Esparza v. KS Industries
F072597
| Cal. Ct. App. | Aug 2, 2017Background
- Esparza (Employee) sued KS Industries (Employer) in a single PAGA representative action alleging violations of multiple Labor Code provisions (unpaid wages, missed meal/rest breaks, wage statements, reimbursement, etc.).
- Employee had signed an online employment application containing a broad arbitration agreement covering disputes arising from employment.
- Employee’s operative amended complaint sought “unpaid wages, civil penalties, interest, attorneys’ fees and costs” under PAGA and specifically invoked recovery under Lab. Code § 558.
- KS moved to compel arbitration, arguing unpaid-wage and other victim-specific claims are arbitrable under the Federal Arbitration Act (FAA) and cannot be converted into nonarbitrable PAGA claims merely by labeling them “civil penalties.”
- The trial court denied the motion to compel and struck the term “statutory penalties” from the complaint; KS appealed. The Court of Appeal affirmed in part and remanded for the plaintiff to state whether he will pursue individualized wage claims (which are arbitrable) or only PAGA civil-penalty claims (nonarbitrable under Iskanian).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PAGA claims generally are outside the FAA | Esparza: PAGA civil penalties (including wages under § 558) are nonarbitrable; PAGA suit is a public-enforcement action outside FAA reach | KS: FAA covers private, victim-specific claims (like unpaid wages); state rule cannot render arbitrable claims nonarbitrable by relabeling them as PAGA civil penalties | PAGA representative claims that seek true "civil penalties" (funds allocated to LWDA) are nonarbitrable; victim-specific wage claims are covered by FAA and must be arbitrated |
| Whether unpaid wages under Lab. Code § 558 are "civil penalties" for Iskanian nonarbitrability | Esparza: § 558 expressly labels an amount to recover underpaid wages as part of a civil penalty recoverable under PAGA | KS: Substance matters — wages recovered under § 558 are victim-specific relief payable to employees, thus private and arbitrable | Held that § 558 unpaid-wage amounts are victim-specific and arbitrable; Iskanian’s "civil penalties" are limited to penalties allocated (75%) to the LWDA |
| Whether the arbitration agreement must be enforced while the PAGA representative claims for civil penalties proceed | Esparza: His complaint purportedly seeks only PAGA civil penalties (nonarbitrable), so arbitration is not required | KS: If plaintiff pursues any individualized relief (wages/statutory penalties), those claims must be severed and sent to arbitration and litigation stayed as appropriate | Court directed remand: plaintiff must clearly state whether he will pursue individualized (arbitrable) claims; if so, those claims must be compelled to arbitration; if he waives them and proceeds only on representative civil penalties, litigation may continue |
| Whether state-law rule (Iskanian) is preempted by the FAA to the extent it covers private claims | Esparza: (implicit) state policy preserving PAGA cannot be overridden | KS: FAA preempts rules that prevent arbitration of private disputes | Court: FAA preempts to the extent claims are private and arise from contract; Iskanian survives as to public-enforcement civil penalties but cannot be applied to private, victim-specific wage claims |
Key Cases Cited
- Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (California Supreme Court) (PAGA representative claims for civil penalties are nonarbitrable because they vindicate state interests)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. Supreme Court) (FAA preempts state rules that interfere with arbitration agreements)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (U.S. Supreme Court) (FAA covers statutory and contractual claims between parties to arbitration agreement)
- EEOC v. Waffle House, Inc., 534 U.S. 279 (U.S. Supreme Court) (agency enforcement actions are not barred by private arbitration agreements)
- Thurman v. Bayshore Transit Management, Inc., 203 Cal.App.4th 1112 (Cal. Ct. App.) (discussed interplay of Lab. Code § 558 and PAGA; contrasted with Iskanian interpretation)