California Court Holds That Employees May Not Waive Right To Pursue PAGA Claims In Court
In California’s first judicial response to the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the Second District Court of Appeal held that Concepcion does not apply to representative actions brought pursuant to California’s Private Attorney General Act of 2004 (PAGA). As a result, arbitration agreements waiving an employee’s right to pursue a representative action under PAGA remain unenforceable under California law.
The plaintiff employee in Brown v. Ralphs Grocery Co. brought a class action and representative action under PAGA against her employers for alleged violations of the Labor Code and Business & Professions Code. The employers petitioned to compel arbitration on account of plaintiff’s employment application, which included an acknowledgement of and agreement to a binding arbitration policy. Soon after the trial court determined that the arbitration provision was unconscionable and thus unenforceable, the United States Supreme Court handed down its decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act (“FAA”) preempted California’s judicial prohibition of class action waivers in arbitration agreements. The Concepcion Court determined that the FAA requires all courts to enforce arbitration agreements according to their terms, even if those terms prohibit class proceedings in arbitration.
The Ralph’s Grocery court held that representative actions under PAGA, however, are beyond the reach of the FAA – and thus, the Concepcion ruling – because the right to bring such actions arises out of an interest to protect the public, not to benefit private parties. The court noted that PAGA “creates a statutory right for civil penalties for Labor Code violations that otherwise would be sought by state labor law enforcement agencies.” The aggrieved employee thus acts as a proxy for a state enforcement agency. By contrast, Concepcion concerned the private individual right of a consumer to pursue class action remedies, a right which the Concepcion Court determined may be waived by agreement so as not to frustrate the FAA.
Because PAGA representative actions do not conflict with the FAA, the Ralph’s Grocery court applied California law and held the representative action waiver to be unenforceable. The court reversed the trial court’s determination that the class action waiver was unenforceable, however, and remanded for a determination as to whether the PAGA representative action waiver could be severed from the rest of the arbitration agreement.
The Ralph’s Grocery decision has been rejected by the majority of U.S. District Courts in California, and rightly so, because it ignores the fundamental rule of the FAA, namely that arbitration is a matter of contract, making arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
A petition for review of this decision recently was denied by the California Supreme Court.