Arbitration Decision Precludes PAGA Claims, California Appellate Court Holds

A decision from an arbitrator precluded an employee from pursuing his Private Attorneys General Act (PAGA) claims in court, a California appellate court has ruled.

Alexander Sorokunov was employed by NetApp from 2016 to 2019. His compensation consisted of an annual salary and commissions governed by a compensation plan.

The plan included a “windfall provision” under which NetApp reserved the right to limit an employee’s commissions to avoid a windfall. A windfall occurred if an employee’s goal for a particular territory was exceeded by more than 200 percent.

Sorokunov and about 300 other salespeople earned commissions for sales in excess of 200 percent of the goals NetApp set for them in fiscal year 2019. The employer invoked the windfall provision, and Sorokunov’s last check was $31,402.42 less as a result.

He resigned and sued NetApp, alleging various violations of the Labor Code as well as civil penalties and wages pursuant to PAGA. The trial court granted NetApp’s petition to compel arbitration of Sorokunov’s individual claims, and the arbitrator entered an award in NetApp’s favor on each of the claims.

Specifically, the arbitrator found that NetApp had not violated Labor Code sections 221, 223 or 2751.

The trial court then confirmed the arbitration award and granted NetApp’s motion for judgment on the pleadings on Sorokunov’s PAGA claims.

Sorokunov appealed, but the appellate panel affirmed.

The court had little difficulty finding that the trial court properly granted NetApp’s motion to compel arbitration over Sorokunov’s contention that the arbitration agreement was illusory because NetApp had the power to unilaterally amend, suspend or terminate the provision.

Modification was only permitted in the agreement if it was “consistent with and to the extent permitted by applicable law” and expressly excluded application to any modifications to file claims, the court said.

The court also affirmed the trial court’s denial of summary adjudication for Sorokunov, rejecting his argument that NetApp was required by the Labor Code to set forth a non-discretionary mathematical method by which commissions would be computed in its compensation plan.

But Section 2751 protects employees by mandating “a written contract explaining the commission structure at the time of employment,” the court explained, a standard that NetApp’s plan met.

Further, the court affirmed the trial court’s confirmation of the arbitration award.

“Sorokunov does not develop a meaningful argument that the arbitrator clearly erred in finding no violation of these provisions,” the court wrote. “We disagree that NetApp’s invocation of the provision caused it to collect or receive wages from Sorokunov in violation of [the Labor Code]. Accordingly, we find no basis to reverse the trial court’s confirmation of the arbitration award.”

Finally, the court affirmed judgment on the pleadings for NetApp, applying the general principles of issue preclusion that, because the individual Labor Code violations alleged by Sorokunov had not occurred, he was not an aggrieved employee with standing to prosecute a PAGA claim based on the same alleged Labor Code violations.

“Here, the trial court found that Sorokunov, as the plaintiff in both the arbitration and the trial court proceedings, had a full and fair opportunity to litigate his individual Labor Code claims,” the court said, disagreeing with Sorokunov that his standing to prosecute a PAGA claim was an issue separate from the merits of the PAGA claim.

“Whether Sorokunov is an ‘aggrieved employee’ for the purposes of PAGA standing is based on his ability to allege that he suffered a Labor Code violation,” the court wrote. “[T]o the extent his PAGA standing is dependent on his having suffered the same Labor Code violations that have been adjudicated in arbitration, his standing and the underlying violations are considered identical issues.”

The arbitrator determined both as a matter of fact and law that Sorokunov had not suffered any of the alleged Labor Code violations. As the court agreed, it affirmed the trial court’s ruling.

To read the opinion in Sorokunov v. NetApp, Inc., click .

Why it matters: The California Court of Appeals affirmed every aspect of the trial court’s ruling, from the grant of the employer’s motion to compel arbitration, the confirmation of the arbitrator’s award in favor of the employer, the denial of Sorokunov’s motion for summary adjudication and the grant of NetApp’s motion for judgment on the pleadings on the PAGA cause of action on the ground that Sorokunov’s lack of standing as an aggrieved employee was conclusively determined by the arbitration award.