PAGA Claim Can’t Be Bifurcated for Arbitration

Employment Law


A California appellate panel recently held that an employee was not required to arbitrate the question of whether he was an “aggrieved employee” before he could pursue his Private Attorneys General Act (PAGA) action against his employer.

Jonathan Provost filed a single-count complaint alleging that YourMechanic violated multiple sections of the Labor Code and applicable industrial wage orders, including failing to pay Provost and other similarly situated employees their wages in a timely manner, overtime and for all other hours worked.

The complaint also accused the company of willfully misclassifying employees as independent contractors and failing to provide all minimum wages, accurate itemized wage statements and required business expenses.

YourMechanic moved to compel arbitration. The employer pointed to an arbitration provision in an agreement signed by Provost and its other workers that provided for arbitration of “all disputes … arising out of or related to this Agreement and disputes arising out of or related to your relationship with the Company.”

The agreement further provided that all disputes relating to interpretation or application of the arbitration provision were to be “resolved only by an arbitrator through final and binding arbitration on an individual basis only and not by way of court or jury trial, or by way of class, collective or representative action.”

Based on the arbitration provision, the question of whether Provost was an “aggrieved employee” as required to establish standing in order to pursue a PAGA claim needed to be arbitrated before his lawsuit could move forward, YourMechanic argued.

The trial court disagreed, denying the motion, and the employer appealed.

It began its analysis with the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, where the state’s highest court established that the Federal Arbitration Act does not pre-empt the state law rule invalidating waivers in arbitration agreements of the right to bring representative PAGA actions.

Subsequent cases have held that an aggrieved employee’s predispute agreement to arbitrate PAGA claims is unenforceable absent a showing that the state also consented to the agreement, the court said, relying on Iskanian’s reasoning that a PAGA claim is a representative or qui tam-type action, and that the state is the real party in interest in the suit.

“Here, the state … did not agree to arbitrate any part of Provost’s PAGA action,” the panel wrote.

Also relying on Iskanian, “a long line of cases” holds that a plaintiff’s single-count PAGA action “cannot be split into an arbitrable ‘individual claim’ and a nonarbitrable representative claim,” the court added.

These decisions include a series of cases that have specifically addressed the question of whether a PAGA plaintiff is an “aggrieved employee” with standing to bring the action can be arbitrated.

Earlier this year, the state’s highest court weighed in on the issue in Kim v. Reins International California, Inc., citing these cases with approval to write that “[s]tanding for these PAGA-only cases cannot be dependent on the maintenance of an individual claim because individual relief has not been sought.”

Relying on this case law, the appellate panel affirmed denial of the motion to compel arbitration.

“We find YourMechanic’s contention unavailing,” the court wrote. The line of cases “consistently, and, in our view, properly held that threshold issues involving whether a plaintiff is an ‘aggrieved employee’ for purposes of a representative PAGA-only action cannot be split into individual arbitrable and representative nonarbitrable components. We conclude YourMechanic’s contention in this case in support of arbitration falls within the ambit of these cases.”

The Kim decision reinforced this conclusion, the court said.

“Although Kim … addressed a slightly different issue than the one pending before us, the court there cited with approval cases … which have rejected efforts to split a PAGA-only action into individual and representative components,” the court wrote, and “recognized there were certain penalty provisions in the Labor Code where no private right of action existed. It noted one such provision was section 226.8, at issue in the instant case. …

“It would defy logic to require Provost to arbitrate the issue of whether he was an independent contractor or employee for purposes of section 226.8, when he and others similarly situated to him are only able to obtain any relief under this statute in a nonarbitrable PAGA action. This contradiction highlights the flaw in YourMechanic’s formulation of standing in support of its motion. YourMechanic’s reasoning would also ‘harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations,’ particularly for violations in which there is no private right of action.”

The court also took the opportunity to reiterate that the Supreme Court’s decision in Epic Systems Corp. v. Lewis did not overrule Iskanian.

To read the opinion in Provost v. YourMechanic, Inc., click here.

Why it matters: The panel made quick work of the employer’s argument that the threshold question of whether the plaintiff was an “aggrieved employee” with standing to pursue a PAGA claim should be arbitrated pursuant to a signed agreement. Beginning with Iskanian and following a line of cases over the past six years, the court had no hesitation in denying the motion for a single-count representative PAGA claim.

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