Source: https://www.calmediation.org/arbitration-paga/
Timestamp: 2019-04-19 03:33:45+00:00

Document:
Case Contains Rich Discussion Of Arbitration, PAGA, Federal Preemption, And Divergence Of State And Federal Law.
Plaintiffs sued their former employer, alleging wage and hour violations and seeking civil penalties under California's Private Attorney General Act of 2004 (PAGA). Employer successfully petitioned to arbitrate, with one exception: the trial court held that under Iskanian v. CLS Transportation Los Angeles, LLC (2014), the PAGA claim could not be arbitrated, without the consent of the state. A PAGA claim is in the nature of a qui tam action, and the state has a stake in the outcome. Employer appealed the adverse PAGA ruling. Correia v. NB Baker Electric, Inc., D073798 (4/1 2/25/19) (Haller, McConnell, Nares).
The Court of Appeal affirmed. Notwithstanding SCOTUS cases such as Epic and Concepcion, finding that the Federal Arbitration Act (FAA) has broad preemptive scope, the Court of Appeal holds that Iskanian is still good law, because the federal cases did not address the precise question presented by Iskanian, because Iskanian involves a claim for civil penalties brought on behalf of the state, and the enforceability of an agreement barring a PAGA representative action in any forum.
The Court notes that some federal cases have found that, even if an agreement barring a representative action in any forum is unenforceable under Iskanian, Iskanian does not prevent a court from directing a representative action to arbitration. As the Court explains, however, California appellate courts have reached a different conclusion, based on the fact that in a PAGA action, the State of California plays a role.
COMMENT: The Court acknowledges, "[T]here are different ways of viewing a qui tam lawsuit regarding the true claim owner and whether the state and the employee can both be considered to be real parties in interest in the lawsuit for purposes of evaluating an employee's authority to waive rights to bring claims in court." The PAGA claim seems to have a mixed nature, because state authority is required, explicitly or implicitly, for the employee to proceed with the claim, and the state gets 75% of the penalty. On the other hand, the employee brings the claim, and the state does not supervise the litigation. However, the Court explains that at the time of the predispute waiver, the state still retains authority over the claim. Under the Court's reasoning, the state could waive rights to a court forum at the time the dispute arises. Of course, there is no reason to expect that to ever happen.
The opinion also points out a deadline trap for the unwary. The employer argued that plaintiffs' response to its arbitration petition was untimely. Plaintiffs treated the petition as a motion to which a response would be due nine court days before the hearing, but a response is due 10 days after the arbitration moving papers are served. (Code Civ. Proc., section 1290.6). Fortunately for plaintiffs, the Court of Appeal said that it was not clear whether the arbitration petition statute or the general motions statute governed, but in either case, the deadline was not jurisdictional. The safe solution for the practitioner is to calendar the earlier response date.
Civil Penalties Or Victim Specific Statutory Damages?
Lawson v. ZB, N.A. et al., and ZB, N.A., et al. v. Superior Court of San Diego, D071279 & D071376 (4/1 12/19/17) (Benke, Huffman, Haller), is the latest skirmish in the ongoing battle waged between employers and employees over whether Private Attorney General Act of 2004 (PAGA) claims can be arbitrated.
The trial court granted appellant ZB, N.A.'s motion to arbitrate, bifurcating an underpaid wages portion of the employee's PAGA claim and ordering arbitration as a representative action of that portion of the claim, brought under Labor Code section 558. ZB appealed the trial court's order. Evidently ZB didn't want to deal with a representative action in arbitration, and ZB argued that the employee had waived the right to bring a class or representative action. In any case, the Court of Appeal held that an order compelling arbitration is not appealable, instead ruling on the issue when raised by way of a petition for a writ of mandate.
Section 558 of the Labor Code requires payment of underpaid wages, and also provides for civil penalties of $50 for a first violation, and $100 for further violations. The seemingly dual nature of this Labor Code provision opened the door for ZB to argue that the underpaid wages issue needed to be arbitrated, because it was in the nature of a private claim belonging to the employee, unlike PAGA penalties which are obtained on behalf of the State. In fact, ZB didn't even ask the trial court to order abitration of the $50 and $100 amounts provided for as penalties in section 558.
The Court of Appeal now holds that section 558 provides for civil penalties, and "hence claims under section 558, including claims for underpaid wages, are cognizable under the PAGA." Therefore, the claim for underpaid wages is a claim that the employee cannot waive as a representative action, and cannot be forced to arbitrate. The Court also explains that section 558 claims do not create an "express right of private enforcement and instead a regulatory agency has been given the right to enforce the statute . . . "
So: (1) the appeal is dismissed; (2) the writ is granted; (3) the order bifurcating the 558 claims and ordering the underpaid wage part to be arbitrated is vacated; (4) the motion to arbitrate is denied. The result of the writ petition is that the representative PAGA claim, instead of being heard by an arbitrator, will be heard by a judge.
COMMENT: We now have a split among the districts, with the Fourth District, Division 1 "respectfully part[ing] company with the view recently expressed by our colleagues in the Fifth District in Esparza v. KS Industries [13 Cal.App. 5th 1228 (2017). Esparza, the subject of my August 2, 2017 post, held that section 558 wage claims were not a representative action, and therefore could be arbitrated.
Employer Ross Stores, Inc. Had Argued That Law Of The Case Required Trial Judge To Order PAGA Claim To Arbitration.
In Ross Stores, Inc. v. Superior Court (Rachel Goss, Real Party), A150039 (1/1 12/11/17) (Banke, Margulies, Dondero) (unpublished), the Court of Appeal addressed circumstances in which it had earlier required the arbitrability of representative PAGA claims, the Supreme Court later embraced the contrary view in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), and the employer Ross Stores, Inc. then tried to convince the trial judge that the earlier ruling of the Court of Appeal had become law of the case, requiring arbitration -- notwithstanding Iskanian.
The trial judge did not buy that argument. Neither did the Court of Appeal.
As did the trial court, the Court of Appeal concluded that an exception to the law of the case doctrine applied: the intervening-change-in-the-law exception. And the hands of the trial judge could not be bound by the previous ruling, because the earlier ruling was an unqualified reversal that did not direct the trial court to take any specific action on remand.
Confused? The bottom line is that the Court of Appeal applied Iskanian, holding that the PAGA claim could not be arbitrated, and denying a writ of mandate to compel arbitration.
When Is An Agreement To Arbitrate A PAGA Claim Predispute Or Postdispute?
Let me begin with what I believe is the punchline of our next case: "[T]he classification of an agreement as 'predispute' or 'post dispute' must be made by reference to the point at which an individual employee acquires the status of the state's agent." Julian v. Glenair, Inc., B277064 (2/4 11/27/17) (Manella, Epstein, Willhite). What does that mean here, and why is it important? First, it matters, because predispute arbitration clauses have been found unenforceable as to representative PAGA claims. Second, this case looks closely at the distinction between predispute and post dispute clauses, a distinction that was somewhat confusing to apply in Julian.
Julian involves unusual facts. Employees other than the Julians brought a lawsuit, the Rojas action, that asserted Labor Code violations and a PAGA claim for civil penalties. The employer, Glenair, then served its employees with a proposed arbitration agreement, giving them an opportunity to opt out, informing them of the PAGA claims, and stating that it was governed by the Federal Arbitration Act. Malissa and Machele Julian took no steps to opt out.
A third amended complaint in the Rojas action was filed, asserting no PAGA claim. A fourth amended complaint identifying the Julian parties as respondents contained a PAGA claim, but was never filed. Later, the Julians initiated their underlying action against Glenair, including a single claim under PAGA for civil penalties on behalf of themselves and other non-exempt employees.
So now we have teed up the issue: as to the Julians, was the arbitration clause as to which they failed to opt out predispute or post dispute? By the time they failed to opt out of arbitration, the company had already informed its employees (whether the Julians understood the information is a separate matter) of the PAGA claims in the Rojas action. And the Rojas action brought representative PAGA claims. From Glenair's point of view, the arbitration provision was therefore post-dispute as to a PAGA claim, and should be enforced against class members who did not opt out. Glenair argued that the agreement obliged respondents to submit their PAGA claim to arbitration.
The Court of Appeal holds that "the predispute/postdispute boundary is crossed when the pertinent employee is authorized to commence a PAGA action as an agent of the state." Here, that boundary was not crossed before the employees met the statutory requirements for commencing a PAGA action, i.e., filing a notice with the Labor and Workforce Development Agency, and waiting the statutory period for a response. Here, the arbitration agreement was submitted to the Julians before they, individually, satisfied those statutory requirements. Therefore, as to the Julians, the arbitration agreement was pre-dispute, and unenforceable. The Julians here were the "pertinent employee[s]" for determining whether the predispute/post dispute boundary had been crossed.
COMMENT: How is the situation in Julian any different from in Iskanian, the California Supreme Court PAGA case? In Iskanian, the Supreme Court confronted a situation where a pre-dispute arbitration clause purported to foreclose a PAGA claim in a judicial forum, as well as in arbitration. Glenair, however, did not try to use the predispute clause to foreclose arbitration of the PAGA claim. Nevertheless, Julian holds that the pre-dispute clause cannot be used to foreclose the Julians from choosing a judicial forum.
What is to prevent many individual employees from filing separate PAGA lawsuits with similar claims against the same employee? The Court explains that since a PAGA claim is a representative action in which the state has an interest, judicial estoppel will protect the employer.
It seems safe to predict that employer efforts to compel arbitration of PAGA claims will continue to generate case law.
Under What Circumstances Could Predispute Arbitration Agreements Properly Subject PAGA Claims To Arbitration?
The arbitrability of PAGA claims continues to generate court opinions.
In Christman v. Apple American Group II, LLC, B271937 (2/4 10/4/17) (Manella, Epstein, Collins) (unpublished), the Court notes that Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) "did not expressly address the circumstances -- if any -- under which predispute arbitration agreements might properly subject PAGA claims to arbitration." For example, if there is an opportunity for class arbitration, is it proper to submit the PAGA claims to arbitration?
Following Iskanian, however, two appellate courts have concluded "that because a PAGA plaintiff asserts that claim as an agent of the state, a predispute arbitration agreement the plaintiff has executed as an individual does not subject the claim to arbitration because the right underlying the claim is then subject to the state's control." Christman follows that reasoning in holding that plaintiff employee's PAGA claims are not arbitrable, in circumstances where the arbitration agreement relies on the FAA to govern its interpretation and enforcement, and the employer has abandoned its argument that the employee "may assert only individual claims in arbitration."
COMMENT: The Court acknowledges that its opinion it is at odds with Valdez v. Terminix Intern. Co. Ltd. Partnership (9th Cir. 2017), in which the federal court reasoned that "the plaintiff, as the state's representative, was free to agree to arbitration." The Christman court finds Valdez unpersuasive: first, because the PAGA claim is not a dispute between the employer and an employee, given California's interest; and second, because the predispute waiver is entered into by the plaintiff individually, at a time when she is not the state's representative.
Employers Strive To Close The PAGA Representative Action Escape Hatch From FAA Preemption And Arbitration.
Ever since the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) that Private Attorneys General Act of 2004 (PAGA) representative actions are not subject to arbitration, employers preferring arbitration have struggled to chip away at that holding. In Esparza v. KS Industries, LP, F072597 (5th Dist. 8/2/17) (Franson, Poochigian, Smith) (published), the employer, with the help of the Court, of course, does some chipping.
Federal preemption requires arbitration agreements be strictly enforced whenever the Federal Arbitration Act applies. Because the FAA applies to controversies arising out of contracts evidencing a transaction involving interstate commerce, preemption is frequently the rule, requiring arbitration. But even where the FAA requires enforcing an arbitration agreement, PAGA representative actions are recognized to be an exception. The rationale is that PAGA representative actions are a type of qui tam action in which the employee acts on behalf of the government, the real party in interest, and the FAA did not intend to compel the state, which is not a party to the arbitration agreement, to arbitrate. Indeed, 75% of the civil penalty in a successful PAGA representative action goes to the state.
The Court of Appeal agreed with the employer in Esparza that section 558 actions to recover unpaid wages are not representative actions that result in civil penalties. Instead, the Court explains that section 558 actions are private actions brought to recover wages that benefit the plaintiff, rather than the state. Therefore, because the section 558 action is not at bottom a dispute between the employer and California, the dispute can be arbitrated. The dispute is a private dispute, the FAA applies, and the parties must arbitrate.
The Court of Appeal affirmed the order denying the employer's motion to compel arbitration insofar as it denied arbitration of PAGA representative claims seeking civil penalties paid to the Labor and Workforce Development Agency. However, the trial court was directed to determine whether the plaintiff intended to pursue other claims seeking individual damages other than PAGA representative actions seeking civil penalties, as the other claims could be arbitrated.
The Employee Brought A Single Cause Of Action For PAGA Violations.
At first blush, Betancourt v. Prudential Overall Supply, E064326 (4/2 March 3, 2017) (Miller, Ramirez, McKinster), another opinion holding that PAGA claims cannot be arbitrated (more about the holding), is unremarkable. However, there are interesting points in the case that help explain why it was worthy for publication.
First, plaintiff/respondent Betancourt sued for a single cause of action: labor violations of the Private Attorneys General Act (PAGA). Betancourt's single shot approach is testimony to the recognition of plaintiffs' attorneys in employment cases that a carefully pleaded PAGA complaint is likely, for now, to avoid arbitration.
Second, Betancourt, in his single PAGA- cause complaint, sought remedies that did not fall within a PAGA cause of action. Therefore, the employer argued that the PAGA cause of action was an effort to end-run a standard wage and hour case around the arbitration requirement. This argument did not succeed, with the trial court and the Court of Appeal explaining that the proper procedural step was a motion to strike, not a motion to compel arbitration. Query: if the employer had filed a demurrer or a motion to strike to clarify the complaint, would the employee then have argued that the employer had delayed and waived the right to move to compel arbitration? Yet in proper circumstances, a motion to clarify the complaint would seem proper, and should not necessarily result in a waiver of the right to seek arbitration.
Third, the trial court did not issue a statement of decision. However, it did say that it was relying upon Iskanian when giving its tentative reasons for denying the motion. The Court of Appeal took this as an indication that the trial court based its ruling on a decision of law, and that therefore the de novo standard of review applied.
Fourth, the Court agreed that PAGA claims lie outside the Federal Arbitration Act's coverage, because the claim, like a qui tam claim, is essentially between the employer and the state, not between the employer and the employee.
Fifth, the Court of Appeal considered different interpretations of Iskanian. On the one hand, the employer argued that PAGA does not hold that PAGA claims are exempt from arbitration, only that predispute waivers of the right to bring a representative action are unenforceable, and presumably a representative PAGA action could be brought in arbitration or in court. But the Court interpreted Iskanian broadly to mean that a predispute waiver of the right to bring a representative action is unenforceable because the state cannot be bound by the predispute agreement.
Sixth, the Court held that FAA preemption did not apply, because it was not ruling that Iskanian required a blanket prohibition against arbitration in PAGA cases, only that "a defendant's reliance on a predispute arbitration agreement to compel arbitration when an employee becomes a type of qui tam plaintiff in a PAGA action" is prohibited. This part of the ruling seems a bit murky to me, because under Supreme Court cases such as Concepcion, it is not clear that a blanket prohibition of arbitration of all PAGA cases would need to occur for FAA preemption to apply – i.e., if a Court believed that arbitration was unduly burdened, that might satisfy one formulation of what FAA preemption requires.
However, the bottom line is that California state courts are strongly endorsing the view that PAGA claims are, like qui tam actions, really between the state and the employer, and that therefore, predispute arbitration clauses cannot bind the state and compel arbitration of PAGA claims.
NOTE: Efforts to compel arbitration are sometimes styled as "petitions" and sometimes as "motions." As the Court explains in footnote 2, "petition" is the proper terminology for a document commencing an independent action, whereas "motion" is the proper label for a document filed in an existing action.

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