Despite Arbitration Loss, PAGA Claims Can Move Forward in Court

An employee whose claims were bifurcated and lost in arbitration can continue with her Private Attorneys General Act (PAGA) claims despite the employer’s argument that she was not an aggrieved employee, a California appellate panel held.

Eleni Gavriiloglou filed suit against her former employer, Prime Healthcare Management, alleging individual claims based on Labor Code violations (including failure to pay overtime, waiting time penalties and discrimination, among other claims) as well as individual and representative claims for civil penalties under PAGA.

Because Gavriiloglou had signed an arbitration agreement as a condition of her employment, Prime Health filed a motion to compel arbitration of all her non-PAGA claims and to stay the litigation of Gavriiloglou’s PAGA claim. The trial court granted the motion.

At the conclusion of the arbitration hearing, the arbitrator issued a final award in favor of Prime Health, in which the arbitrator found that the alleged Labor Code violations did not occur.

Gavriiloglou filed a motion to vacate the arbitration award, which was denied. Prime Health then filed a motion for judgment on the pleadings on the PAGA claim. It argued that the arbitrator’s ruling against Gavriiloglou established, as a matter of issue preclusion, that she was not an “aggrieved employee” and therefore lacked standing to bring a PAGA claim.

The trial court granted the motion. Gavriiloglou appealed and a panel of the Fourth District Court of Appeal reversed. Prime Health filed a petition for review with the California Supreme Court, but it was denied.

Prime Health then filed a renewed motion for judgment on the pleadings, contending that two appellate court decisions from the Second District Court of Appeal had been issued that disagreed with the prior appellate court decision, and that confirmed the appellate court decision was incorrect.

The trial court denied the motion and the appellate panel affirmed on Prime Health’s petition for writ of mandate.

A PAGA plaintiff may not be compelled to arbitrate whether he or she is an aggrieved employee, the court said, and the findings made by the arbitrator against Gavriiloglou on most of the Labor Code violations were grounded on the arbitrator’s determination that Gavriiloglou was not an exempt employee, as there was no finding on the question of whether Gavriiloglou was an aggrieved employee.

“Gavriiloglou was entitled to have all the PAGA claims resolved judicially, including the ‘gateway’ issue of whether Gavriiloglou qualifies as an aggrieved employee under the PAGA statute,” the court wrote. “The rationale for this approach still holds for any case in which the employee has not agreed to arbitrate any aspect of his or her potential PAGA claims.”

Every PAGA claim is a dispute between an employer and the state, the court added. While the individual PAGA claim may be arbitrated, the issue of whether it is subject to arbitration must be determined by the trial court, which must review the complaint to determine if arbitrable individual claims are alleged.

“In other words, the determination of whether individual claims are subject to arbitration requires a judicial determination, and is not subject to a determination by the arbitrator,” the court said. “Here, not even the individual PAGA claims were subject to arbitration under the arbitration agreement, and the arbitrator’s award does not address any issue, including any gateway issue, relating to the PAGA claims.”

Where the arbitrator was not tasked with deciding whether the employee was aggrieved or not, and made no express finding on that issue, the arbitrator’s findings are not binding on the judicial determination of the PAGA claims.

“This is because the employee in the PAGA claims, both individual and nonindividual, was acting in a representative capacity on behalf of the state agency,” the court said. “To permit the arbitration of elements or components of the nonindividual PAGA claim, would result in the loss of one of its weapons in the enforcement of California’s labor laws.”

Individual PAGA claims may be subject to arbitration, but the arbitration of those claims does not strip a plaintiff of standing as an aggrieved employee to litigate non-individual claims on behalf of other employees under PAGA.

As for issue preclusion on the arbitrator’s decision preventing Gavriiloglou from continuing with her PAGA claim, the court said the state and the Labor Department did not consent to arbitration, so they were not in privity with her respecting her individual Labor Code claims, and no part of the nonindividual PAGA claims could be deemed in privity with Gavriiloglou respecting the individual Labor Code violations.

The court rejected Prime Health’s position that two intermediate appellate decisions from the Second District Court of Appeal that disagreed with its earlier opinion controlled the outcome. Those cases were not controlling authorities as they were lateral or horizontal authorities that simply disagreed, reflecting a potential split of authority—not a court exercising jurisdiction superior to its own.

Nor did the Adolph decision change the outcome, the court said, as the prior Gavriiloglou opinion wasn’t even mentioned in Adolph. The California Supreme Court was aware of the Gavriiloglou decision and denied review, so it was aware of the case and did not take the opportunity to express any disagreement with it.

The court denied Prime Health’s petition for writ of mandate, allowing Gavriiloglou to recover costs.

To read the opinion in Prime Healthcare Management, Inc. v. The Superior Court of San Bernardino County, click .

Why it matters: In the continuing saga of the intersection of arbitration and PAGA actions, the court found that the arbitrator’s decision in favor of the employer on the Labor Code claims did not foreclose litigation of the bifurcated PAGA claims, both individual and nonindividual.