Employers May Not Force Employees to Arbitrate PAGA Claims for Labor Code Violations

Brown v. Superior Court, Case No. H037271 (6th App. Dist. June 5, 2013) represents another important victory for workers in California.  In Brown, the court held that employers may not force employees to arbitrate their claims under California’s Private Attorney General Act, Labor Code section 2698, et seq., also known as “PAGA.”  This is because PAGA claims are representative actions intended to advance a public purpose.  A private agreement attempting to waive the right to take such representative actions is unenforceable because it prevents employees from exercising their unwaivable statutory rights.

In Brown, the plaintiffs had signed an arbitration agreement that waived their right to pursue any type of class or representative action.  In their lawsuit, the plaintiffs brought claims for unpaid wages and overtime, among others.  They also brought claims under PAGA.  (Many sections of the California Labor Code provide for civil penalties, often in the amount of $50 or $100 per violation.  PAGA allows employees to bring representative actions to recover those penalties in representative actions brought on behalf of other employees.)

The employer then attempted to force the plaintiffs to arbitrate all of their claims, including their PAGA claims.  If successful, this would have resulted in the plaintiffs losing their right to pursue claims on behalf of other employees.  The trial court agreed with the employer.  However, the Court of Appeal for the Sixth Appellate District blocked the employer from doing so.

The Brown court noted that the principal purpose of PAGA was to deter violations of the California Labor Code that public agencies lacked adequate resources to prosecute.  This is a fundamentally public purpose.  The court further noted that despite the recent cases upholding arbitration agreements that banned class actions, neither ATT v. Concepcion (2011) 131 S.Ct. 1740 nor any other case had held that federal law required enforcement of a private agreement that wholly prevented the exercise of a statutory right intended for a predominantly public purpose.

(Brown is therefore in agreement with Franco v. Arakelian Enterprises and contradicts Iskanian v. CLS Transportation of Los Angeles.  The California Supreme Court has granted review of each of these cases.  Accordingly, we can expect a definitive answer regarding waiver of PAGA claims in the future.)

Given PAGA’s obvious public purpose, PAGA claims must proceed as representative actions.  Moreover, when an employee brings a PAGA claim, he or she does so in place of in place of the State of California.  Therefore, precluding an employee’s PAGA action essentially extinguishes the employee’s claim and insulates the employer from liability for PAGA penalties.  Such waivers of unwaivable statutory rights are prohibited under California law.

Several years ago, PAGA claims were almost an afterthought.  PAGA claims have a one year statute of limitations, as opposed to the longer statute for most wage and hour violations.  Furthermore, prior to Concepcion, Gentry v. Superior Court (2007) 42 Cal.4th 443 provided that class action waivers in wage and hour cases were often unenforceable.  Now, with Gentry under serious attack, it is important that employees understand their PAGA rights.  It is also important that attorneys bring these claims where they are viable, and that attorneys in successful actions comply with PAGA’s penalty-sharing provisions.  See Lab. Code § 2699(i).

PAGA claims are complex and involve an area of the law that many attorneys do not understand.  If you have questions about your PAGA rights in the workplace, or would like to speak with an experienced wage and hour attorney, please contact Hunter Pyle Law at 510.444.4400, or email us at inquire@hunterpylelaw.com.