SERGIO PEREZ et al., Plaintiffs and Respondents, v. U-HAUL CO. OF CALIFORNIA, Defendant and Appellant.
No. B262029
Second Dist., Div. Seven
Sept. 16, 2016
3 Cal. App. 5th 408
Alston & Bird, James R. Evans, Jr., and Ryan T. McCoy for Defendant and Appellant.
Law Offices of Gregg A. Farley, Gregg A. Farley; Law Offices of Sahag Majarian and Sahag Majarian for Plaintiff and Respondent Sergio Lennin Perez.
Diversity Law Group, Larry W. Lee, Nicolas Rosenthal; Law Offices of Sherry Jung and Sherry Jung for Plaintiff and Respondent Erick Veliz.
OPINION
ZELON, Acting P. J.—Plaintiffs Sergio Perez and Erick Veliz Ramos filed a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA;
A. Events Preceding the Motion to Compel Arbitration
In 2010 and 2011, U-Haul hired plaintiffs Erick Veliz and Sergio Perez (collectively plaintiffs) to serve as customer service representatives. As a condition of their employment, plaintiffs signed a mandatory arbitration agreement that contained the following language:
“I agree that it is my obligation to . . . submit to final and binding arbitration any and all claims and disputes . . . that are related in any way to my employment . . . . [B]y agreeing to use arbitration to resolve my dispute, both U-Haul and I agree to . . . forego any right to bring claims as a representative or as a member of a class or in a private attorney general capacity. . . .”
A separate provision stated that the agreement was “governed by the Federal Arbitration Act [FAA],
In 2012, plaintiffs each filed a class action complaint against U-Haul for various Labor Code violations including (among other things) unpaid overtime (
The trial court granted a petition to coordinate the actions, and stayed the matter pending the California Supreme Court‘s decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian). After Iskanian was decided, plaintiffs each filed an amended complaint that alleged a single cause of action under the PAGA seeking to collect penalties on behalf of themselves and other “aggrieved employees” for various Labor Code violations.
B. U-Haul‘s Motion to Compel Plaintiffs to Arbitrate Whether They Are “Aggrieved Employees” Within the Meaning of the PAGA
On September 22, 2014, U-Haul filed motions seeking to compel plaintiffs to individually arbitrate the “predicate issue of whether” they had personally been subjected to any Labor Code violation, and therefore had standing to assert a PAGA claim. As stated in U-Haul‘s motions: “Standing under PAGA requires that the plaintiff be an ‘aggrieved employee’ in order to bring a claim for statutory penalties on behalf of himself and other employees. [Citation]
Plaintiffs opposed the motion, arguing that the California Supreme Court‘s decision in Iskanian made clear that “claims brought pursuant to the PAGA are not arbitrable in any manner whatsoever, as it is against public policy.” Plaintiffs further contended that if every employee could be compelled to arbitrate “whether [he or she had] suffered the underlying Labor Code violations to establish that [he or she is an] aggrieved employee,” Iskanian would be rendered “meaningless as . . . then this argument could be applied to . . . require every [employee] to first arbitrate whether they are a true ‘aggrieved employee.‘”
In reply, U-Haul argued that Iskanian did “not hold that part of a PAGA claim cannot be arbitrated or that the predicate issue of whether U-Haul committed Labor Code violations against [plaintiff] cannot be arbitrated. Instead, Iskanian requires [only] that ‘aggrieved employees’ be allowed to bring representative PAGA actions.” U-haul further contended that the employment agreement was governed by the FAA, which explicitly “authorizes the severance of arbitrable issues from non-arbitrable issues.” U-Haul argued that several federal decisions applying the FAA had held that when a single claim raises ” ‘both arbitrable issues and nonarbitrable issues,’ ” the court must “sever[] the arbitrable issues.” According to U-Haul, because plaintiffs’ status as “aggrieved employee[s]” was an “arbitrable issue” under the employment agreement, the FAA required that the issue be severed from the remaining “representative” issues of the PAGA claim. After a hearing, the court entered an order concluding there was no legal basis to compel arbitration “of the predicate issue of whether U-Haul committed Labor Code violations against Plaintiffs.” The court explained that Iskanian had “spoken on this issue and determined that the FAA does not apply to PAGA . . . [¶] Contrary to defendant‘s arguments . . . , the Iskanian Court was unequivocal in finding that a PAGA claim is not subject to the [FAA]. That is the dispute is, in fact, between the State and the employer. Thus, the federal cases [regarding severance] cited by Defendant, which all rely on the FAA, are distinguishable.” The trial court further explained that other California decisions had held that PAGA claims can only be brought in a representative capacity, and “not [as] an individual [claim]. . . . As such, there is no basis for
DISCUSSION
A. Standard of Review and Summary of the Issue on Appeal
An order denying a petition to compel arbitration is appealable. (
The parties do not dispute that (1) the parties entered into a valid, enforceable arbitration agreement that is governed by the FAA; (2) the agreement‘s provision precluding employees from asserting a representative PAGA claim is unenforceable as a matter of California law (see Iskanian, supra, 59 Cal.4th at p. 384); and (3) the parties did not contemplate arbitrating a representative PAGA action, meaning that the representative claim must proceed in court. They disagree, however, whether the agreement nonetheless requires plaintiffs to individually arbitrate whether they qualify as “aggrieved employee[s],” and therefore have standing to bring a representative PAGA action on behalf of “other current or former employees.” (See
Plaintiffs contend the analysis and reasoning in Iskanian makes clear that employers are not permitted to compel employees to arbitrate any aspect of a PAGA claim, including the question whether they qualify as aggrieved employees. U-Haul disagrees, arguing that Iskanian merely held that the
B. Summary of Iskanian
The issues in this appeal turn largely on the Supreme Court‘s recent holding in Iskanian, supra, 59 Cal.4th 348. The plaintiff in Iskanian filed a class action against his employer for unpaid overtime and various other Labor Code violations. The complaint also alleged a representative claim under the PAGA seeking penalties on behalf of all aggrieved employees. The employer moved to compel individual arbitration of each claim, contending that the plaintiff had signed an employment agreement that contained a waiver of his right to pursue class or representative claims.
While the motion was pending, the California Supreme Court issued Gentry v. Superior Court (2007) 42 Cal.4th 443, which held that “class action waivers in employment arbitration agreements are invalid under certain circumstances.” (Iskanian, supra, 59 Cal.4th at p. 361.) The employer subsequently withdrew its motion to compel arbitration, and the parties proceeded to litigate the case. After the plaintiff had obtained a class certification order, the United States Supreme Court issued AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (Concepcion), which invalidated a prior California Supreme Court decision that “restricted consumer class action waivers in arbitration agreements.” (Iskanian, supra, 59 Cal.4th at p. 361 [discussing Discover Bank v. Superior Court (2005) 36 Cal.4th 148].) The employer then renewed its motion to compel individual arbitration, arguing that Concepcion had invalidated Gentry‘s state law rule precluding the enforcement of class action waivers. The trial court granted the motion, ordered the case into individual arbitration and dismissed the class and representative claims. The Court of Appeal affirmed.
The California Supreme Court agreed that the principles set forth in Concepcion made clear that the FAA preempted Gentry‘s state law rule precluding the enforcement of class arbitration waivers in employment agreements. (Iskanian, supra, 59 Cal.4th at p. 362.) The court explained that Concepcion had two central holdings: (1) the FAA preempts state rules that are incompatible with the fundamental attributes of arbitration and (2)
The court next considered whether state law prohibited the enforcement of representative PAGA claim waivers in employment agreements, and, if so, whether the FAA preempted application of such a prohibition. (Iskanian, supra, 59 Cal.4th at pp. 361.) The court began its analysis by summarizing the purpose and structure of the PAGA: ” ‘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. [Citation.] ’ ” (Iskanian, at p. 379.) To achieve those goals, the PAGA authorizes “an ‘aggrieved employee’ [to] bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. [Citation.] Of the civil penalties recovered, 75 percent goes to the Labor and Workforce Development Agency, leaving the remaining 25 percent for the ‘aggrieved employees.’ [Citation] [¶] Before bringing a civil action for statutory penalties, an employee must . . . give written notice of the alleged Labor Code violation to both the employer and the Labor and Workforce Development Agency . . . . If the agency . . . does not intend to investigate . . . , the employee may commence a civil action.” (Iskanian, at p. 380.)
The court explained that the purpose and structure of the PAGA statute demonstrated that ” [a]n employee plaintiff suing . . . under the [statute] does so as the proxy or agent of the state‘s labor law enforcement agencies. . . . In a lawsuit brought under the act, the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies—namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency. [Citations.] [¶] . . . [Thus,] an action to recover civil penalties ‘is fundamentally a law enforcement action designed to protect the public and not to benefit private parties’ [citation]. . . .’ [[]] . . . [[]] . . . The government entity on whose behalf the plaintiff files suit is always the real party in interest in the suit.” (Iskanian, supra, 59 Cal.4th at pp. 380-382.)
The court concluded that in light of these “legal characteristics” (Iskanian, supra, 59 Cal.4th at p. 380), “an employee‘s right to bring a PAGA
The court further explained that the representative waiver at issue was against public policy even though the plaintiff retained his right to arbitrate a single-claimant PAGA claim on behalf of himself and the state: “[A] prohibition of representative claims frustrates the PAGA‘s objectives . . . ‘[because] a single-claimant arbitration for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code. That plaintiff and other employees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has collateral estoppel effects. [Citation.] Other employees would still have to assert their claims in individual proceedings.’ [Citation.]” (Iskanian, supra, 59 Cal.4th at p. 384, italics omitted.)
Finally, the court considered whether the FAA preempted this rule of California law, concluding that it did not: ”Concepcion made clear [that] a state law rule may be preempted when it ‘stand[s] as an obstacle to the accomplishment of the FAA‘s objectives.’ [Citation.] . . . [T]he rule against PAGA waivers does not frustrate 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 Agency. [¶] . . . [¶] Simply put, a PAGA claim lies outside 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 an employer and the state, which alleges directly or through its agents—either the Agency or aggrieved employees—that the employer has violated the Labor Code . . . .” (Iskanian, supra, 59 Cal.4th at pp. 384-387, italics omitted.)
Like the arbitration agreement at issue in Iskanian, U-Haul‘s employment agreement contains language stating that (1) the employee must arbitrate “any and all claims and disputes . . . that are related in any way to [his or her] employment” and (2) both parties “shall forego any right to bring claims as a representative or as a member of a class or in a private attorney general capacity.” U-Haul concedes that under Iskanian, the PAGA waiver is not enforceable, and that plaintiffs are therefore permitted to proceed with their PAGA action in court.
U-Haul contends, however, that plaintiffs may nonetheless be compelled to individually arbitrate the “predicate issue of whether” they are “aggrieved employee[s] within the meaning of PAGA, and thus have standing to bring . . . representative claim[s].” According to U-Haul, if the arbitrator determines it did “commit[] Labor Code violations against [plaintiffs]” (thereby establishing standing), plaintiffs may then pursue their “representative PAGA claim [in court], e.g., . . . the number, scope and identities of other ‘aggrieved employees’ that [plaintiffs] will represent, and the amount of representative penalties.” Stated more simply, U-Haul argues that although “neither [party] agreed to arbitrate representative issues, and neither may be compelled to participate in a representative arbitration,” plaintiffs may be compelled to individually arbitrate whether they have standing to bring such a representative claim.
1. Whether plaintiffs have standing to pursue a PAGA claim is not an issue that falls within the scope of the arbitration agreement
Preliminarily, we address whether the particular issue U-Haul seeks to arbitrate—plaintiffs’ status as “aggrieved employees” with standing to bring a PAGA claim actually falls within the scope of the parties’ employment agreement. “The scope of arbitration is a matter of agreement between the parties. [Citations.] A party can be compelled to arbitrate only those issues it has agreed to arbitrate. [Citations.]” (Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal.App.4th 227, 230 (Larkin); see also Hayes Children Leasing Co. v. NCR Corp. (1995) 37 Cal.App.4th 775, 787 (Hayes) [“[plaintiff], of course, can be compelled to arbitrate only such issues as it in fact agreed to arbitrate“].) “Any ambiguity in the scope of the arbitration, however, will be resolved in favor of arbitration.” (Hayes, supra, 37 Cal.App.4th at p. 788; see also Larkin, supra, 76 Cal.App.4th at p. 230 [“doubts as to the scope of an agreement to arbitrate are to be resolved in favor of arbitration“].)
2. Even if the agreement does require plaintiffs to arbitrate whether they have standing to bring a PAGA claim, the provision is unenforceable under California law
Even if we were to accept U-Haul‘s interpretation of the employment agreement, we are not aware of any authority supporting its argument that an employer may legally compel an employee to arbitrate the individual aspects of his or her PAGA claim, while simultaneously preserving its own right to litigate the representative aspects of the claim in court. The only decision that has addressed the issue, Williams v. Superior Court (2015) 237 Cal.App.4th 642 (Williams), held that an employer could not force employees to proceed in such a manner. As in this case, the plaintiff in Williams signed an arbitration agreement that contained a waiver of his right to assert a representative claim. The plaintiff subsequently filed “a single-count [PAGA] action” alleging that his employer had “fail[ed] to provide off-duty rest periods, as required by
The appellate court reversed, concluding there was no basis for the trial court‘s “determin[ation] that [the plaintiff] must submit the ‘underlying controversy’ to arbitration for a determination whether he is an ‘aggrieved employee’ under the Labor Code with standing to bring a representative PAGA claim. [Citation.]” (Williams, supra, 237 Cal.App.4th at p. 649.) The court noted that neither the employer nor the trial court had “cited [any] legal authority . . . that a single representative action may be split in such a manner . . . . Indeed, case law suggests that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim . . . brought solely on the employee‘s behalf [because every] ’ . . . PAGA claim [is brought] . . . “as the proxy or agent of the state‘s labor law enforcement agencies.” ’ [Citation.] Accordingly, petitioner cannot be compelled to submit any portion of his representative PAGA claim to arbitration, including whether he was an ‘aggrieved employee.’ ” (Id. at p. 649, original italics.)
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. (Iskanian, 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.
Moreover, the reasoning of Iskanian indicates that an employer is not permitted to impose arbitration provisions that impede an aggrieved employee‘s ability to bring a PAGA claim, which is ” ‘fundamentally a law enforcement action designed to protect the public.’ ” (Iskanian, supra, 59 Cal.4th at p. 381; see id. at p. 383 [because PAGA was ” ‘established for a public reason,’ ” it ” ‘cannot be contravened by a private agreement’ “; an
For the purposes of this case, we need not determine whether PAGA claims are categorically exempted from private arbitration agreements. We conclude only that California law precludes an employer from requiring an employee to individually arbitrate whether he or she qualifies as an “aggrieved employee” within the meaning of the PAGA, while simultaneously preserving its right to a judicial forum for all other aspects of the claim.
3. The FAA does not preempt state law rules applicable to PAGA claims
In its appellate briefing, U-Haul repeatedly argues that (1) the FAA requires that all “[a]rbitrable issues within a claim . . . be compelled to arbitration” and (2) because the parties’ employment agreement is governed by the FAA, federal law requires arbitration of the “predicate issue of whether U-Haul committed Labor Code violations against [plaintiffs].” To the extent U-Haul is suggesting the FAA preempts any state law rule that
DISPOSITION
The trial court‘s order denying the motion to compel arbitration is affirmed. Respondents shall recover their costs on appeal.
Segal, J., and Garnett, J.,* concurred.
*Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.