Court Opinion

ID: 4034540
Source: CourtListenerOpinion
Date Created: 2016-09-16 19:03:05.169744+00
Date Added: 2024-06-11T14:29:41.551164
License: Public Domain

Filed 9/16/16
                          CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                           SECOND APPELLATE DISTRICT

                                      DIVISION SEVEN

SERGIO PEREZ, et al.,                            B262029

        Plaintiffs and Respondents,              (Los Angeles County
                                                 Super. Ct. No. JCCP4735)
        v.

U-HAUL CO. OF CALIFORNIA,

        Defendant and Appellant.

        APPEAL from an order of the Superior Court of Los Angeles County, Jane L.
Johnson, Judge. Affirmed.
        Gregg A. Farley and Law Offices of Gregg A. Farley; Sahag Majarian and Law
Offices of Sahag Majarian, for Plaintiff and Respondent Sergio Lennin Perez.
        Larry W. Lee, Nicolas Rosenthal and Diversity Law Group; Sherry Jung and Law
Offices of Sherry Jung, for Plaintiff and Respondent Erick Veliz.
        Alston & Bird, James R. Evans, Jr. and Ryan T. McCoy, for Defendant and
Appellant.

                           _____________________________
       Plaintiffs Sergio Perez and Erick Veliz Ramos filed a representative action under
the Private Attorneys General Act of 2004 (PAGA) (Lab. Code, §§ 2698 et seq.), alleging
that U-Haul Company of California (U-Haul) violated several provisions of the Labor
Code, including overtime and meal break requirements. U-Haul filed a motion to compel
plaintiffs to individually arbitrate whether they qualified as “aggrieved employee[s],”
and therefore had standing to pursue a PAGA claim. (See Labor Code, § 2699, subd.
(a).) U-Haul asserted that all other issues regarding the PAGA claim should be stayed
pending resolution of the arbitration. The trial court denied the motion, concluding that
California law prohibits an employer from compelling an employee to split the litigation
of a PAGA claim between multiple forums. We affirm.

                  FACTUAL AND PROCEDURAL BACKGROUND
       A. Events Preceding the Motion to Compel Arbitration
       In 2010 and 2011, U-Haul hired plaintiffs Erick Veliz and Sergio Perez
(collectively plaintiffs) to serve as customer service representatives. As a condition of
their employment, plaintiffs signed a mandatory arbitration agreement that contained the
following language: “I agree that it is my obligation to . . . submit to final and binding
arbitration any and all claims and disputes . . . that are related in any way to my
employment . . . . [B]y agreeing to use arbitration to resolve my dispute, both U-Haul and
I agree to . . . forego any right to bring claims as a representative or as a member of a
class or in a private attorney general capacity. . . .” A separate provision stated that the
agreement was “governed by the Federal Arbitration Act [FAA], 9 U.S.C. et seq.”
       In 2012, plaintiffs each filed a class action complaint against U-Haul for
various Labor Code violations including (among other things) unpaid overtime (Labor
Code, §§ 510, 1194 and 11981), failure to provide meal breaks (§226.7), failure to pay
minimum wages (§§ 1194, 1194.2, 1197, 1197.1), failure to pay wages in a timely
manner (§ 204) and failure to provide accurate wage statements (§ 226, subd. (a).)

1      Unless otherwise noted, all further statutory citations are to the Labor Code.

                                              2
Veliz’s complaint additionally alleged a representative PAGA action seeking to collect
penalties “on behalf of all other . . . [a]ggrieved [e]mployees.”
       The trial court granted a petition to coordinate the actions, and stayed the matter
pending the California Supreme Court’s decision in Iskanian v. CLS Transportation Los
Angeles, LLC (2014) 59 Cal. 4th 348 (Iskanian). After Iskanian was decided, the
plaintiffs each filed an amended complaint that alleged a single cause of action under
PAGA seeking to collect penalties on behalf of themselves and other “aggrieved
employees” for various Labor Code violations.

       B. U-Haul’s Motion to Compel Plaintiffs to Arbitrate Whether they Are
          “Aggrieved Employees” Within the Meaning of PAGA

       On September 22, 2014, U-Haul filed motions seeking to compel plaintiffs to
individually arbitrate the “predicate issue of whether” they had personally been subjected
to any Labor Code violation, and therefore had standing to assert a PAGA claim. As
stated in U-Haul’s motions: “Standing under PAGA requires that the plaintiff be an
‘aggrieved employee’ in order to bring a claim for statutory penalties on behalf of himself
and other employees. [Citation] The Labor Code defines ‘aggrieved employee’ as ‘any
person who was employed by the alleged violator and against whom one or more of the
allege violations was committed.’ [Citation] [¶] Whether plaintiff is an ‘aggrieved
employee’ will require a determination of whether U-Haul committed Labor Code
violations against him, specifically, whether U-Haul was allegedly in violation of
California Labor Codes.” U-Haul further asserted that the “representative portion” of the
PAGA claims, which included “the number, scope and identities of other ‘aggrieved
employees’ . . . . and the amount of representative penalties,” were “non-arbitrable” under
the employment agreement, and should be stayed pending the outcome of the arbitration.
       Plaintiffs opposed the motion, arguing that the California Supreme Court’s
decision in Iskanian made clear that “claims brought pursuant to PAGA are not arbitrable
in any manner whatsoever, as it is against public policy.” Plaintiffs further contended
that if every employee could be compelled to arbitrate “whether [he or she had] suffered

                                              3
the underlying Labor Code violations to establish that [he or she is an] aggrieved
employee,” Iskanian would be rendered “meaningless as . . . then this argument could be
applied to . . . require every [employee] to first arbitrate whether they are a true
‘aggrieved employee.’”
       In reply, U-Haul argued that Iskanian did “not hold that part of a PAGA claim
cannot be arbitrated or that the predicate issue of whether U-Haul committed Labor Code
violations against [plaintiff] cannot be arbitrated. Instead, Iskanian requires [only] that
‘aggrieved employees’ be allowed to bring representative PAGA actions.” U-haul further
contended that the employment agreement was governed by the FAA, which explicitly
“authorizes the severance of arbitrable issues from non-arbitrable issues.” U-Haul argued
that several federal decisions applying the FAA had held that when a single claim raises
“‘both arbitrable issues and nonarbitrable issues,’” the court must “sever[] the arbitrable
issues.” According to U-Haul, because plaintiffs’ status as “aggrieved employee[s]” was
an “arbitrable issue” under the employment agreement, the FAA required that the issue to
be severed from the remaining “representative” issues of the PAGA claim.
After a hearing, the court entered an order concluding there was no legal basis to compel
arbitration “of the predicate issue of whether U-Haul committed Labor Code violations
against Plaintiffs.” The court explained that Iskanian had “spoken on this issue and
determined that the FAA does not apply to PAGA . . . [¶] Contrary to defendant’s
arguments . . ., the Iskanian Court was unequivocal in finding that a PAGA claim is not
subject to the [FAA]. That is the dispute is, in fact, between the State and the employer.
Thus, the federal cases [regarding severance] cited by Defendant, which all rely on the
FAA, are distinguishable.” The trial court further explained that other California
decisions had held that PAGA claims can only be brought in a representative capacity,
and “not [as] an individual [claim]. . . . As such, there is no basis for individuals to
arbitrate whether they are individual ‘aggrieved employees’ before proceeding to [a trial
on the remainder of the PAGA claim]. [B]ecause the [plaintiffs’] PAGA claim is (1)
outside the FAA, and (2) not an individual claim, there is no basis to compel arbitration

                                               4
to first determine whether the representative plaintiffs are ‘aggrieved employees’ under
PAGA.”
                                      DISCUSSION
       A. Standard of Review and Summary of the Issue on Appeal
       An order denying a petition to compel arbitration is appealable. (Code Civ. Proc.,
§ 1294, subd. (a).) “In general, ‘[t]here is no uniform standard of review for evaluating an
order denying a [petition] to compel arbitration. [Citation.] If the court’s order is based
on a decision of fact, then we adopt a substantial evidence standard. [Citations.]
Alternatively, if the court’s denial rests solely on a decision of law, then a de novo
standard of review is employed. [Citations.]’ [Citation.]” (Laswell v. AG Seal Beach,
LLC (2010) 189 Cal. App. 4th 1399, 1406.)
       The parties do not dispute that: (1) the parties entered into a valid, enforceable
arbitration agreement that is governed by the FAA; (2) the agreement’s provision
precluding employees from asserting a representative PAGA claim is unenforceable as a
matter of California law (see Iskanian, supra, 59 Cal.4th at p. 384); and (3) the parties did
not contemplate arbitrating a representative PAGA action, meaning that the
representative claim must proceed in court. They disagree, however, whether the
agreement nonetheless requires plaintiffs to individually arbitrate whether they qualify as
“aggrieved employee[s],” and therefore have standing to bring a representative PAGA
action on behalf of “other current or former employees.” (See § 2699, subd. (a).)2 For
the purposes of PAGA, an “aggrieved employee” is defined to “mean[] any person who
was employed by the alleged violator and against whom one or more of the alleged
[Labor Code] violations was committed.” (§ 2699, subd. (c).)

2      Section 2699, subdivision (a) states, in relevant part: “Notwithstanding any other
provision of law, any provision of this code that provides for a civil penalty to be
assessed and collected by the Labor and Workforce Development Agency . . . , for a
violation of this code, may, as an alternative, be recovered through a civil action brought
by an aggrieved employee on behalf of himself or herself and other current or former
employees pursuant to the procedures specified in Section 2699.3.”

                                              5
       Plaintiffs contend the analysis and reasoning in Iskanian makes clear that
employers are not permitted to compel employees to arbitrate any aspect of a PAGA
claim, including the question whether they qualify as aggrieved employees. U-Haul
disagrees, arguing that Iskanian merely held that PAGA waivers in arbitration
agreements are unenforceable as a matter of state law, and that the FAA does not preempt
this rule. U-Haul further contends that, in this case, it is not seeking to preclude plaintiffs
from pursuing a representative PAGA claim, but rather is seeking only to arbitrate the
plaintiffs’ individual standing to bring a PAGA claim. If the arbitrator determines the
plaintiffs are aggrieved employees within the meaning of PAGA, they may then proceed
with their representative action in the superior court.

       B. Summary of Iskanian v. CLS Transportation

       The issues in this appeal turn largely on the Supreme Court’s recent holding in
Iskanian, supra, 59 Cal. 4th 348. The plaintiff in Iskanian filed a class action against his
employer for unpaid overtime and various other Labor Code violations. The complaint
also alleged a representative claim under the PAGA seeking penalties on behalf of all
aggrieved employees. The employer moved to compel individual arbitration of each
claim, contending that plaintiff had signed an employment agreement that contained a
waiver of his right to pursue class or representative claims.
       While the motion was pending, the California Supreme Court issued Gentry v.
Superior Court (2007) 42 Cal. 4th 443, which held that “class action waivers in
employment arbitration agreements are invalid under certain circumstances.” (Iskanian,
supra, 59 Cal.4th at p. 361.) The employer subsequently withdrew its motion to compel
arbitration, and the parties proceeded to litigate the case. After the plaintiff had obtained
a class certification order, the United States Supreme Court issued AT & T Mobility LLC
v. Concepcion (2011) 563 U.S. 333 (Concepcion ), which invalidated a prior California
Supreme Court decision that “restricted consumer class action waivers in arbitration
agreements.” (Iskanian, supra, 59 Cal.4th at p. 361 [discussing Discover Bank v.
Superior Court (2005) 36 Cal. 4th 148].) The employer then renewed its motion to

                                               6
compel individual arbitration, arguing that Concepcion had invalidated Gentry’s state law
rule precluding the enforcement of class action waivers. The trial court granted the
motion, ordered the case into individual arbitration and dismissed the class and
representative claims. The Court of Appeal affirmed.
       The California Supreme Court agreed that the principles set forth in Concepcion
made clear that the FAA preempted Gentry’s state law rule precluding the enforcement of
class arbitration waivers in employment agreements. (Iskanian, supra, 59 Cal.4th at
p. 362.) The Court explained that Concepcion had two central holdings: (1) the FAA
preempts state rules that are incompatible with the fundamental attributes of arbitration;
and (2) classwide arbitration interferes with numerous attributes of arbitration, including
its expediency and informality. The Court concluded that in light of these holdings, the
“Gentry rule” was no longer valid. (Iskanian, supra, 59 Cal.4th at p. 366.)
       The Court next considered whether state law prohibited the enforcement of
representative PAGA claim waivers in employment agreements, and, if so, whether the
FAA preempted application of such a prohibition. (Iskanian, supra, 59 Cal.4th at
pp. 361.) The court began its analysis by summarizing the purpose and structure of
PAGA: “The Legislature declared that adequate financing of labor law enforcement was
necessary to achieve maximum compliance with state labor laws, that staffing levels for
labor law enforcement agencies had declined and were unlikely to keep pace with the
future growth of the labor market, and that it was therefore in the public interest to allow
aggrieved employees, acting as private attorneys general, to recover civil penalties for
Labor Code violations, with the understanding that labor law enforcement agencies were
to retain primacy over private enforcement efforts.’ [Citation.]” (Id. at p. 379.) To
achieve those goals, PAGA authorizes “an ‘aggrieved employee’ [to] bring a civil action
personally and on behalf of other current or former employees to recover civil penalties
for Labor Code violations. [Citation.] Of the civil penalties recovered, 75 percent goes
to the Labor and Workforce Development Agency, leaving the remaining 25 percent for
the “aggrieved employees.” [Citations.] [¶] Before bringing a civil action for statutory
penalties, an employee must . . . give written notice of the alleged Labor Code violation

                                              7
to both the employer and the Labor and Workforce Development Agency. . . . If the
agency does not intend to investigate . . . , the employee may commence a civil action.
[Citation.]’ [Citation.]” (Id. at p. 380.)
       The Court explained that the purpose and structure of the PAGA statute
demonstrated that “‘[a]n employee plaintiff suing . . . under the [statute] does so as the
proxy or agent of the state’s labor law enforcement agencies . . . . In a lawsuit brought
under the act, the employee plaintiff represents the same legal right and interest as state
labor law enforcement agencies—namely, recovery of civil penalties that otherwise
would have been assessed and collected by the Labor Workforce Development Agency.
[Citations.] . . . . [¶] . . . . [Thus, a]n action to recover civil penalties ‘is fundamentally a
law enforcement action designed to protect the public and not to benefit private parties’
[Citation.] . . . .[¶] . . . [¶] . . . . The government entity on whose behalf the plaintiff files
suit is always the real party in interest in the suit.” (Iskanian, supra, 59 Cal.4th at
pp. 380-382)
       The Court concluded that in light of these “legal characteristics” (Iskanian, supra,
59 Cal.4th at p. 380), “an employee’s right to bring a PAGA action is unwaivable.”
Hence, an employer cannot compel an employee to waive his right to bring a
representative PAGA claim through an agreement. The Court reasoned that because “the
Legislature’s purpose in enacting the PAGA was to augment the limited enforcement
capability of the Labor and Workforce Development Agency by empowering employees
to enforce the Labor Code as representatives of the Agency,” a PAGA waiver “serve[d]
to disable one of the primary mechanisms for enforcing the Labor Code. . . . [¶]. . . . The
PAGA was clearly established for a public reason, and agreements requiring the waiver
of PAGA rights would harm the state’s interests in enforcing the Labor Code and in
receiving the proceeds of civil penalties used to deter violations.” (Id. at p. 383.)
       The Court further explained that the representative waiver at issue was against
public policy even though the plaintiff retained his right to arbitrate a single-claimant
PAGA claim on behalf of himself and the state: “[A] prohibition of representative
claims frustrates the PAGA’s objectives . . . [because] a single-claimant arbitration . . .

                                                 8
for individual penalties will not result in the penalties contemplated under the PAGA to
punish and deter employer practices that violate the rights of numerous employees under
the Labor Code. That plaintiff and other employees might be able to bring individual
claims for Labor Code violations in separate arbitrations does not serve the purpose of the
PAGA, even if an individual claim has collateral estoppel effects. [Citation.] Other
employees would still have to assert their claims in individual proceedings.’ [Citation.]”
(Iskanian, supra, 59 Cal.4th at pp. 383-384.)
       Finally, the Court considered whether the FAA preempted this rule of California
law, concluding that it did not: “Concepcion made clear [that] a state law rule may be
preempted when it ‘stands as an obstacle to the accomplishment of the FAA’s
objectives.’ [Citation.] . . . [T]he rule against PAGA waivers does not frustrate the
FAA’s objectives because . . . the FAA aims to ensure an efficient forum for the
resolution of private disputes, whereas a PAGA action is a dispute between an employer
and the state Agency. [¶] . . . [¶] Simply put, a PAGA claim lies outside the FAA’s
coverage because it is not a dispute between an employer and an employee arising out of
their contractual relationship. It is a dispute between an employer and the state, which
alleges directly or through its agents—either the Labor and Workforce Development
Agency or aggrieved employees—that the employer has violated the Labor Code. . . .”
(Id. at pp. 384-387.)

       C. The Trial Court Correctly Concluded Plaintiffs Are Not Required to
          Individually Arbitrate Whether they Qualify as “Aggrieved Employees”

       Like the arbitration agreement at issue in Iskanian, U-Haul’s employment
agreement contains language stating that: (1) the employee must arbitrate “any and all
claims and disputes . . . that are in any way related to [his or her] employment”; and (2)
both parties “shall forego any right to bring claims as a representative or as a member of
a class or in a private attorney general capacity.” U-Haul concedes that under Iskanian,
the PAGA waiver is not enforceable, and that plaintiffs are therefore permitted to proceed
with their PAGA action in court.

                                             9
       U-Haul contends, however, that the plaintiffs may nonetheless be compelled to
individually arbitrate the “predicate issue of whether” they are “aggrieved employee[s]
within the meaning of PAGA, and thus have standing to bring . . . representative
claim[s].” According to U-Haul, if the arbitrator determines it did “commit[] Labor Code
violations against [plaintiffs]” (thereby establishing standing), plaintiffs may then pursue
their “representative PAGA claim [in court], e.g., . . . the number, scope and identities of
other ‘aggrieved employees’ that [plaintiffs] will represent, and the amount of
representative penalties.” Stated more simply, U-Haul argues that although “neither
[party] agreed to arbitrate representative issues, and neither may be compelled to
participate in a representative arbitration,” plaintiffs may be compelled to individually
arbitrate whether they have standing to bring such a representative claim.

           1. Whether plaintiffs have standing to pursue a PAGA claim is not an issue
              that falls within the scope of the arbitration agreement

       Preliminarily, we address whether the particular issue U-Haul seeks to
arbitrate―plaintiffs’ status as “aggrieved employees” with standing to bring a PAGA
claim―actually falls within the scope of the parties’ employment agreement. “The scope
of arbitration is a matter of agreement between the parties. [Citations.] A party can be
compelled to arbitrate only those issues it has agreed to arbitrate. [Citations.]” (Larkin v.
Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal. App. 4th 227, 230
(Larkin); see also Hayes Children Leasing Co. v. NCR Corp. (1995) 37 Cal. App. 4th 775,
787 (Hayes) [“[plaintiff], of course, can be compelled to arbitrate only such issues as it in
fact agreed to arbitrate”].) “Any ambiguity in the scope of the arbitration, however, will
be resolved in favor of arbitration.” (Hayes, supra, 37 Cal.App.4th at p. 788; see also
Larkin, supra, 76 Cal.App.4th at p. 230 [“doubts as to the scope of an agreement to
arbitrate are to be resolved in favor of arbitration”].)
       In support of its assertion that plaintiffs agreed to arbitrate whether they had
standing to bring a PAGA claim, U-Haul relies on a broadly-worded clause stating that
the parties would arbitrate “any and all claims and disputes . . . in any way related to

                                              10
[plaintiffs’] employment.” U-Haul contends that because plaintiffs’ standing to bring a
PAGA claim involves issues related to their employment, the arbitration provision
necessarily applies. The agreement, however, contains an additional clause stating
that the parties would not seek arbitration (or litigation) of any “claims as a representative
. . . or in a private attorney general capacity.” U-Haul acknowledges that this language
demonstrates neither party agreed (nor could be compelled) to arbitrate representative
claims. Iskanian, in turn, held that every PAGA action, including one brought on behalf
of a single employee, is a representative claim. (Iskanian, supra, 59 Cal.4th at p. 387
[“every PAGA action, whether seeking penalties for Labor Code violations as to only one
aggrieved employee—the plaintiff bringing the action—or as to other employees as well,
is a representative action on behalf of the state”] [emphasis in original].) Given that the
parties did not agree to arbitrate representative claims, and that a PAGA action is by
definition a form of representative claim, we conclude that PAGA claims are
categorically excluded from the arbitration agreement. Moreover, the agreement contains
no language suggesting that despite this exclusion of representative claims, the parties did
agree to arbitrate whether the complaining party had standing to initiate a representative
claim in court. We fail to see how an agreement that excludes representative claims can
nonetheless be reasonably interpreted to require plaintiffs to arbitrate their standing to
bring a representative claim.

          2. Even if the agreement does require plaintiffs to arbitrate whether they have
             standing to bring a PAGA claim, the provision is unenforceable under
             California law

       Even if we were to accept U-Haul’s interpretation of the employment agreement,
we are not aware of any authority supporting its argument that an employer may legally
compel an employee to arbitrate the individual aspects of his or her PAGA claim, while
simultaneously preserving its own right to litigate the representative aspects of the claim
in court. The only decision that has addressed the issue, Williams v. Superior Court
(2015) 237 Cal. App. 4th 642 (Williams), held that an employer could not force employees
to proceed in such a manner. As in this case, the plaintiff in Williams signed an

                                             11
arbitration agreement that contained a waiver of his right to assert a representative claim.
The plaintiff subsequently a filed “a single-count [PAGA] action” alleging that his
employer had “failed to provide off-duty rest periods, as required by section 226.7.”
(Id. at pp. 644-645.) The employer “moved . . . for an order staying the PAGA claim, but
sending the ‘individual claim’ that [plaintiff] had been subjected to Labor Code violations
to arbitration.” (Id. at p. 645.) The trial court granted the motion, explaining that while
Iskanian precluded the employer from “forc[ing] [plaintiff] to waive or arbitrate his
PAGA claim[,] . . . the ‘threshold dispute between plaintiff . . . and his former employer
as to whether or not he was denied off-duty rest periods’ [was] . . . ‘amenable to
arbitration under Iskanian.’” (Id. at p. 646.)
       The appellate court reversed, concluding there was no basis for the trial court’s
“determin[ation] that [the plaintiff] must submit the ‘underlying controversy’ to
arbitration for a determination whether he is an ‘aggrieved employee’ under the Labor
Code with standing to bring a representative PAGA claim. [Citation.]” (Williams, supra,
237 Cal.App.4th at p. 647.) The court noted that neither the employer nor the trial court
had “cited [any] legal authority . . . that a single representative action may be split in such
a manner. . . . Indeed, case law suggests that a single representative PAGA claim cannot
be split into an arbitrable individual claim and a nonarbitrable representative claim
brought solely on the employee’s behalf [because every] . . . . PAGA claim [is
brought] . . . ‘as the proxy or agent of the state’s labor law enforcement agencies.”
[Citation.]’ Accordingly, petitioner cannot be compelled to submit any portion of his
representative PAGA claim to arbitration, including whether he was an ‘aggrieved
employee.’ [Citation.]” (Id. at p. 649 [emphasis in original].)
       We agree with Williams’s conclusion that California law prohibits the enforcement
of an employment agreement provision that requires an employee to individually arbitrate
whether he or she qualifies as an “aggrieved employee” under PAGA, and then (if
successful) to litigate the remainder of the “representative action in the superior court.”
In Iskanian, the Supreme Court explained that “every PAGA action, whether seeking
penalties for Labor Code violations as to only one aggrieved employee―the plaintiff

                                              12
bringing the action—or as to other employees as well, is a representative action on
behalf of the state.” (Iskanian, supra, 59 Cal.4th at p. 387.) The Court also held that
requiring an employee to bring a PAGA claim in his or her “individual” capacity, rather
than in a “representative” capacity, would undermine the purposes of the statute. (Id. at
pp. 383-384.) Given these conclusions, we do not believe an employer may force an
employee to split a PAGA claim into “individual” and “representative” components, with
each being litigated in a different forum.
       Moreover, the reasoning of Iskanian indicates that an employer is not permitted to
impose arbitration provisions that impede an aggrieved employee’s ability to bring a
PAGA claim, which is “‘fundamentally a law enforcement action designed to protect the
public. . . . ’ [Citation].” (See Iskanian, supra, 59 Cal.4th at pp. 381, 383-384 [because
PAGA was “established for a public reason,” it “cannot be contravened by a private
agreement”; an employer may not impose arbitration terms that would “frustrate PAGA’s
objectives”].) Under “Iskanian’s . . . public policy rationale,” an arbitration provision is
unenforceable if it “circumvents [PAGA’s] intent to empower employees to enforce the
Labor Code as agency representatives and harms the state’s interest in enforcing the
Labor Code.” (Securitas Security Services USA, Inc. v. Superior Court (2015) 234
Cal. App. 4th 1109, 184.) In this cause, U-Haul is, in effect, attempting to impose its
preferred forum for different aspects of the PAGA claim by requiring plaintiffs to
individually arbitrate whether a Labor Code violation was committed against them, while
simultaneously preserving its right to a judicial forum for the “representative” issues.3

3       In Concepcion, supra, 566 U.S. 333, which involved the validity of consumer
class action waivers, the United States Supreme Court observed that while defendants
generally favor arbitration for “individual disputes,” they are unwilling to participate in
arbitration on a classwide basis: “[A]lthough [t]he absence of multilayered review [in
arbitration] makes it more likely that errors will go uncorrected[,] [d]efendants are
willing to accept the costs of these errors in [individual] arbitration, since their impact is
limited to the size of individual disputes, and presumably outweighed by savings from
avoiding the courts. But when damages allegedly owed to tens of thousands of potential
claimants are aggregated and decided at once, the risk of an error will often become
unacceptable. Faced with even a small chance of a devastating loss, defendants will be

                                              13
We think it clear that a private agreement requiring an employee to litigate his or her
PAGA claim in multiple forums that have been selected based solely on the employer’s
own preferences interferes with “the state’s interests in enforcing the Labor Code,” and is
therefore against public policy. (Iskanian, supra, 59 Cal.4th at p. 381.)
       For the purposes of this case, we need not determine whether PAGA claims are
categorically exempted from private arbitration agreements. We conclude only that
California law precludes an employer from requiring an employee to individually
arbitrate whether he or she qualifies as an “aggrieved employee” within the meaning of
PAGA, while simultaneously preserving its right to a judicial forum for all other aspects
of the claim.

          3. The FAA does not preempt state law rules applicable to PAGA claims
       In its appellate briefing, U-Haul repeatedly argues that: (1) the FAA requires that
all “[a]rbitrable issues within a claim . . . be compelled to arbitration”; and (2) because
the parties’ employment agreement is governed by the FAA, federal law requires
arbitration of the “predicate issue of whether U-Haul committee Labor Code violations
against [plaintiffs].” To the extent U-Haul is suggesting the FAA preempts any state law
rule that precludes an employer from forcing its employees to individually arbitrate their
status as an “aggrieved employee,” that argument is foreclosed by Iskanian, which held
that “a PAGA claim lies outside the FAA’s coverage.” (Iskanian, supra, 59 Cal.4th at
p. 386.) Because the FAA does not apply to “claims belonging to a government agency
[or] . . . claim[s] brought by a statutorily designated proxy for the agency” (id. at p. 388),
it has no effect on the issues presented herein.

pressured into settling questionable claims.” (Id. at p. 350.) U-Haul’s preference for
arbitration of the individual aspects of plaintiffs’ claim, but not the representative aspects,
appears to be motivated by similar interests and concerns.

                                              14
                                    DISPOSITION
      The trial court’s order denying the motion to compel arbitration is affirmed.
Respondents shall recover their costs on appeal.

                                                   ZELON, J. Acting P. J.

We concur:

      SEGAL, J.

      GARNETT, J.


        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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