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Seyfarth Synopsis: When the California
Supreme Court said no to PAGA waivers in its 2014 Iskanian ruling,
we
asked whether employers would boldly go where few have gone
before and implement arbitration agreements requiring arbitration
of PAGA claims. A recent California Court of Appeal decision issued
in Perez v. U-Haul Company of California warrants revisiting that
question.
Many employers stayed the course in 2014 and continued including
PAGA waivers within their arbitration agreements, since numerous
federal district courts continued disagreeing with and refusing to
apply Iskanian's logic.
And even when in 2015 the Ninth Circuit instructed federal
district courts to apply Iskanian, many employers
continued using arbitration agreements with PAGA waivers, since
PAGA litigation could be severed and stayed while a plaintiff's
individual claims were arbitrated. If the employer prevailed on the
individual claims in arbitration, the plaintiff would not be an
aggrieved employee, would not have standing under PAGA, and would
thus be unable to pursue mooted PAGA claims.
By 2016 plaintiffs have made the availability of that option
scarcer. To avoid having to prove standing by prevailing on their
individual claims before pursuing otherwise stayed PAGA claims,
plaintiffs now commonly prefer to file PAGA-only lawsuits, without
alleging individual claims.
The two putative Perez class representatives, however,
had pursued both individual and PAGA claims. Predicting and seeking
to avoid a stay of their PAGA claims, the Perez plaintiffs
hopped onto the PAGA-only bandwagon by amending their complaints to
allege a PAGA cause of action only—abandoning their
individual claims, their roles as potential class representatives,
and putative class members' individual rights.
U-Haul fought back and sought to require arbitration of the
predicate issue of whether the plaintiffs themselves had been
subject to any Labor Code violations. Even though U-Haul was not
seeking to preclude the PAGA cause of action but only to arbitrate
the individual issues determinative of plaintiffs' standing for
their PAGA claims, the Court of Appeal rejected U-Haul's
argument. It reasoned that no individual issues remained at issue
and that U-Haul's arbitration agreement explicitly precluded
arbitration of any representative issues.
Though Iskanian explicitly acknowledged that PAGA
claims might be arbitrated, the Perez court then went full
dictum. It opined that even if U-Haul's arbitration agreement
did not preclude its argument for arbitrating the
plaintiff-specific issues determinative of PAGA standing, the PAGA
cause of action could not be split between arbitration and
litigation. But Iskanian doesn't preclude this. What
it precluded was the waiver of the right to pursue PAGA claims at
all.
While it may be the case that an arbitration agreement cannot
specify that an individual claim be created in a PAGA-only lawsuit,
an arbitration agreement should be able to specify that
representative claims be arbitrated—and specify that
streamlined procedures be applied. Once again, will some
enterprising employers consider going boldly where few have gone
before?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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