Takeaway: California Law Precludes Employer From Requiring Employee To Individually Arbitrate “Aggrieved Employee” Status While Preserving Right To Judicial Forum For Other Aspects Of Claim.
Perez v. U-Haul Co. of California, B262029 (2/7 8/16/16) (Zelon, Segal, Garnett) shows the ingenuity of an employer who tried to escape the reach of Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) and avoid having to face employees’ representative claims brought under the Private Attorney General Act of 2004 (PAGA) – albeit, unsuccessfully.
PAGA authorizes an “aggrieved employee” to bring a civil action personally and in a representative capacity to recover civil penalties for Labor Code violations. As with a qui tam statute, PAGA allocates 75% of the recovery to go to a state agency, and the remaining amount to go to “aggrieved employees.” (My 2015 article in California Litigation, entitled “Can Private Attorney General Actions Be Forced Into Litigation?” can be read by clicking here.)
U-Haul argued that the employees, who had signed a broad arbitration clause, should first have to individually arbitrate whether they were “aggrieved employees” as a predicate for pursuing their PAGA claims – i.e., they should have to first arbitrate whether there were Labor Code violations.
Relying on Iskanian, the Court rejected the employer’s argument, because Iskanian underscores that the representative nature of PAGA claims cannot be destroyed by requiring individual arbitration, and that the PAGA representative claims are really brought on behalf of the state (which is not a party to the arbitration agreement).
COMMENT: Note that the Court limited its ruling by stating: “For the purposes of this case, we need not determine whether PAGA claims are categorically exempted from private arbitration agreements.” Though the Court does not explain this limitation, I understand it to mean that PAGA claims may be arbitrable, if they can be arbitrated in a representative capacity.
However, given a choice between arbitrating or litigating in Court, an employer could have reasons to choose the court option, because the risk of error in a representative proceeding, where the stakes can be very high, weighs in favor of “multilayered review” lacking in arbitration See footnote 3 of Perez, relying on dictum in AT & T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).