Perez v. U-Haul: Employers cannot compel arbitration of standing issue in PAGA cases

Some companies continue to try to force employees to arbitrate their individual PAGA claims before bringing their representative PAGA claims in court.  Two appellate decisions make it crystal clear that California courts have rejected these efforts, and that workers are not required to litigate PAGA claims in multiple forums.

By way of background, in Iskanian v. CLS Transportation, the California Supreme Court held that employers could not compel plaintiffs to arbitrate their representative PAGA claims.  In the wake of that case, some defendants began to argue that where workers had signed an arbitration agreement, they should be required to arbitrate their individual claims before proceeding with their representative claims in court.

The first case to address this issue was Williams v. Superior Court (2015) 237 Cal.App.4th 642.  In that case, the trial court granted a motion to compel arbitration by severing the individual PAGA claims and sending them to arbitration. However, the court of appeal reversed, noting that there was no legal authority suggesting that PAGA claims could be split in that manner.

The recent case of Perez v. U-Haul, 2016 DJDAR 9659 follows and agrees with Williams.  In Perez, defendant U-Haul conceded that under the holding in Iskanian it could not compel the plaintiffs to arbitrate their representative PAGA claims.

However, its attorneys argued that the plaintiffs should be required to arbitrate the threshold issue of whether they were “aggrieved employees” qualified to bring suit under PAGA. This is a variation of the argument considered and rejected in Williams.  Had the court agreed, the plaintiffs would have been sent to arbitration to determine whether U-Haul had violated California’s Labor Code with respect to the plaintiffs themselves.  Only if the plaintiffs had prevailed could they have returned to court to proceed with their representative PAGA claims.  Thus, U-Haul would have created a system whereby the arbitrator served as a gatekeeper with the authority to deny the plaintiffs their day in court.

In Perez, the Second District Court of Appeal rejected U-Haul’s contentions.  The court noted that the arbitration agreement at issue did not require the plaintiffs to arbitrate the issue of whether they were aggrieved employees.  Furthermore, even if it had, such a requirement would have been illegal and in violation of PAGA.

Perez makes two important points that bear repeating.  First, requiring employees to bring individual claims would undermine the purposes of PAGA.  Second, employers may not implement arbitration agreements that impede workers’ ability to bring PAGA claims.  This is because PAGA is fundamentally a law enforcement action that is designed to protect the public.

PAGA continues to play an important role, especially in situations in which an employer has imposed an arbitration agreement that bans class actions.  There is presently a split among the federal appellate courts as to whether such bans violate the National Labor Relations Act.  Until that split is resolved, PAGA may the be only available course for many California workers.

Hunter Pyle Law handles both PAGA claims and class actions in courts throughout California.  Please feel free to contact us with questions about PAGA or your workplace in general.