Perez v. U-Haul Co. of CA 9/16/6 CA2/7
207 Cal. Rptr. 3d 605
Cal. Ct. App.2016Background
- Perez and Veliz signed U-Haul employment agreements containing broad arbitration clauses and a waiver of class/representative/PAGA claims; the agreements invoked the Federal Arbitration Act (FAA).
- Plaintiffs sued asserting only representative PAGA claims for Labor Code violations (meal breaks, overtime, wage statements, etc.).
- U-Haul moved to compel individual arbitration of the "predicate" issue whether each plaintiff is an "aggrieved employee" (i.e., suffered violations) and asked the court to stay the remaining representative PAGA proceedings.
- Plaintiffs opposed, relying on the California Supreme Court’s holding in Iskanian that representative PAGA claims cannot be waived or compelled into arbitration because they are actions on behalf of the state.
- The trial court denied U-Haul’s motion; the Court of Appeal affirmed, holding an employer may not force an employee to arbitrate only the individual standing question while litigating the representative PAGA issues in court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May an employer compel individual arbitration of whether a plaintiff is an "aggrieved employee" (standing) for PAGA while preserving the representative PAGA claim for court? | Iskanian forbids arbitration of any aspect of a PAGA claim; PAGA actions are representative and unwaivable. | FAA and the arbitration agreement allow severing arbitrable individual issues (standing) from nonarbitrable representative issues, so the threshold issue must be arbitrated. | No. California law bars splitting a PAGA action; an employer cannot force arbitration of the individual standing question while reserving representative issues for court. |
| Does the arbitration agreement’s broad "any and all claims related to employment" clause cover standing to bring a PAGA claim? | PAGA is a representative claim excluded by the agreement; thus standing to bring it is not within the agreed arbitration scope. | The broad clause covers any employment-related disputes, including whether the employer violated Labor Code provisions against the plaintiff. | The court concluded PAGA claims are excluded from the arbitration agreement; there is no clear agreement to arbitrate standing. |
| If the agreement did cover the standing issue, would enforcement be preempted by Iskanian/public policy? | Enforcement would undermine PAGA’s law-enforcement purpose and is against public policy; Iskanian places PAGA outside the FAA. | The FAA requires severance and arbitration of arbitrable issues; Iskanian does not preclude arbitrating predicate individual issues. | Even if covered, Iskanian and California law render such severance unenforceable because it would frustrate PAGA’s objectives. |
| Does the FAA preempt California law prohibiting PAGA waivers or splitting of PAGA claims? | Iskanian held the FAA does not preempt California’s rule; PAGA actions are disputes involving the state outside the FAA. | FAA principles and federal cases on severance require arbitration of arbitrable issues within a claim governed by the FAA. | No. Iskanian controls: PAGA claims lie outside FAA coverage for these purposes; FAA does not preempt the state rule here. |
Key Cases Cited
- Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (California Supreme Court) (PAGA actions are representative, unwaivable, and lie outside the FAA)
- Williams v. Superior Court, 237 Cal.App.4th 642 (Cal. Ct. App.) (employer cannot force arbitration of individual PAGA standing while litigating representative issues in court)
- Gentry v. Superior Court, 42 Cal.4th 443 (California Supreme Court) (class-action waiver rule discussed in relation to arbitration enforcement)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. Supreme Court) (FAA preemption principles for state rules that impede arbitration)
- Securitas Sec. Servs. USA, Inc. v. Superior Court, 234 Cal.App.4th 1109 (Cal. Ct. App.) (Iskanian’s public-policy rationale applied to arbitration provisions that impede PAGA)