S. Supreme Court’s failure to rule will just continue that trend,” he said. Sholkoff and Sulzer, who both defend employers involved in PAGA disputes, anticipate the high court will eventually accept a case to address the arbitration agreement issue.

“This isn’t the end of the story by any means,” Sulzer said. “It likely won’t be this year and it might not be next year, but three, four or five years from now, the defense bar is pretty confident a case on PAGA will be framed before the Supreme Court.”

New Program

The State Bar of California this month awarded a $45,000 grant to the Los Angeles Incubator Consortium as part of a pilot program designed to help recent law school grads launch individual practices that cater to low- and modest-income clients.

Last year, Pepperdine University, Southwestern and UCLA law schools teamed up to create the local incubator program. Each school will select four or five recent graduates admitted to the State Bar to participate in the program, which is slated to launch March 1, said Laura Cohen, a professor at Southwestern who’s helping organize the effort.

The program is designed to guide young attorneys through the process of launching practices serving clients of modest means, she said.

“We have a high number of graduates who do start their own solo practice,” Cohen said. “So by them being able to do it in this model, it will help them be far more successful than if they were to do it on their own.”

Leases are still being finalized but Cohen expects the incubator will secure two office locations, one in southeast Los Angeles and the other near downtown.

Legal Landscape

Morgan Lewis & Bockius has promoted Seth M. Gerber to managing partner in the firm’s Santa Monica office. … Davis Wright Tremaine acquired boutique entertainment firm Wyman & Isaacs this month. Attorneys Bruce Isaacs and Bob Wyman were brought in as partners and Cheryl Nelson as of counsel at the firm’s downtown L.A. office. … McKenna Long & Aldridge has promoted former counsel Todd Canni to partner at the firm’s downtown L.A. office. … Appellate attorney Anne M. Grignon was elected to a partnership this month at the downtown L.A. office of Reed Smith. … Labor and employment firm Jackson Lewis promoted Shagha Balali to shareholder this month. … Attorneys Elizabeth Nguyen and Carlos Jimenez are now shareholders in the Century City office of law firm Littler Mendelson.

Staff reporter Cale Ottens can be reached at cottens@labusinessjournal.com or (323) 549-5225, ext. 221.

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