Metropolitan News-Enterprise


Thursday, August 3, 2017


Page 1


Court of Appeal Says:

High Court Decision Barring Arbitration of PAGA Claims Doesn’t Affect Wages Suit

In Action Where Nonarbitrable PAGA Claims Are Stated, Causes of Action Seeking Unpaid Wages Remain Arbitrable, Fifth District Declares


By a MetNews Staff Writer


The Fifth District Court of Appeal held yesterday that while the California Supreme Court’s 2014 opinion barring arbitration of private attorney general actions aimed at garnering civil penalties does preclude arbitration of some of the causes of action in a pending case, but does not affect the arbitrability of an employee’s claim on behalf of himself and others for unpaid wages.

The Fifth District, in an opinion by Justice Donald Franson Jr., said that the high court’s opinion in Iskanian v. CLS Transportation Los Angeles only exempts from arbitration causes of causes of action under the Private Attorneys General Act of 2004 (“PAGA”) which seek civil penalties. Franson noted that “civil penalties” is “a term of art that is limited to monetary relief allocated 75 percent to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees.”

He recited that defendant KS Industries, L.P. takes the position that the term does not cover unpaid wages the recovery of which is sought be an individual employee, and said: “We agree.”

The opinion rebuffs the insistence by plaintiff Richard Esparza that he brought an action under PAGA, and no part of it is arbitrable.

High Court’s Utterance

The Supreme Court’s majority said in Iskanian:

“[PAGA] authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. As explained below, we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA‘s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.”

In January 2012, Esparza had signed an employment application which stated:

“I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by the company, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with the company, whether during or after that employment, will be submitted to binding arbitration….”

Franson’s Reasoning

Disagreeing with Kern Superior Court Judge Lorna H. Brumfield, to the extent she denied the motion to compel arbitration of the causes of action that don’t entail civil penalties, Franson wrote:

“The Federal Arbitration Act plays a central role in this appeal. If the act requires a claim to be arbitrated, a contrary rule of state law must give way because of federal preemption. The Federal Arbitration Act requires the enforcement of arbitration agreements covering private disputes. Here, the arbitration agreement is worded to cover claims arising from the employment relationship, which includes the employee’s claims for unpaid wages and other types of victim-specific relief. The State of California is not a party to the agreement and, thus, claims brought by it or on its behalf are not subject to arbitration.”

The jurist continued:

“Therefore, under the Federal Arbitration Act, the claims that are private disputes between the employee and KS Industries must be arbitrated and the claims brought on behalf of the State of California need not be arbitrated. The rule adopted in Iskanian attempted to define the boundary between the two types of claims by stating that PAGA representative claims for civil penalties are not subject to arbitration. We conclude that, for purposes of the Iskanian rule, PAGA representative claims for civil penalties are limited to those where a portion of the recovery is allocated to the Labor and Workforce Development Agency. Claims for unpaid wages based on Labor Code section 558 are not allocated in this manner and, therefore, the Iskanian rule does not exempt such claims from arbitration.”

Other Employees’ Wages

 To the extent Esparza was seeking unpaid wages allegedly owed other employees, Franson said, Iskanian does not bar arbitration. The effort, he observed, bars “victim-specific relief and private disputes.”

He pointed out that Iskanian says nonarbitrability applies to claims “that can only be brought by the state or its representatives, where any resulting judgment is binding on the state and any monetary penalties largely go to state coffers.”

There was an affirmance of Brunfield’s order “insofar as it denies arbitration of the PAGA representative claims seeking civil penalties that are paid, in whole or in part, to the Labor and Workforce Development Agency,” but there was not a reversal as to the balance of the order. Franson noted that the record was ambiguous as to whether Esparza was waiving non-PAGA causes of action for civil penalties, and the opinion instructs:

“The trial court is directed to conduct further proceedings to determine the plaintiff’s intention with respect to the pursuit of other claims and, after his intentions are made clear, to enter an order that is consistent with this opinion.”

There is no indication in the docket as to any inquiry from the court seeking clarification, in light of possible mootness.

The case is Esparza v. KS Industries, L.P., F072597.


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