Labor & Employment Law Daily Employee not required to arbitrate status as ‘aggrieved employee’ to bring PAGA claim
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Thursday, October 22, 2020

Employee not required to arbitrate status as ‘aggrieved employee’ to bring PAGA claim

By Ronald Miller, J.D.

The employer’s reasoning would “harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations,” particularly for violations where there is no private right of action.

An employee was not required to arbitrate whether he was an “aggrieved employee” in order to bring an action under PAGA, ruled a California Court of Appeal. The employer sought to compel the employee to arbitrate whether he was an “aggrieved employee” within the meaning of the Labor Code before he could proceed under the PAGA with a representative action alleging various violations of the Labor Code against the employer. The appeals court ruled, however, that threshold issues involving whether a plaintiff is an “aggrieved employee” for purposes of a representative PAGA-only action cannot be split into individual arbitrable and representative nonarbitrable components (Provost v. YourMechanic, Inc., October 15, 2020, Benke, P.).

The employee brought a suit seeking civil penalties under the PAGA alleging that the employer violated numerous Labor Code and applicable industrial wage orders, including failing to pay employees’ wages in a timely manner, pay overtime, and for all hours worked, and provide all minimum wages, among other claims. Additionally, the employee claimed that the employer willfully misclassified him and other aggrieved employees as independent contractors. According to the complaint, the employee had notified the Labor and Workforce Development Agency (LWDA) of his intent to seek PAGA penalties.

Arbitration provision. In response, the employer moved to compel arbitration on the basis of an arbitration provision included in a pre-printed form Technology Services Agreement executed by the employee when he clicked the “I accept” button at the end of the agreement. LWDA was not a party to the agreement. Essentially, the agreement provided that it applied, without limitation, to all disputes between the employee and the company. It further provided that all disputes relating to the interpretation or application of the agreement were also to be resolved only by an arbitrator. According to the employer, the employee was required to arbitrate whether he was an “aggrieved employee” in order to bring an action under PAGA.

The trial court denied the employer’s motion. It concluded that requiring the court to “split the PAGA into an individual claim” contravened the law. This appeal ensued.

Proxies. The PAGA empowers aggrieved employees to act as LWDA’s proxy or agent to bring representative actions to recover statutory civil penalties for their employers’ violations. To obtain authority to prosecute and collect the penalties, PAGA requires aggrieved employees to give LWDA notice. A suit to recover statutory civil penalties under PAGA is “fundamentally a law enforcement action designed to protect the public and not to benefit private parties.” Additionally, PAGA “forecloses separate but similar actions by different employees against the same employer.”

In Iskanian v. CLS Transp. Los Angeles, LLC, the California Supreme Court found unenforceable pre-dispute waivers requiring employees to relinquish the right to assert a PAGA claim on behalf of other employees. It also found that the FAA did not preempt this state law rule invalidating waivers in arbitration agreements of the right to bring representative PAGA actions. Additionally, there is a long line of cases holding that a plaintiff’s single-count PAGA action “cannot be split into an arbitrable ‘individual claim’ and a nonarbitrable representative claim.”

PAGA action. In this instance, the employer contended that an arbitrator must first decide whether the employee was an independent contractor or an employee. It further contended that, until this threshold issue is resolved in arbitration, the employee has no standing to pursue a representative PAGA action because he cannot show he is an “aggrieved employee” for purposes of Section 2699, subdivisions (a) and (c).

The appeals court was not persuaded by the employer’s arguments. Rather, it observed that caselaw has consistently and properly held that threshold issues involving whether a plaintiff is an “aggrieved employee” for purposes of a representative PAGA-only action cannot be split into individual arbitrable and representative nonarbitrable components.

The employee’s PAGA-only action against the employer included allegations that the company “willful[ly] misclassified” the employee and other similarly situated “aggrieved employees” in violation of Section 226.8, subdivision (a). However, the employee has no private right of action against the employer to pursue this alleged Labor Code violation. Rather, the only recourse available to the employee in pursuing such an alleged violation under this particular statute is through PAGA.

Moreover, the employer’s reasoning would also “harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations,” particularly for violations in which there is no private right of action.

Accordingly, the trial court’s order denying the employer’s motion to compel arbitration was affirmed.

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