Metropolitan News-Enterprise


Wednesday, November 29, 2017


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PAGA ‘Dispute’ Begins When Plaintiff Is Cleared to Sue—Appeals Court

New Rule Sets Time When Bar on Enforcement of ‘Predispute’ Arbitration Agreements Over Alleged Labor Code Rows Takes Effect


By a MetNews Staff Writer


The Court of Appeal for this district, expanding on holdings in two opinions from other districts that a predispute agreement by an employee to arbitrate a claim under the Labor Code Private Attorneys General Act of 2004—“PAGA”—is unenforceable, has declared that “predispute” means prior to a plaintiff gaining authority to proceed in such an action.

The opinion by Div. Four, authored by Justice Nora Manella, affirms a decision by Los Angeles Superior Court Judge John Shepard Wiley Jr. denying a motion by Glenair, Inc., a Glendale company that manufactures electronic equipment connectors, to compel arbitration of a PAGA action brought by ex-employees Malissa and Machele Julian.

Glenair insisted that the dispute predated the July 2014 distribution to hourly employees of a proposed arbitration agreement, along with information on a PAGA action that had been filed against it in February, and with the advisement that the agreement would become binding on the recipients unless they opted out. Neither Malissa Julian nor Machele Julian did so.

Each was fired in 2015.

Pinpointed Dispute Irrelevant

The dispute giving rise to that February 2014 lawsuit, Manella said, is not the relevant dispute. What is at issue, she pointed out, is the Julians’ own PAGA action filed in October 2015.

She acknowledged that the issues in the 2014 action and the Julians’ suit are similar, but what matters, she said, is whether the agreement to arbitrate came before or after the current dispute began.

The relevant “dispute,” as Manella defined the term, was not in existence in 2014, and commenced only after the Julians gained authority to bring a PAGA action.

The jurist pointed out that a person may bring such an action against his or her present or former employer for alleged Labor Code violations, in an individual or representative capacity, only after notifying the California Labor and Workforce Development Agency of an intention to do so and where the agency does not respond within 33 days or indicates that it does not intend to undertake an investigation. Also, she noted, if the agency says it will investigate but decides not to issue a timely citation to the employer or does not do so timely, a PAGA action may be brought.

Opinion’s Holding

“We hold that an agreement to arbitrate a PAGA claim, entered into before an employee is statutorily authorized to bring such a claim on behalf of the state, is an unenforceable predispute waiver,” Manella wrote.

Her conclusion that a “dispute” begins coterminously with attainment by a would-be PAGA plaintiff of the green light to sue was drawn from the California Supreme Court’s 2014 decision in Iskanian v. CLS Transportation Los Angeles, LLC and from two Court of Appeal opinions applying wording in that case to arbitration agreements.

The court in Iskanian held that any purported waiver by an employee of a right to bring a PAGA action is against public policy and unenforceable. The opinion included this language, quoted by both Court of Appeal opinions relied upon by Manella:

“Simply put, a PAGA claim…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….”

 A private PAGA plaintiff sues on behalf of the state, with the state receiving three-fourths of any penalties imposed, and the plaintiffs dividing the remaining proceeds.

Two Prior Decisions

Manella declared that “at least two appellate courts have concluded that predispute agreements to arbitrate PAGA claims are unenforceable for reasons that we find persuasive.”

She cited Betancourt v. Prudential Overall Supply, decided earlier this year by the Fourth District’s Div. Two, and Tanguilig v. Bloomingdale’s, Inc., handed down last year by the First District’s Div. Five.

In Betancourt, plaintiff Roberto Betancourt had signed an arbitration agreement; he sued his employer under PAGA; the employer sought an order requiring arbitration; the Superior Court denied the motion; the Court of Appeal affirmed.

Justice Douglas P. Miller explained that “[t]he state is not bound by Betancourt’s predispute agreement to arbitrate,” and that “Betancourt is suing on behalf of the state,” so that the employer “cannot rely on the predispute agreement with Betancourt to compel arbitration.”

In Tanguilig, the opinion by Justice Terence L. Bruiniers said that because the state controls PAGA actions, “a PAGA claim, individual or collective, cannot be arbitrated pursuant to a predispute arbitration agreement without the state’s consent.”

Draws Distinction

Drawing on those decisions, Manella said that the Julians’ agreement to arbitration came in their personal capacities and not in their later-acquired capacities as plaintiffs in a PAGA action. She said:

“Ordinarily, when a person who may act in two legal capacities executes an arbitration agreement in one of those capacities, the agreement does not encompass claims the person is entitled to assert in the other capacity….

“[A]n arbitration agreement executed before an employee meets the statutory requirements for commencing a PAGA action does not encompass that action. Prior to satisfying those requirements, an employee enters into the agreement as an individual, rather than as an agent or representative of the state.”

The case is Julian v. Glenair, Inc., 2017 S.O.S. 5818.

Jesse A. Cripps, Sarah E. Gerdes, and Sarah Zenewicz of Gibson, Dunn & Crutcher were counsel on appeal for Glenair, while Matthew J. Matern and Tagore Subramaniam of Matern Law Group represented the Julians.

Subramaniam commented yesterday:

“We are pleased with the Court’s decision and believe the decision’s publication will provide guidance to trial courts on the nature of representative actions under California’s Private Attorneys General Act.”


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