Lewis v. Simplified Labor Staffing Solutions, Inc.Lewis v. Simplified Labor Staffing Solutions, Inc.
APPEAL from an order of the Superior Court of Los Angeles County, Malcolm Mackey, Judge. Reversed and remanded.
Mahoney Law Group, Kevin Mahoney, Berkeh Alemzadeh, Raleigh Dixon; Ferguson Case Orr Paterson and John A. Hribar for Plaintiff and Respondent.
INTRODUCTION
This is an appeal of an order denying the motion of defendant and appellant Simplified Labor Staffing Solutions, Inc. (Simplified)1 to compel
agreement, in the same way individual PAGA claims are, is an issue for the arbitrator to address. Accordingly, we reverse.
BACKGROUND4
Simplified is a multi-state temporary staffing services company. It supplies labor and staffing to clients in California and elsewhere in the United States. As a result, Simplified is engaged in and involved in interstate commerce within the meaning of the Federal Arbitration Act (FAA),
Simplified hired Lewis in September 2019. On or about her hire date, Lewis signed an arbitration agreement and class action waiver. The agreement was made pursuant to the FAA and rеquires arbitration of all “claims that arise out of [her] employment relationship with [Simplified],” subject to limited exceptions not relevant here. The agreement also states that, if any provision “is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement.” Once hired, Simplified staffed Lewis with clients for whom Lewis acted as a materials handler responsible for loading and unloading freight.
In 2020, Lewis filed a complaint against Simplified, as well as an affiliate of Simplified‘s and Simplified‘s clients with whоm she was staffed. Lewis brought her claims pursuant to PAGA. Lewis alleged a number of
Simplified moved to compel arbitration. The trial court denied the motion on the grounds that predispute agreements to arbitrate PAGA claims are not enforceable. Following the approach of several California Courts of Appeal, the trial court reasoned that, because the State of California is the real plаintiff in interest in a PAGA action (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382 (Iskanian)), it is the consent of the State, and not of the named employee plaintiff, that is required to compel arbitration. Under the unique structure of PAGA, the reasoning goes, an employee can speak for the State only after it has become “aggrieved” under the statute, which can occur only after the dispute has arisen.5 Following Iskanian, the trial court interpreted the FAA as inapplicable to disputes involving the State such that there could be no FAA preemption.
Simplified timely appealed. Its appeal is authorized by
While the appeal was pending, but after regular briefing was complete, the Supremе Court issued its decision in Viking River. In addition, before it filed its reply, Simplified settled PAGA claims brought against it in a separate action styled Shackelford v. Simplified Labor Staffing Solutions, Inc. (C.D.Cal. No. 2:20-cv-06846-AB-AFM) (the Shackelford Action). We
requested, and the parties submitted, supplemental briefing on the impact of these events on the resolution of this appeal.
DISCUSSION
I. Standard of Review
Where, as here, there are no disputed factual issues, we review de novo the trial court‘s decision on a petition to compel arbitration. (Alvarez v. Altamed Health Services Corp. (2021) 60 Cal.App.5th 572, 581.) Preemption is a question of law subject to de novo review. (Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308, 316.)
II. PAGA
To accomplish this, PAGA allows “aggrieved employees” to act as “private attorneys general,” but only after giving the Labor and Workforce Development Agency (LWDA) the opportunity to prosecute the alleged violations itself. (
To give the LWDA the opportunity tо prosecute alleged violations, the aggrieved employee must send notice to the LWDA and the employer specifying such violations. (
intend to investigate (ibid.); or (iii) the LWDA notifies the employee of its intent to investigate but does not issue a citation within 120 days after its decision to investigate (id.,
Notably, aggrieved employees are not limited to suing on viоlations committed against them. So long as they suffered some violation, they assume standing to recover for any violation committed by their employer. We refer to claims on account of violations suffered by the plaintiff employee as “individual claims” and those suffered only by the plaintiff‘s co-workers as “non-individual claims.”
PAGA penalties are set at $100 for each aggrieved employee per pay period for the initial violation and $200 for each aggrieved employee per pay period for each subsequent violation. (
An aggrieved employee‘s right to recover for the universe of its employer‘s
The Iskanian court considered (a) whether predispute PAGA waivers are permissible under state law; and, if not
(b) whether the FAA preempts a state prohibition on PAGA waivers.
As to the first question, the court found that an employee cannot prospectively waive a PAGA claim. It reasoned that PAGA waivers would violate public policy and provide a mechanism for employers to exculpate themselves in contravention of
In concluding that the particular waiver at issue was unenforceable, the Iskanian court considered and rejected the employer‘s argument that it was not a true waiver because it preserved the employee‘s right to assert individual PAGA claims in arbitration and barred only non-individual claims. The court held that any waiver of non-individual claims (one of two classes of claims the Iskanian court referred to as “representative“) is unenforceable because requiring separate actions to seek redress for the same violation would undermine PAGA‘s purposes of punishing and deterring
The Iskanian court next turned to the question of whether the FAA preempts its rule against PAGA waivers, and found no preemption. It determined that barring PAGA waivers рosed no “‘obstacle to the accomplishment of the FAA‘s objectives‘” because “the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a
dispute between an employer and the state . . . .” (Iskanian, supra, 59 Cal.4th at p. 384.) It elaborated that “a PAGA claim lies outside of the FAA‘s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between the employer and the state, which alleges directly or through its agents—either the [LDWA] or aggrieved employees—that the employer has violated the
B. California Appellate Courts Interpret Iskanian as Barring Predispute Agreements to Arbitrate PAGA Claims
Seizing on Iskanian‘s holding that the State is the real plaintiff in interest, California appellate courts have refused to enforce predispute agreements to
However, the rule does not require direct consent by the State. Rather, the rule permits an aggrieved employee, having been deputized by the State by operation of law, to elect to arbitrate PAGA claims without consultation with the State. This is clear from the disposition in Iskanian, where the court left it to the employer and employee to decide whether they would
agree to arbitrate the employee‘s PAGA claims. (See Iskanian, supra, 59 Cal.4th at p. 391.)
C. Viking River
Viking River addressed our Supreme Court‘s holdings in Iskanian and its analysis bears directly on the issues presented in this case.
Viking River involved an “аgreement to arbitrate any dispute arising out of [the plaintiff‘s] employment.” (Viking River, supra, 142 S.Ct. at p. 1916.) The agreement further contained a waiver of the right to assert, among other things, a representative PAGA action (i.e., non-individual claims). To the extent this waiver was found invalid, the agreement provided that the PAGA action would proceed in court, but if any “portion” of the waiver was valid, it would be enforced in arbitration. (Ibid.) After her employment ended, the Viking River plaintiff sued in California under PAGA for one violation she suffered personally and for several other non-individual claims. (Ibid.) The employer moved to compel arbitration of the individual claim but was denied. Relying on Iskanian, Division Three of our court affirmed, holding that the PAGA waiver was unenforceable and that PAGA claims cannot be split into arbitrable individual claims, on the one hand, and non-arbitrable non-individual claims, on the other. The Viking River court reversed and remanded on FAA preemption grounds.
The preliminary issue underlying its analysis is addressed only in a footnote but is critically important: contrary to one of Iskanian‘s holdings, the Viking River court found the FAA does apply to PAGA claims. (Viking River, supra, 142 S.Ct. at p. 1919, fn. 4.) To reach this conclusion, the Viking River court specifically rejected Iskanian‘s characterization of a PAGA action
as “not a dispute between an employer and an
First, it rejected the argument that precedents in the class action context finding preemption of forced class arbitration compelled the same result for PAGA actions. It explained that, in contrast to a class representative, a PAGA plaintiff represents only a single principal and not a multitude of absent class members. (Viking River, supra, 142 S.Ct. at p. 1920.) As such, unlike class actions, PAGA actions do not present the problems of notice, due process, and adequacy of representation that require robust procedural safeguards above and beyond those envisioned by traditional аrbitration. (Id. at p. 1921.) Thus, PAGA claims are susceptible to resolution through arbitration without conflicting with its “traditionally individualized form” and the corresponding efficiency that arbitration promises. (Ibid.)
It also rejected the argument that PAGA claims conflict with the objectives of arbitration because, instead of being a dispute between two principals, PAGA cases consist of one principal defending against an agent (the aggrieved employee) acting for an absent principal (the State). The court noted that it had never “suggested that single-agent, single-principal represеntative suits are inconsistent [with] the norm of bilateral arbitration as [the court‘s] precedents conceive of it.” (Viking River, supra, 142 S.Ct. at p. 1921.)
In short, the Viking River court found that nothing in the fundamental character of PAGA claims conflicts with the parties’
right to choose arbitration for the resolution of their claims and to enjoy the FAA-guaranteed benefits of that choice. As such, it found no FAA preemption of Iskanian‘s ban on PAGA waivers.
However, the Viking River court did find a conflict between the FAA and Iskanian‘s prohibition on splitting individual claims from non-individual claims in an arbitration agreement. This prohibition, it explained, “unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and the ‘rules by which they will arbitrate‘” by imposing on them an all or nothing choice: arbitrate both individual and non-individual claims or forego arbitration entirely. (Viking River, supra, 142 S.Ct. at p. 1923.) Were splitting allowed, parties might (as the Viking River parties did) prefer to resolve higher-stakes non-individual claims in a judicial forum where multilayered review is available to correct errors, but to arbitrate
Against this backdrop, we consider whether the trial court should have compelled arbitration of Lewis‘s claims against Simplified.
III. Viking River Compels Reversal
In refusing to compel arbitration, the trial court relied only on the notion that the absence of state consent renders a predispute arbitration agreement unenforceable. As already noted, the State-must-consent rule flows from Iskanian‘s premise that PAGA claims represent a dispute between the employer and
the state, rather than the employee, rendering the state the real party in interest. (Iskanian, supra, 59 Cal.4th at p. 386.) Iskanian relied on this premise only to conclude that PAGA claims are exempt from the FAA, stopping short of deaming them not arbitrable as a matter of law. (Id. at p. 384.) But California appellate courts extended the premise to bar enforcement of predispute arbitration agreements, reasoning that no plaintiff is an “aggrieved employee” predispute and therefore no predispute plaintiff has authority to bind the state as its agent under PAGA. (See fn. 5, supra.) These appellate courts largely sidestepped the question of FAA preemption based on Iskanian‘s holding that the FAA does not apply to PAGA. (See, e.g., Herrera, supra, 67 Cal.App.5th at p. 550.)
Viking River explicitly rejected that PAGA claims are exempt from the FAA. We must therefоre consider whether the FAA preempts the State-must-consent rule.6 We conclude that, beyond preemption, Viking River‘s reasoning destroys the foundation of the State-must-consent rule. But even if it did not, the rule would be preempted.
1. Since PAGA Actions Necessarily Involve Employer-Employee Disputes, the Private Agreement to Arbitrate Must Be Enforced
Iskanian deemed PAGA outside of the FAA‘s coverage by construing PAGA disputes as arising solely between the employer and the State. (Iskanian, supra, 59 Cal.4th at pp. 386-387.) Viking River rejected this interpretation, recognizing that PAGA actions necessarily involve a dispute between the employeе and the employer (while simultaneously recognizing the State‘s interest, as well). (Viking River, supra, 142 S.Ct. at p. 1919, fn. 4 [PAGA claims may “in some sense also [be] a dispute between an employer and the State“] (italics added).)
Even though all PAGA claims are representative and belong to the State (Iskanian, supra, 59 Cal.4th at pp. 387, 388), it is the employee‘s personal interest in the litigation—redressing a
This status requires enforcement of an employee‘s predispute agreemеnt to arbitrate PAGA claims. Congress‘s preeminent concern . . . in passing [the FAA] was to enforce private agreements into which parties had entered.‘” (Perry v. Thomas (1987) 482 U.S. 483, 490.) As a result, such agreements must be “‘rigorously enforced.‘” (Ibid.) Where, as here, an employee agrees to arbitrate future disputes with her employer and she later brings such a dispute as a PAGA action, courts must hold her to her choice of forum for the resolution of her dispute.
Having established that an employee‘s interest in a PAGA action is sufficient to support enforcement of the employee‘s agreement to arbitrate, an interpretation of state law preventing enforcement of that agreement or interfering with the objectives of arbitration is preempted by the FAA. (Southland Corp. v. Keating (1984) 465 U.S. 1, 16, fn. 10 [“the [FAA] preempts a state law that withdraws the power to enforce arbitration agreements“]; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 343 [a state law rule that “stand[s] as an obstacle to the accomplishment of the FAA‘s objectives” is preempted].)
The State-must-consent rule does just that. The FAA is concerned specifically with enforcing predispute agreemеnts to arbitrate. (
thereby prevents enforcement of predispute arbitration agreements in contravention of the FAA‘s guarantee that parties may agree to settle future disputes by arbitration.
That the rule is a purported application of general agency principles does not save it. “[A] state rule can be preempted not only when it facially discriminates against arbitration but also when it disfavors arbitration as applied.” (Sanchez v. Valencia Holding Co., LLC. (2015) 61 Cal.4th 899, 924.) It is one thing to generically refer tо the employee as agent or proxy for the State in a PAGA action. It is quite another to blindly apply agency rules without regard to the unique character of the relationship.
The relationship between the State and the PAGA plaintiff is defined exclusively by the PAGA statute. The statute and the rights it creates are “unique.” (Collie, supra, 52 Cal.App.5th at p. 483.) Unlike the typical agent, the PAGA plaintiff must have been personally affected by the same wrong that it complains about on behalf of its principal. (
Mоreover, concern over “binding” the state-as-principal to a predispute, pre-agency agreement is misplaced. The State has the unqualified right to undertake prosecution of any
In short, to feign deference to the preferences of the state-as-principal under these circumstances is to ignore that, at the point that the employee has the right to sue, the State has manifested a lack of preference about how the litigation will proceed. Since the PAGA plaintiff is entitled to choose arbitration without consulting the State after the dispute arose (see Iskanian, supra, 59 Cal.4th at p. 391), disregarding her earliеr choice simply because the State was not yet involved serves only one apparent purpose: to let the employee renege on her agreement.
In reaching our conclusion that the State-must-consent rule is preempted, we note the absence of disagreement from our Supreme Court or from Lewis. Iskanian did not hold that PAGA claims are inarbitrable as a matter of law. (See Sakkab v. Luxottica Retail N. Am., Inc. (9th Cir. 2015) 803 F.3d 425, 434 [“The California Supreme Court‘s decision in Iskanian expresses no preference regarding whether individual PAGA claims are litigated or arbitrated“].)
For her part, Lewis answered Simplified‘s preemption arguments solely by reference to Iskanian‘s blanket exemption of PAGA claims from the FAA. In her supplemental brief filed after Viking River rejectеd that exemption, Lewis did not argue the State-must-consent rule escaped preemption for other reasons. Instead, she conceded that she was bound to arbitrate her individual claims based on her predispute agreement to do so, undercutting any argument that the State-must-consent rule survived Viking River.
B. Arbitrability of the Non-individual Claims Is an Issue for the Arbitrator
Simplified and Lewis agree that Lewis‘s individual PAGA claims must be arbitrated. Where disagreement remains is what to do with her non-individual claims. Simplified now argues that Viking River requires dismissal because Lewis‘s obligation to arbitrate her individual claims maroons her non-individual claims in court without a plaintiff. Lewis argues that the Viking River discussion supporting dismissal is not binding on us and her obligation to arbitrate her individual claims does not affect her standing to pursue her non-individual claims. In urging that her non-individual claims survive, she declines to concede they must be arbitrated.
We need not decide whether an arbitration agreement can require that non-individual PAGA claims be arbitrated because the arbitrator must decide whether the Simplified arbitration agreement calls for such arbitration at all.8 The Simplified
arbitration agreement incorporates the Employment Arbitration Rules & Procedures of the American Arbitration Association (AAA). The AAA Rule on “Jurisdiction” provides that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with
IV. We Decline to Take Judicial Notice of Simplified‘s Settlement in the Shackelford Action
In regular briefing, Simplified asserted, without record support, that a settlement it reached in the Shackelford Action deprived Lewis of standing to maintain her PAGA action. We requested further briefing on this topic as well as a copy of the settlement on which Simplified based its assertion. The parties complied and we now decline to take judicial notice of the Shackelford Action settlement. The parties dispute the facts relevant to its resolution.
Most notably, the parties dispute the date through which the Shackelford Action settlement applies to PAGA claims it settled. Lewis contends that it was through October 30, 2020, the date of preliminary approval of the settlement. She offers no citation or explanation for this assertion. Simplified contends that it was through “the date of final approval” of the settlement, which was June 22, 2021. However, this is not apparent from the record citation Simplified offered in support, which states only that “[t]he State of California‘s claims for civil penalties pursuant to PAGA are also extinguished,” without specifying to what PAGA claims this refers. The preceding sentence contains the capitalized term “PAGA Claims” which appears to be undefined. Moreover, the “Released Claims” in the settlement agreement, which include as part of their definition PAGA claims, are limited to those based on “facts that occurred on or before August 10, 2020.”
Lewis contends that “[t]he PAGA period in this case is ongoing” but does not explain why. While not necessarily dispositive, we are directed to no evidence concerning whether Lewis still works for Simplified. At least as of the date of her complaint (July 16, 2020), Lewis alleged that she was still employed by Simplified. She furthеr alleged that the harms alleged in her complaint were ongoing. Simplified does not argue Lewis lacked standing as of the date of her complaint or with respect to PAGA claims post-dating the Shackelford Action settlement.
Given the state of the record and the underdeveloped arguments on the point, we make no determination of the date through which the Shackelford
demonstrate on the record before us that the facts concerning the settlement are suffiсiently certain to be judicially noticed. We leave determination of the effect of the settlement, if any, to further proceedings on remand.
DISPOSITION
The order denying Simplified‘s motion to compel arbitration is reversed and the matter is remanded for further proceedings in accordance with this opinion. Reversal is the result of an intervening change in law. In the interests of justice, the parties shall bear their own costs on appeal.
CERTIFIED FOR PUBLICATION
HARUTUNIAN, J.*
We concur:
STRATTON, P. J.
GRIMES, J.
* Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to