California Appellate Court Declines to Order Arbitration of PAGA Claims

An appellate panel affirmed the denial of an employer’s motion to compel arbitration where the parties did not agree to arbitrate individual Private Attorneys General Act (PAGA) claims, based on the intent of the parties at the time the agreement was made.

Robert LaCour was employed by Marshalls of California for several years as a loss specialist. In March 2014, he signed an arbitration agreement that included a waiver of class, collective and PAGA representative actions. The agreement included a severability clause which stated that if the PAGA waiver was held invalid, the PAGA claim should proceed in court.

After he was terminated by Marshalls, he brought suit on behalf of himself, other employees and former employees and the state, alleging a single cause of action for violation of PAGA.

The complaint pled alleged violations of the Labor Code and requested relief in the aggregate, and did not seek separate recovery of penalties attributable to Labor Code violations suffered by LaCour personally, as distinct from violations suffered by others similarly situated.

Invoking the U.S. Supreme Court’s decision in , Marshalls moved to compel arbitration. According to Marshalls, the rule in that invalidates wholesale waivers of PAGA claims in any forum is preempted by the Federal Arbitration Act to the extent such a waiver bars the agreed arbitration of the “individual component” of LaCour’s PAGA claim.

The trial court denied the motion, writing that “there is no such thing as an ‘individual PAGA claim.’”

Marshalls appealed. The appellate court affirmed, first reviewing the Viking River decision, section by section.

Importantly, the court pointed out, the opinion must be read in light of the separate writings in the case, and Justice Sonia Sotomayor’s concurrence – which supplied the fifth vote for the five-justice majority – laid down a caveat deferring to the California courts on the “remaining question” of what to do with “non-individual” PAGA claims when an arbitration agreement compels arbitration of an “individual” PAGA claim.

The answer came from the California Supreme Court in , where the court held that if PAGA’s “aggrieved employee” standard is met, then PAGA standing is not affected by the enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum.

Relying on the language of the arbitration agreement, the court explained that the “individual” and “non-individual” claim distinction in Viking River was “if not unknown to California law, dimly perceived at best” in January 2014 when the agreement was reached.

“It makes sense why no one at the time had the foresight to use such specific language, since, until after Viking River was decided, no California court had ever intimated there are two constituent pieces to a PAGA action – an individual piece and a non-individual piece,” the court wrote. “The parties would have had to be clairvoyant to anticipate that, eight years later, the high court would introduce new terminology into the PAGA lexicon as a matter of federal law.”

Certainly as of May 2022, when Viking River came down, and going forward, the division of claims makes sense, the court acknowledged. But “the fact that this is the case today tells us nothing about whether LaCour and Marshalls actually made such an agreement more than a decade ago. We agree with LaCour that they did not.”

To read the opinion in LaCour v. Marshalls of California, click .

Why it matters: The court’s answer to the intersection of PAGA and an arbitration agreement was different than the usual look to public policy or statutory intent. Instead, the court focused on the language of the agreement itself and the state of the caselaw at the time of signing to determine that the parties could not have intended to divide individual and non-individual PAGA claims at the time they agreed.  The case is a reminder to employers to continuously review their arbitration agreements and update them to keep pace with the ever-changing landscape of California arbitration law.