Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

California Court of Appeal opens major hole in rule of PAGA non-arbitrability: post-dispute arbitration agreements

For employers who are looking for yet another way to (1) keep their employees from accessing the courts and to have their disputes instead adjudicated by privately paid arbitrators and (2) have employees waive their right to participate in class and representative actions, the Labor Code Private Attorneys General Act of 2004 (PAGA), Labor Code section 2698 et seq., has often caused them a problem in cases alleging violations of the Labor Code (e..g, unpaid overtime, meal- and rest-period violations, etc.). Well, employers, you just got your roadmap, at least for getting the matter into arbitration: post-dispute arbitration agreements.

Until last week, the rule seemed clear: PAGA claims are neither arbitrable nor waivable. The principle guidance on this issue comes from the California Supreme Court's opinion in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), where the nature of a PAGA claim was settled.  PAGA claims, the Iskanian court told us, are "a type of qui tam action" where the real party in interest is not the aggrieved employee, but the State of California, and PAGA claims serve to augment the state's enforcement capability. 59 Cal. 4th at 382-83. "Thus, agreement by an agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code. Because such an agreement has as its 'object, ... indirectly, to exempt [the employer] from responsibility for [its] own ... violation of law,' it is against public policy and may not be enforced." Id. at 383, quoting Civil Code § 1668. This pronouncement was echoed in Tanguilig v. Bloomingdale's, Inc., 5 Cal. App. 5th 665, 677 (2016), review denied (Mar. 1, 2017), cert. denied (Oct. 16, 2017) ("[A] PAGA plaintiff's request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer. This is because the real party in interest in a PAGA suit, the state, has not agreed to arbitrate the claim."), and Betancourt v. Prudential Overall Supply, 9 Cal. App. 5th 439, 447 (Mar. 7, 2017), review denied (May 24, 2017) ("The fact that Betancourt, in 2006, agreed to arbitrate his private employment disputes with Prudential is not relevant. Betancourt's lawsuit is a PAGA claim, on behalf of the state. The state is not bound by Betancourt's predispute arbitration agreement.").

But if you had a keen eye, you saw the avenue for attack. Where? The arbitration agreements in Iskanian, Tanguilig, and Betancourt were all pre-dispute waivers. 

So what about post-dispute waivers? Until last week, we didn't know.  But, employers, the Court of Appeal has now shown you the way.   

In Julian v. Glenair, Inc., __ Cal. Rptr. 3d __, 2017 WL 5664588 (Cal. Ct. App. 2d Dist. Nov. 27, 2017), slip opinion linked here, the Second District Court of Appeal provides language that a post-dispute arbitration agreement can be enforced even against PAGA claims if knowingly and voluntarily entered into by the named PAGA plaintiff after the PAGA exhaustion period has expired.

In Julian, a putative class action was filed in the Los Angeles County Superior Court (the Rojas action) alleging violations of the Labor Code, among other things, and included an enforcement action for civil penalties under the Labor Code Private Attorneys General Act of 2004, Labor Code section 2698 et seq. (commonly known as "PAGA"). Slip op. at 2-3.

A few months later, the employer served its hourly employees with an arbitration "agreement" that said that it would apply unless the employees affirmatively opted out. Id. at 3. The arbitration agreement stated that the employee's "decision to participate in the [program] is completely voluntary. You may opt[]out of the [program] within 30 calendar days of receipt. Your decision to participate or not participate in the program will have no effect on your [employment] . . . " Id. 3. Otherwise, arbitration would be the sole means of resolving any disputes, the employee "will not be able to participate in any class or collective action," and the employee "will not be able to participate in any representative action that seeks to resolve whether individuals other than you have been subject to violations of the law . . . ." Id. at 3-4. And "[t]he proposed agreement contained a description of the claims then asserted in the Rojas action, including the PAGA claim." Id. at 4. In other words, this was intended to be a post-dispute arbitration agreement containing a class-, collective-, and representative-action waiver, scooping up employees by requiring affirmative opt-outs. 

Skipping an odd procedural history that you can read in the slip opinion, essentially what happened is this: more than thirty days after the proposed arbitration agreement was delivered, the Julian plaintiffs filed a separate civil action alleging only a PAGA claim. The employer responded by petitioning to compel arbitration, but the petition was denied by the trial court. Id. at 6-7. Citing Iskanian yet recognizing that this was a post-dispute waiver, the trial denied the petition, ruling that while a post-dispute PAGA waiver might be allowed, an employee should be represented by counsel before a post-dispute PAGA waiver could be enforceable. See idat 7.

The Court of Appeal affirmed the denial, but on different grounds. The Julian court first distinguished Iskanian by noting that there the issue was not only an arbitration requirement but also a pre-dispute waiver of any right to bring a representative action in any forum, while here the employer only petitioned to send the whole matter into arbitration and did not seek to have the court enforce the representative-action waiver. See idat 19. (Note: presumably, once in arbitration the employer would move to enforce the representative-action waiver.) The Julian court held that although pre-dispute PAGA waivers are unenforceable for the reasons discussed in Iskanian, Tanguilig, and Betancourt, post-dispute waivers are different altogether. The distinction is this: although an employee is generally not authorized to bind the state in a pre-dispute PAGA waiver, the employee's capacity changes after the employee files a PAGA notice with the Labor and Workforce Development Agency and the prerequisite waiting period expires without the LWDA taking action. At that point, the employee has become deputized by the state to bring and to control a PAGA claim, including whether to agree to adjudicate it in arbitration. Id. at 20-21, 24-26.

Okay, so then why did the Julian court affirm? Because at the time the Julian plaintiffs were given the arbitration agreement (or at the time it became effective (by its terms, thirty days after receipt)), they had not yet been deputized by the LWDA to file their own PAGA action. In other words, the arbitration agreement at issue in Julian was actually a pre-dispute agreement with respect to the plaintiffs' own PAGA action. Remember, the Julian plaintiffs later submitted their own LWDA complaint and filed their own PAGA action. The Julian court rejected the employer's argument that once the Rojas plaintiff became authorized to assert a PAGA claim, then all other employees were barred from initiating their own PAGA actions. See id. at 26. Since "PAGA does not foreclose separate but similar actions by different employees against the same employer," PAGA permits the state to designate more than one employee to act as its agent in PAGA actions. Id. at 25-26. (One would think the analysis would become different if the Rojas matter actually ended in a PAGA judgment, which would then likely be binding on the represented aggrieved employees.  See id. at 14 ("[U]nder the doctrine of collateral estoppel, a judgment unfavorable to the employee binds the government, as well as all aggrieved nonparty employees potentially entitled to assert a PAGA action." ) (citation omitted). But according to the Julian court the Rojas matter ultimately left any PAGA claim out of its latest amended pleading, so there was no such issue. See id. at 4-5.)


So there you have it---this is language that employers can use to enforce post-dispute PAGA waivers. The only limitation under Julian is that the waiver must be entered into with the specific PAGA representative/plaintiff after that PAGA plaintiff has become deputized by the state.  

Interestingly, the employer in Julian didn't argue for enforcement of its representative-action waiver, instead strategically arguing only to get the matter into arbitration. So we don't have a holding on the issue of enforceability of a post-dispute PAGA representative-action waiver. 

Short take on Lawson v. ZB, N.A.: Fourth District Court of Appeal departs from Esparza, holding that unpaid wages under Labor Code section 558 are recoverable as civil penalties under the PAGA

California Court of Appeal reaffirms key principle: evidence of pretext is not required to defeat summary-judgment motions in employment cases