PAGA Takes Down Another Arbitration Clause

Williams v. Superior Court, No. B261007 (D2d4 Jun. 9, 2015)

Plaintiff in this case filed a single count action over the Labor Code Private Attorney General Act, seeking damages for Labor Code violations in both an individual and representative capacity. Defendant moved to compel arbitration, arguing that plaintiff had contractually waived the right to bring PAGA claims, and that, in any event the Labor Code violations that were the factual predicates to his PAGA claims we subject to an arbitration clause in his employment agreement. The trial court held the claims were unwaivable, but agreed that the underlying violations, when applied to the plaintiff individually, could be severed out and sent to arbitration, with the rest of the case stayed until that gets resolved.

Plaintiff took a writ, arguing that the trial court’s order contradicted the Supreme Court’s recent Iskanian ruling, which holds that PAGA claims aren’t arbitrable because they are brought on behalf of the state, not any individual. The court first disposes of defendant’s argument that plaintiff waived the right to bring representative PAGA claims. According to the Defendant, the fact that plaintiff’s employment contract was setup so that he could opt out of the PAGA waiver with no adverse employment consequences did not save the waiver. A similar argument was recently rejected in Securitas Security Services USA, Inc. v. Superior Court, 234 Cal. App. 4th 1109 (2015). Defendant’s problem is that PAGA waivers aren’t invalid because they the product of unconscionable negotiations; they are invalid because they violate public policy and impinge on the interests of the State of California—interests that can’t be dealt away in a private contract, even a totally fair one. 

As to the splitting of the claim from the PAGA aspects of it, that was error. No doubt, it is true that (1) a PAGA claim involves proof of an underlying Labor Code violation, (2) that plaintiff could have brought that claim alleging such violations as a stand-alone claim under state employment law, and (3) that such claims are generally arbitrable because the non-arbitrability provisions of the Labor Code § 299 are usually preempted by § 2 of the Federal Arbitration Act. But that doesn’t change the fact that plaintiff brought only a PAGA claim in this case. As Iskanian explained, he brings that claim in a quasi-qui tam capacity as a proxy for the state, not himself. So the trial court had no authority to sever out the predicate Labor Code violation and send only that to arbitration, as apart from the non-arbitrable representative claim.

Writ granted.