Employee’s Individual, Nonrepresentative PAGA Claims Not Arbitrable Because The Parties’ Arbitration Agreement Specifically Excluded PAGA Claims From Arbitration
Duran v. EmployBridge Holding Company, 2023 WL 3717207 (2023)
Griselda Duran was employed defendant EmployBridge, LLC. As part of her employment application, plaintiff electronically signed an arbitration agreement. The arbitration agreement (1) states it is governed by the Federal Arbitration Act; and (2) contains a broad agreement to arbitrate claims:
In the event there is any dispute between [Duran] and the Company relating to or arising out of the employment or the termination of [Duran], which [Duran] and the Company are unable to resolve informally through direct discussion, regardless of the kind or type of dispute, [Duran] and the Company agree to submit all such claims or disputes to be resolved by final and binding arbitration, instead of going to court, in accordance with the procedural rules of the Federal Arbitration Act.
Except as prohibited under applicable law, [Duran] and the Company expressly intend and agree that: (1) class action, collective action, and representative action procedures shall not be asserted nor will they apply, in any arbitration proceeding pursuant to this Agreement; (2) neither [Duran] nor the Company will assert any class action, collective action, or representative action claims against each other in arbitration, in any court, or otherwise; and (3) [Duran] and the Company shall only submit their own respective, individual claims in arbitration and will not seek to represent the interests of any other person.
Should any term or provision, or portion of this Agreement, be declared void or unenforceable or deemed in contravention of law, it shall be severed and/or modified by the court, and the remainder of this Agreement shall be fully enforceable.
Duran sued EmployBridge to recover civil penalties under PAGA for Labor Code violations suffered by her and other employees. EmployBridge moved to compel arbitration of Duran’s claims on an individual, nonrepresentative basis. The trial court denied the motion because the arbitration agreement specifically excluded PAGA claims from arbitration.
EmployBridge appealed arguing that the arbitration agreement’s exclusion of PAGA claims from arbitration did not actually mean that all PAGA claims were excluded from arbitration; rather, EmployBridge argued that individual PAGA claims had to be arbitrated. The Court of Appeal affirmed the denial of the motion to compel arbitration:
This appeal challenges the denial of a motion to compel arbitration of claims to recover civil penalties under the Labor Code Private Attorneys General Act of 2004. The denial of the motion was based on the trial court’s determination that the agreement to arbitrate specifically excluded PAGA claims. We conclude the trial court correctly interpreted the agreement’s carve-out provision stating that “claims under PAGA … are not arbitrable under this Agreement.” This provision is not ambiguous. It is not objectively reasonable to interpret the phrase “claims under PAGA” to include some PAGA claims while excluding others. Thus, the carve-out provision excludes all the PAGA claims from the agreement to arbitrate.
Arbitration Agreement’s Impermissible Waiver Of Employee’s PAGA Claims Invalidated The Entire Agreement Under Its Unambiguous “Savings Clause And Conformity Clause” – Over Lawyering Renders Arbitration Agreement Unenforceable
Westmoreland v. Kindercare Education LLC, 90 Cal.App.5th 967 (2023)
Rochelle Westmoreland was employed by Kindercare Education LLC. As a condition of employment, when Westmoreland was hired, Westmoreland electronically signed a “Mutual Arbitration Agreement Regarding Wages and Hours.” Although the agreement expressly excludes any claims that cannot be required to be arbitrated as a matter of law, it also contains a provision described as a “Waiver of Class and Collective Claims” providing that covered claims will be arbitrated only on an individual basis and that the arbitrator may not adjudicate form of a class, collective, or representative claims. Complicating matters further, the arbitration agreement also contains a so-called “Savings Clause & Conformity Clause” requiring that if any provision of the agreement is determined to be unenforceable or in conflict with a mandatory provision of applicable law, it shall be construed to incorporate the mandatory provision of law, and/or the unenforceable or conflicting provision shall be automatically severed and the remainder of the agreement shall not be affected unless the Waiver of Class and Collective Claims is found to be unenforceable in which case the entire agreement is rendered invalid and any claim brought on a class, collective, or representative action basis must be filed in court of competent jurisdiction. This “Savings Clause & Conformity Clause” is referred to as the “Poison Pill.”
When Westmoreland was fired, she filed a representation action under PAGA. Kindercare moved to compel arbitration of Westmoreland’s individual non-PAGA claims and to stay her PAGA claim. The trial court granted the motion. Westmoreland sought a writ of mandate. The Court of Appeal held that the unenforceable PAGA waiver was not severable from the rest of the agreement and, therefore, it rendered the entire agreement unenforceable. The California Supreme Court and then the United States Supreme Court rejected Kindercare’s subsequent petitions for review and for certiorari.
Kindercare filed a renewed motion to compel arbitration and then, following Viking River, argued that Viking River compelled a finding that Westmoreland’s PAGA claims must be divided: the “individual” PAGA claim sent to arbitration and the “representative” PAGA claim pursued in court. The Court of Appeal would have agreed but for Kindercare’s Poison Pill:
Had Kindercare simply included a waiver of representative claims in its arbitration agreement and not included the poison pill at the end of the agreement, the result here could have been substantially similar to that in Viking River – the PAGA claims could be divided: the “individual” PAGA claim sent to arbitration and the “representative” PAGA claim pursued in court.
Ironically, the language and structure of Kindercare’s arbitration agreement necessitates a result similar to the “claim joinder” rule in PAGA that Viking River deemed problematic when imposed by state law. The poison pill effectively prevents us from sending Westmoreland’s “individual” claims under PAGA (representing the State of California but pursuing “individual” remedies based on the plaintiff’s status as a former employee) to arbitration while allowing litigation in court of her “representative” claims under PAGA, which involve the rights of other “aggrieved employees.”
The arbitration agreement, in this case, sought to address the uncertainty in the law in 2016 concerning the waiver of representative claims under PAGA by using the poison pill provision to prevent litigation on parallel tracks if it ever became clear that even one of Westmoreland’s potential class or representative claims could not be waived and would have to be pursued in court. The provision is unambiguous and “presents an all-or-nothing proposition.” The provision leaves no room for Kindercare to choose to bifurcate Westmoreland’s claims between arbitration and court; it instead invalidates the agreement.
In sum, having exercised our discretion to hear Kindercare’s appeal as a writ of mandate, we conclude that the arbitration agreement is invalid by operation of the unambiguous “Savings Clause and Conformity Clause.” As a consequence of Kindercare’s drafting decisions, and absent further stipulation between the parties, the arbitration agreement is “invalid” and so Kindercare must litigate all of Westmoreland’s claims in court.
Piplack v. In-N-Out Burgers, 88 Cal.App.5th 1281 (2023)
Former employees of In-N-Out Burgers, on their own behalf and on behalf of similarly aggrieved employees, brought an action against In-N-Out Burgers seeking civil penalties under the Labor Code Private Attorneys General Act for In-N-Out Burgers’s alleged practices of requiring employees, without reimbursement, to purchase and wear certain articles of clothing and to purchase and use special cleaning products to maintain the clothes. In reliance on Viking River Cruises, Inc. v. Moriana, ––– U.S. ––––, 142 S.Ct. 1906 (2022), In-N-Out Burgers filed a motion to compel arbitration, arguing that Viking River requires plaintiffs’ individual PAGA claims to be arbitrated and all remaining representative claims dismissed for lack of standing. The trial court summarily denied In-N-Out Burgers’ motion to compel arbitration. In-N-Out Burgers appealed.
The Court of Appeal concluded that the arbitration agreements required individual PAGA claims to be arbitrated and that In-N-Out Burgers did not waive its right to compel arbitration through its litigation conduct. The Court of Appeal also held that Viking River’s requirement that the plaintiff’s individual claims under PAGA be compelled to arbitration did not necessarily deprive the plaintiff of standing to pursue representative claims as an aggrieved employee.