ROBINA CONTRERAS et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; ZUM SERVICES, INC., Real Party in Interest.
B307025
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE
Filed 3/1/21
CERTIFIED FOR PUBLICATION; (Los Angeles County Super. Ct. No. 19STCV43062)
ORIGINAL PROCEEDINGS in mandate. Dennis J. Landin, Judge. Petition granted.
No appearance for Respondent.
Littler Mendelson, K. Kayvan Iradjpanah and Ashley J. Brick
INTRODUCTION
Petitioners Robina Contreras and Gabriel Ets-Hokin filed suit against Zum Services, Inc. (Zum) under the Private Attorneys General Act (PAGA). (
Petitioners alleged Zum misclassified them and others as independent contractors, thereby violating multiple provisions of the California Labor Code. Zum moved to compel arbitration based on agreements petitioners had signed at the beginning of their employment. The trial court granted the motion, ordering into arbitration “the issue of arbitrability” of petitioners’ suit – whether they are “aggrieved employees” entitled to raise PAGA claims. Petitioners now challenge the trial court‘s order, arguing that the delegation of that question to an arbitrator frustrates the purpose of PAGA and is therefore prohibited under California law. We agree and reverse the order compelling arbitration.
FACTUAL AND PROCEDURAL BACKGROUND
1. Zum‘s Terms of Service Agreement
Zum is a transportation service, designed to allow customers to schedule rides for children using the Zum website or phone application. Upon logging in the first time, new Zum drivers are expected to sign the Zum Terms of Service Agreement (Agreement).
The Agreement contains what appears to be a mutual dispute resolution provision that requires drivers to resolve disputes through final and binding arbitration: “[Y]ou and Zum waive your rights to a jury trial and to have any dispute arising out of or related to these Terms or our Service resolved in court. Instead, all disputes arising out of or relating to these Terms or our Service will be resolved through confidential binding arbitration held in San Mateo County, California in accordance with the Streamlined Arbitration Rules and Procedures (‘Rules‘) of the Judicial Arbitration and Mediation Services (‘JAMS‘), which are available on the JAMS website and hereby incorporated by reference.”2 The Agreement also requires drivers to waive
The Agreement gives the arbitrator “exclusive authority to make all procedural and substantive decisions regarding any dispute and to grant any remedy that would otherwise be available in court; provided, however, that the arbitrator does not have the authority to conduct a class arbitration or a representative action, which is prohibited by these Terms.” The JAMS Streamlined Arbitration Rules and Procedures, incorporated by reference, state in relevant part: “Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator.” (Italics added.)
Contreras began driving for Zum in October 2018; Ets-Hokin started in June 2019. Both assented to the terms of the Agreement.
2. Petitioners’ Lawsuit Against Zum and the Motion to Compel Arbitration
On March 23, 2020, petitioners filed the operative first amended complaint against Zum, raising a single cause of action pursuant to PAGA.3 The complaint alleged that Zum had misclassified them as independent contractors and, as a result, Zum violated multiple provisions of the California Labor Code and other statutes and regulations protecting California employees. Specifically, petitioners claimed Zum willfully misclassified drivers as independent contractors in violation of
On April 21, 2020, Zum filed its motion to compel arbitration, citing the Agreement‘s provisions waiving class actions and agreeing to submit claims
3. Ruling on the Motion to Compel Arbitration
On July 22, 2020, the trial court granted Zum‘s motion. In its ruling, the court relied on California public policy that favors resolving conflicts through arbitration, and
Although the court acknowledged that Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602 (Correia) held PAGA claims are not arbitrable unless the state consents (Correia, at pp. 624-625), it found Correia inapplicable. According to the court, “the PAGA statute and the case law expressly require the claims to be brought by aggrieved ‘employees,’ . . . [and u]nlike cases cited [by petitioners where] claims were undisputedly brought by employees, the present case is on the very issue of whether [petitioners] should be classified as independent contractors or employees.’ ” The court added that “[t]here is no California law yet regarding whether PAGA claims on [the] misclassification issue cannot be delegated,” and found that the issue was properly delegated to an arbitrator.
4. Writ Proceedings
Petitioners filed a petition for writ of mandate in this court, challenging the trial court‘s order granting the motion to compel arbitration. Zum filed a preliminary opposition. On August 25, 2020, we issued an order to show cause before this court why the relief sought in the petition should not be granted. Zum filed a return and petitioners a reply.
DISCUSSION
1. Overview of the Parties’ Contentions
Petitioners’ writ petition is founded on a fairly straightforward argument: Our Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) and several Courts of Appeal are uniform in holding that PAGA claims are not waivable and are not arbitrable. Under that case law and in light of the very nature of a PAGA claim, a court – not an arbitrator – must decide all aspects of the claim. The only exception is when the state, as real party in interest, has consented to arbitration. The state did not consent here.
Zum argues PAGA is subject to the Federal Arbitration Act (FAA) and Iskanian is no longer good law. But its more tailored assertion is: The trial court did not order the PAGA claim to arbitration. It only compelled a single antecedent fact or “gateway issue” to be arbitrated: whether petitioners are employees, which they must be to have standing under PAGA, or independent contractors, and thus ineligible to bring a PAGA claim. Zum contends that, by virtue of the delegation clause of the Agreement and its incorporation of JAMS rules, “jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement . . . and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator.” Iskanian and most other appellate opinions are beside the point.
We discuss first the standard of review. Next, we summarize how PAGA operates. Then we consider whether PAGA claims are subject to the FAA, whether they may be waived, and whether they may be arbitrated without the state‘s consent. We then apply these principles to Zum‘s argument that the gateway issue of whether petitioners are employees or independent contractors is subject to arbitration.
2. Standard of Review
Standards of review of orders on a motion to compel arbitration are not uniform. (Avila v. Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 839-840.) Generally, if the trial court‘s order rests on a factual determination, the appellate court adopts a substantial evidence standard. If the court‘s decision rests solely on an interpretation of law, then we employ the de novo standard of review. (Ibid.)
Because the arbitrability of a portion of a PAGA claim presents a legal question that lies at the intersection of California labor and arbitration law, our review is de novo. (See Provost v. YourMechanic, Inc. (2020) 55 Cal.App.5th 982, review den. Jan. 20, 2020, D076569 (Provost) [“Here, we apply a de novo standard of review because the denial of arbitration of the ‘individual’ claim—whether Provost is an independent contractor or an ‘aggrieved employee,’ with standing under section 2699, subdivisions (a) and (c)—rests on a determination of the law“].)
a. PAGA overview
“In September 2003, the Legislature enacted the Labor Code Private Attorneys General Act of 2004 [citations]. The Legislature declared that adequate financing of labor law enforcement was necessary to achieve maximum compliance with state labor laws, that staffing levels for labor law enforcement agencies had declined and were unlikely to keep pace with the future growth of the labor market, and that it was therefore in the public interest to allow aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, with the understanding that labor law enforcement agencies were to retain primacy over private enforcement efforts. (Stats. 2003, ch. 906, § 1.)” (Arias v. Superior Court (2009) 46 Cal.4th 969, 980-981 (Arias).) Under PAGA, an “aggrieved employee” may bring a civil action personally and on behalf of other current or former employees for Labor Code violations. (
Every PAGA claim is ” ‘a dispute between an employer and the state.’ ” (Iskanian, supra, 59 Cal.4th at p. 386.) “A PAGA claim is legally and conceptually different from an employee‘s own suit for damages and statutory penalties. An employee suing under PAGA ‘does so as the proxy or agent of the state‘s labor law enforcement agencies.’ (Arias, supra, 46 Cal.4th at p. 986, italics added.)” (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 81.) “The ‘government entity on whose behalf the plaintiff files suit is always the real party in interest.’ ” (Ibid.)
Of the civil penalties recovered under a PAGA lawsuit, 75 percent goes to the Labor and Workforce Development Agency, leaving the remaining 25 percent for the “aggrieved employees.” (
A PAGA claim does not need to satisfy requirements for class actions and “is binding not only on the named employee plaintiff, but also on government agencies and any aggrieved employee not a party to the proceeding.” (Arias, supra, 46 Cal.4th at pp. 975, 985.)
Zum argues in its response that “The Federal Arbitration Act Governs This Matter and Creates a Presumption in Favor of Arbitration.” It points to part of the FAA that provides “a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract or transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (
Our Supreme Court has expressly rejected this argument. A “PAGA claim ‘lies’ completely ‘outside the FAA‘s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.’ [Citation.] It is . . . a dispute between an employer and the state, which alleges directly or through its agents—either the Labor and Workforce Development Agency or aggrieved employees—that the employer has violated the Labor Code.” (Iskanian, supra, 59 Cal.4th at pp. 395-396.) “Representative actions under the PAGA, unlike class action suits for damages, do not displace the bilateral arbitration of private disputes between employers and employees over their respective rights and obligations toward each other. Instead, they directly enforce the state‘s interest in penalizing and deterring employers who violate California‘s labor laws.” (Id. at p. 387.)
Undeterred, Zum tells us we should ignore our Supreme Court‘s decision in Iskanian: “The United States Supreme Court‘s recent arbitration jurisprudence confirms that the California Supreme Court‘s ruling in Iskanian cannot stand.”
Zum misunderstands our authority. “On federal questions, intermediate appellate courts in California must follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently.” (Olson v. Lyft, Inc. (2020) 56 Cal.App.5th 862, 870, original italics; Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)
“The United States Supreme Court‘s recent arbitration jurisprudence” to which Zum refers is found in AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333 (Concepcion) and Epic Sys. Corp. v. Lewis (2018) __ U.S. __ [138 S.Ct. 1612] (Epic Systems). Both cases are cited repeatedly in Zum‘s return to the writ petition.
Zum asks us also to ignore Iskanian in favor of a second high court case, Epic Systems, supra, 138 S.Ct. 1612, a case decided after Iskanian. The United States Supreme Court addressed whether the FAA governed arbitration agreements between employers and employees when the employee brought claims under the Federal Labor Standards Act and a state class action. Relying significantly on Concepcion, the court held the agreements to arbitrate the claims were enforceable. Neither Concepcion nor Epic Systems mentions PAGA or comparable laws in other states. Two of our sibling courts have already held that the issues decided in Concepcion and Epic Systems were not the “same” as those in Iskanian. (Olson v. Lyft, Inc., supra, 56 Cal.App.5th 862; Correia, supra, 32 Cal.App.5th 602.) Both Courts of Appeal concluded that, even after Epic Systems, PAGA claims, which seek to vindicate state interests, not private party agreements, are not covered by the FAA. As Justice Haller wrote in Correia, ”Epic did not address the specific issues before the Iskanian court involving a claim for civil penalties brought on behalf of the government and the enforceability of an agreement barring a PAGA representative action in any forum.” (Correia, at p. 609; see also Tanguilig v. Bloomingdale‘s, Inc. (2016) 5 Cal.App.5th 665, 673 [“We first reject Bloomingdale‘s suggestion that we depart from Iskanian
c. PAGA claims cannot be arbitrated without state consent
Iskanian held that the PAGA claim itself may not be waived by an employment agreement. It did not directly address whether an employer may contractually require a PAGA claim to be arbitrated. (Iskanian, supra, 59 Cal.4th at p. 384; see also Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 867.)
After Iskanian, several appellate courts have held that an individual PAGA plaintiff may not be required to arbitrate his or her PAGA claim. “[A]n employer cannot rely on an employee‘s predispute arbitration agreement to compel arbitration of a PAGA claim. [Citation.]” (Collie v. The Icee Co. (2020) 52 Cal.App.5th 477, 481, review den. Nov. 10, 2020, S264524; see also Correia, supra, 32 Cal.App.5th at pp. 621-622; Provost., supra, 55 Cal.App.5th at pp. 997-998; Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 447-448; Julian v. Glenair, Inc., supra, 17 Cal.App.5th at p. 872; Tanguilig v. Bloomingdale‘s, Inc., supra, 5 Cal.App.5th at p. 678.)
The rationale for this rule is stated plainly in Correia:
“Without the state‘s consent, a predispute agreement between an employee and an employer cannot be the basis for compelling arbitration of a representative PAGA claim because the state is the owner of the claim and the real party in interest, and the state was not a party to the arbitration agreement. Under state and federal law, an arbitration agreement applies only to the parties who agreed to its terms and a party cannot be compelled to arbitrate a dispute that it has not elected to submit to arbitration.” (Correia, supra, 32 Cal.App.5th at p. 622, italics added.)
Nothing in the record suggests that the state has consented to the arbitration of petitioners’ PAGA claim.
Zum argues that, even if PAGA claims are not subject to the FAA, even if Iskanian is still good law, and even if an employee by predispute agreement may not be forced to arbitrate a PAGA claim, the trial court‘s order was nevertheless correct.
Zum‘s position is that the order did not compel arbitration of a PAGA claim. What the trial court did was to carve out part of the PAGA claim – whether or not petitioners are really aggrieved employees – and then order that “antecedent” fact to be arbitrated. The argument continues, if petitioners are not employees but independent contractors, this is really not a PAGA claim at all, the law regarding PAGA claims does not apply, and the parties agreed to arbitrate.
Zum begins its legal discussion with the familiar rule that parties to an agreement can agree that the arbitrator may decide the question of arbitrability. (Rent-A-Center, W., Inc. v. Jackson, supra, 561 U.S. at pp. 68-69.) Zum asserts, “Here, the parties unmistakably agreed that only the arbitrator would decide gateway questions of arbitrability.” The high court has cautioned that merely naming part of a dispute as a “gateway question” does not resolve necessarily “arbitrability.” “Linguistically speaking, one might call any potentially dispositive gateway question a ‘question of arbitrability,’ for its answer will determine whether the underlying controversy will proceed to arbitration on the merits.” (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 83.)
With the high court‘s observation in mind, we turn to Zum‘s argument. That argument begins with what Zum characterizes as the Agreement‘s delegation clause. Although there is no provision in the Term of Service captioned “Delegation Clause,” the trial court agreed with Zum that the Agreement delegated to the arbitrator the issue of whether petitioners were “aggrieved employees.” The court relied on two provisions: “Here, [real party] asserts that the parties have ‘clearly and unmistakably’ agreed to delegate questions of arbitrability to an arbitrator because the dispute resolution provision provides that ‘all disputes arising out of [or] relating to these Terms or our Service will be resolved through confidential binding arbitration.’ Mtn., Garg Decl., Ex. B. Further, [Zum] asserts that the agreement expressly requires that arbitration be governed by the JAMS Streamlined
Zum portrays the arbitrability question as “a private issue subject to a private agreement, not a public issue in which the State has an interest,” as there will be no determinations on the merits of the claim. The state will not have an interest in the suit unless and until the arbitrator determines petitioners are employees and, if it does, the PAGA claim may be litigated in court. This is fallacious wordsmithing. If an arbitrator rules that petitioners are not “aggrieved employees,” there will be no remaining PAGA claim anywhere. By virtue of an arbitration to which it did not consent, the state will have lost one of its weapons in the enforcement of California‘s labor laws. This result would be at odds with the several appellate opinions we previously have cited, e.g., Correia: “Without the state‘s consent, a predispute agreement between an employee and an employer cannot be the basis for compelling arbitration of a representative PAGA claim because the state is the owner of the claim and the real party in interest, and the state was not a party to the arbitration agreement.” (Correia, supra, 32 Cal.App.5th at p. 622.)
Characterizing the process as resolving only an “arbitrability,” “delegatable” or “gateway” issue, or the adjudication of an “antecedent” fact, does not extinguish the risk to the state that it is an arbitrator, not a court, who nullifies the state‘s PAGA claim.
This “splitting of the PAGA claim” argument is not new. Courts of Appeal have rejected Zum‘s position, although on a slightly different ground than lack of state consent. The most recent is Provost, supra, 55 Cal.App.5th 982. There, the Fourth District framed the issue as if it had the present case in mind: “YourMechanic sought to compel plaintiff Jonathan Provost to arbitrate whether he was an ‘aggrieved employee’ within the meaning of the Labor Code before he could proceed under the Labor Code Private Attorneys General Act of 2004 (PAGA) (
The court first reviewed the principles of waiver and arbitrability of PAGA claims as set out in Iskanian. The Provost court reminded that a PAGA claim
The court held that the employer‘s motion to compel arbitration of the “aggrieved employee” issue was an effort to split a single representative PAGA action into (a) individual arbitratable and (b) representative nonarbitrable components. This, the Court of Appeal concluded, the employer cannot do.
Other Courts of Appeal before Provost have addressed PAGA “splitting.” The earliest of these is Williams v. Superior Court (2015) 237 Cal.App.4th 642 (Williams). The trial court in Williams was apparently presented with the converse of what we have here. Zum seeks to arbitrate the “antecedent” fact of whether petitioners are aggrieved employees. The defendant employer in Williams sought to arbitrate the sequent fact of whether there was a wage and hour violation. The Williams defendant argued that plaintiff must first arbitrate his “individual claim” because “he is required to prove the underlying rest period violation in order to prevail, and the [arbitration agreement] mandates that rest period claims be arbitrated.” (Williams, at p. 645.) The trial court denied defendant‘s motion to enforce waiver of the plaintiff‘s PAGA claim, but ordered the “individual claim” to arbitration. (Williams, at p. 645.)
Division Four of this court issued a peremptory writ directing the trial court to deny the employer‘s motion in its entirety. The court pointed out there was no “individual claim” in petitioner‘s complaint. “The trial court cited no legal authority for its determination that a single representative action may be split in such a manner; [the employer] has identified no case so holding, and we have located none. Indeed, case law suggests that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim.” (Williams, supra, 237 Cal.App.4th at p. 649.)7
Williams was followed by Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408 (Perez). There, Division Seven of this
The Perez court rebuffed the argument. “We agree with Williams‘s conclusion that California law prohibits the enforcement of an employment agreement provision that requires an employee to individually arbitrate whether he or she qualifies as an ‘aggrieved employee’ under the PAGA, and then (if successful) to litigate the remainder of the ‘representative action in the superior court.’ In Iskanian, the Supreme Court explained that ‘every PAGA action, whether seeking penalties for Labor Code violations as to only one aggrieved employee—the plaintiff bringing the action—or as to other employees as well, is a representative action on behalf of the state.’ (Iskanian, supra, 59 Cal.4th at p. 387.) The court also held that requiring an employee to bring a PAGA claim in his or her ‘individual’ capacity, rather than in a ‘representative’ capacity, would undermine the purposes of the statute. ([Id.] at pp. 383–384.) Given these conclusions, we do not believe an employer may force an employee to split a PAGA claim into ‘individual’ and ‘representative’ components, with each being litigated in a different forum.” (Perez, supra, 3 Cal.App.5th at p. 421.)
Other courts have agreed with Williams and Perez. (See Brooks v. AmeriHome Mortgage Co., LLC (2020) 47 Cal.App.5th 624, 629 [because the plaintiff brought a PAGA representative claim, “he cannot be compelled to separately arbitrate whether he was an aggrieved employee“]; Hernandez v. Ross Stores, Inc. (2016) 7 Cal.App.5th 171, 178 [“determination of whether the party bringing the PAGA action is an aggrieved party . . . should not be decided separately by arbitration“]; see also Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 557 [“Because a PAGA claim is representative and does not belong to an employee individually, an employer should not be able [to] dictate how and where the representative action proceeds.“].)
DISPOSITION
Let a peremptory writ of mandate issue directing the respondent court to vacate its July 22, 2020 order granting the motion to compel arbitration, and to issue a new order denying the motion. Petitioners shall recover their costs in this proceeding.
RUBIN, P. J.
WE CONCUR:
BAKER, J.
MOOR, J.
None of these cases involve PAGA claims; of interest the arbitration provisions in two of the cases expressly excluded PAGA claims from arbitration. (See Johnston v. Uber Technologies, Inc., supra, 2019 WL 4417682, at *5; Olivares v. Uber Technologies, Inc., supra, 2017 WL 3008278, at *3.) We find these cases irrelevant to this appeal.
Notes
“(a) It is unlawful for any person or employer to engage in any of the following activities:
“(1) Willful misclassification of an individual as an independent contractor.”