California Court Further Limits How PAGA Actions Can Be Arbitrated

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09/23/2017

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California Court Further Limits How PAGA Actions Can Be Arbitrated

By: Jacquelyn E. Larson

A California appellate court has even further limited how PAGA claims can be dealt with in arbitration and the courts.  

In 2014, the California Supreme Court decided in Iskanian that individuals cannot be required to waive their right to be a representative and bring group/class claims under the Private Attorney General Act (“PAGA” or the “Act”). PAGA authorizes an “aggrieved employee” to bring a civil action personally and on behalf of other employees to recover civil penalties for an employer’s violations of the California Labor Code. The Act anticipates that the plaintiff will essentially act for the attorney general in enforcing the Labor Code. The Iskanian court found that an employee cannot waive the ability to arbitrate as a collective group.  First, it is not the individual’s right to waive. Second, the Court reasoned that making employees bring separate claims through arbitration would frustrate the goal of the Act by creating more litigation.

In a recent case, Perez v. U-Haul, two employees signed a mandatory arbitration agreement which specifically waived their right to bring claims “as a representative or as a member of a class or in a private attorney general capacity.” The employer argued that whether the employees were “aggrieved employees” and could bring a PAGA claim should be arbitrated under the agreement. The employer noted that the Federal Arbitration Act (“FAA”), which governed the agreements, explicitly allows parties to sever arbitrable issues from non-arbitrable issues.

The California appellate court denied the motion to arbitrate the issue of whether the plaintiffs were “aggrieved employees.” First, it found that nothing in the agreement suggested that the parties agreed to arbitrate this issue. Instead, the agreement specifically exempted representation claims from arbitration. However, even if the agreement did require the parties to arbitrate this issue, the court found that this would be unlawful and unenforceable.  The court found that an agreement forcing Plaintiffs to arbitrate the issue of whether they were “aggrieved employees,” and then return to court for the substantive PAGA claim, was against public policy and did not implicate the FAA. The court also found no authority that an employer may compel an employee to arbitrate the individual aspects of his or her PAGA claim, while simultaneously preserving its own right to litigate other aspects of the claim in court.

COUNSEL TO MANAGEMENT:

An employer’s ability to craft arbitration agreements which will limit employee claims is steadily being diminished by the courts. This most recent case prevents employers from requiring employees to individually arbitrate whether the employee qualifies to bring a PAGA claim, even when the agreement preserves the employee’s right to bring the PAGA case in a court. This is just the most recent example why Companies must make sure to constantly review and update their arbitration agreements since this area of law is rapidly developing. If you have questions regarding your arbitration agreements with employees, please contact the experts at the Saqui Law Group.

 


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