407 F.Supp.3d 862
N.D. Cal.2019Background
- Plaintiff Flora Gonzales worked ~17 years at a senior-care facility and was terminated in 2017; defendants imposed a mandatory arbitration policy (signed by plaintiff in 2014) that barred class actions and PAGA representative actions and allowed no opt-out.
- Plaintiff filed a putative class and PAGA/wage-and-hour action in state court asserting multiple Labor Code claims, including civil penalties and unpaid wages under Cal. Lab. Code § 558(a).
- Defendants removed to federal court and moved to compel arbitration of all claims; the case was stayed pending the California Supreme Court’s resolution of Lawson/ZB, N.A.
- The arbitration agreement contained (1) a broad arbitration clause covering wage-and-hour and UCL claims, (2) an explicit class-action waiver, and (3) an express PAGA waiver that said it could be severed if a court found it unenforceable.
- The California Supreme Court’s decision in ZB, N.A. held that the “amount sufficient to recover underpaid wages” in § 558(a) is not a civil penalty and therefore cannot be pursued under PAGA; Iskanian and Sakkab hold PAGA waivers unenforceable.
- District court (Alsup) ruled the arbitration agreement valid and enforceable as to individual claims, held the PAGA waiver unenforceable, granted limited leave to amend the complaint to cure § 558 allegations, and stayed the representative PAGA claims pending arbitration of individual claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity/enforceability of arbitration agreement | Gonzalez argued the agreement was procedurally and substantively unconscionable (imposed under threat of termination; limited discovery; ambiguous PAGA clause) | Brookdale argued the agreement is valid under FAA and California contract law and covers the asserted claims | Agreement is valid and enforceable; individual (non-PAGA) claims compelled to arbitration |
| Enforceability of PAGA waiver | Gonzalez argued PAGA waiver is unenforceable (public-policy) and ambiguous phrase can be severed | Brookdale argued Epic Systems preempts Iskanian/Sakkab and renders PAGA waivers enforceable | PAGA waiver held invalid under Iskanian and Sakkab; representative PAGA claims remain in court |
| Whether unpaid-wages portion of §558(a) can be compelled to arbitration | Gonzalez relied on ZB, N.A. (§558 unpaid wages not a PAGA civil penalty) and sought to keep representative unpaid-wage claims in court | Brookdale argued unpaid-wage component was arbitrable/severable (rely on earlier appellate splits) | Because ZB, N.A. forecloses PAGA claims for unpaid wages under §558(a), court granted leave to amend to plead unpaid wages under a different Labor Code provision; did not send §558 unpaid-wage PAGA claims to arbitration |
| Case management: stay and amendment | Gonzalez sought denial of compulsion for PAGA claims and leave to amend §558 allegations | Brookdale sought arbitration or, alternatively, stay of PAGA claims pending individual arbitration | Court granted limited leave to amend (only for unpaid-wages allegations under statutes other than §558), compelled individual arbitration, kept representative PAGA claims in court but stayed them pending arbitration results |
Key Cases Cited
- Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (California Supreme Court 2014) (PAGA waivers are contrary to public policy and unenforceable)
- Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015) (FAA does not preempt Iskanian; representative PAGA waivers invalid)
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (U.S. 2018) (FAA preempts certain judicial rules hostile to arbitration)
- ZB, N.A. v. Superior Court of San Diego County, 8 Cal.5th 175 (California Supreme Court 2019) (the “amount sufficient to recover underpaid wages” in §558(a) is not a civil penalty and cannot be pursued under PAGA)
- Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010 (9th Cir. 2004) (district court determines existence and scope of arbitration agreement)