Opinion
H042103
01-03-2017
WAYNE JENN-WEI WAN, Plaintiff and Respondent, v. SOLARCITY CORPORATION, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 114CV268607)
I. INTRODUCTION
Plaintiff Wayne Jenn-Wei Wan filed a civil action against his former employer, defendant SolarCity Corporation, alleging a representative claim under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). Plaintiff alleges, among other matters, that defendant failed to pay all wages owed, and he seeks to recover civil penalties on behalf of himself and other current and former employees.
All further statutory references are to the Labor Code unless otherwise indicated.
Defendant moved to compel arbitration of whether plaintiff was an "aggrieved employee" under PAGA (§ 2699, subd. (a)), pursuant to an arbitration agreement that the parties had entered when plaintiff was hired. Defendant also initially sought to dismiss plaintiff's PAGA claim on behalf of others based on the contention that the parties' arbitration agreement contained a waiver of such a claim, but it later requested that arbitration of the "aggrieved employee" issue proceed first and that judicial proceedings be stayed.
The trial court denied the motion to compel arbitration. The court determined that a waiver of plaintiff's right to bring a PAGA claim was unenforceable, and that defendant could not compel plaintiff to arbitrate the aggrieved employee issue before pursuing his PAGA claim in court.
On appeal, defendant contends that the trial court erred by refusing to order arbitration of the issue of plaintiff's "aggrieved employee status" and by failing to stay judicial proceedings pending arbitration of that issue.
For the reasons stated below, we will affirm the trial court's order denying defendant's motion to compel arbitration.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties' Arbitration Agreement
Plaintiff worked for defendant as a field energy advisor in 2013 and 2014. Before commencing work with defendant, plaintiff signed an agreement with defendant in October 2013, addressing various employment-related topics.
The employment agreement specifically addresses arbitration in paragraph 12 (hereafter, the arbitration agreement). The arbitration agreement states that it is "governed by the Federal Arbitration Act [(FAA)]." The arbitration agreement provides for binding arbitration and applies to any dispute arising out of or related to plaintiff's employment, including disputes regarding compensation or rest periods.
Paragraph 12.A. of the arbitration agreement addresses representative actions as follows: "[P]rivate attorney general representative actions are not covered within the scope of this Agreement and may be maintained in a court of law, but an Employee may seek only in arbitration individual remedies for himself or herself under any applicable private attorney general representative action statute, and the arbitrator shall decide whether an Employee is an aggrieved person under any private attorney general statute." (Italics added.)
Paragraph 12.D. of the arbitration agreement also addresses representative actions: "In arbitration, the parties will have the right to conduct civil discovery, bring motions, and present witnesses and evidence as provided by the forum state's procedural rules applicable to court litigation as interpreted and applied by the Arbitrator. However, there will be no right or authority for any dispute to be brought, heard or arbitrated as a class or collective action ('Class Action Waiver'), or in a representative or private attorney general capacity on behalf of a class of persons or the general public. Notwithstanding any other clause contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class or collective action, or in a representative or private attorney general capacity on behalf of a class of persons or the general public. Although an Employee will not be retaliated against, disciplined or threatened with discipline as a result of his or her filing of or participating in a class or collective action in any forum, the Company may lawfully seek enforcement of this Agreement and the Class Action Waiver under the Federal Arbitration Act and seek dismissal of such class or collective actions or claims. Notwithstanding any other clause contained in this Agreement, any claim that all or part of the Class Action Waiver is unenforceable, void or voidable may be determined only by a court of competent jurisdiction and not by an arbitrator." (Boldface omitted; italics added.)
Paragraph 12.H. of the arbitration agreement contains the following provision regarding unenforceability: "In the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable. If the Class Action Waiver is deemed to be unenforceable, the Company and Employee agree that this Agreement is otherwise silent as to any party's ability to bring a class and/or collective action in arbitration."
The parties' employment agreement, which includes the arbitration provision, also contains a general provision regarding severability in paragraph 13.C. as follows: "If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect."
B. The Complaint
After his employment ended, plaintiff filed a complaint against defendant in July 2014, alleging a representative claim under PAGA. Plaintiff alleges that defendant failed to pay overtime, provide meal and rest periods, provide accurate wage statements, pay final wages in a timely manner, reimburse business expenses, and provide seating when the work reasonably permitted the use of seats. Plaintiff seeks to recover civil penalties on behalf of himself and other current and former employees for defendant's violations of the Labor Code and an Industrial Welfare Commission wage order.
C. The Motion to Compel Arbitration
In January 2015, defendant filed a motion to compel arbitration and to dismiss plaintiff's "[PAGA] claims brought on behalf of others." Defendant contended that plaintiff had entered into an agreement providing for the arbitration of individual claims and whether he is an "aggrieved employee" for purposes of PAGA. Defendant argued that plaintiff should therefore be compelled to arbitrate these matters. According to defendant, if the arbitrator determined that plaintiff was not an aggrieved employee, then plaintiff's PAGA claim on behalf of other employees would be rendered moot.
Defendant further contended that the parties' arbitration agreement permitted plaintiff to seek only individual remedies under PAGA, and not remedies on behalf of others. According to defendant, (1) plaintiff in the arbitration agreement had waived PAGA remedies on behalf of other employees, (2) the PAGA waiver was valid under the FAA, (3) the California Supreme Court's decision to the contrary in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) was wrong, and (4) plaintiff's PAGA claim on behalf of others should be dismissed.
D. Opposition to the Motion to Compel Arbitration
In opposition to defendant's motion, regarding defendant's contention that individual claims must be arbitrated, plaintiff argued that he had alleged only a representative claim under PAGA, and not an individual claim. Accordingly, there were no individual claims to arbitrate. Second, regarding defendant's contention that the arbitration agreement contained a waiver of representative claims under PAGA, plaintiff argued that the waiver was void under Iskanian. Third, regarding defendant's contention that whether plaintiff was an "aggrieved employee" under PAGA must be arbitrated, plaintiff contended that because the PAGA waiver was void and not severable from the rest of the agreement, the entire arbitration agreement was unenforceable. Plaintiff alternatively argued that whether he was an aggrieved employee under PAGA was "part and parcel of the representative PAGA claim," which under the terms of the arbitration agreement may be brought in court.
E. Reply in Support of the Motion to Compel Arbitration
In reply, defendant continued to contend that plaintiff had alleged individual claims that were arbitrable, and that the issue of whether he was an aggrieved employee under PAGA was arbitrable. Contrary to the position it appeared to take in its moving papers, defendant stated that the parties' arbitration agreement permitted "PAGA claims on behalf of other employees" to be pursued in court. Defendant requested that arbitration proceed first on the issue of whether plaintiff was an "aggrieved employee," and that judicial proceedings be stayed.
F. The Trial Court's Order
The trial court denied defendant's motion by written order after a hearing on February 20, 2015. The court first determined that plaintiff had alleged only a representative action under PAGA, and that there was no individual claim to send to arbitration. Second, the court determined that, pursuant to the California Supreme Court's decision in Iskanian, any waiver of plaintiff's right to bring a PAGA claim was unenforceable. Lastly, the court refused to compel arbitration of the issue of whether plaintiff was an aggrieved employee under PAGA. The court stated: "Defendant argues that the Arbitration Agreement provides that an arbitrator shall decide whether an employee is an aggrieved person under PAGA. However, enforcement of such a provision in light of the fact that the PAGA waiver is unenforceable would be nonsensical. If this provision were enforced in the manner proposed by Defendant, it would mean that Plaintiff would need to go through arbitration to determine whether the alleged labor violations occurred prior to bringing a civil action to determine whether the violations occurred. Defendant cites to no authority supporting the proposition that such an end-run around Iskanian is permissible by requiring an employee not only to allege that violations were committed against the employee but also to prove the violations were committed against the employee before bringing suit."
III. DISCUSSION
On appeal, defendant contends that the trial court erred by refusing to order arbitration of the issue of plaintiff's "aggrieved employee status" under PAGA and by failing to stay judicial proceedings pending arbitration of that issue.
Plaintiff contends that the trial court properly denied defendant's motion to compel arbitration. Among other arguments, plaintiff contends that the parties' arbitration agreement contains an unenforceable waiver of the right to bring a PAGA claim and that, due to a nonseverability clause, the entire arbitration agreement is unenforceable. Plaintiff also argues that his status as an aggrieved person under PAGA is not an issue that may be separately arbitrated.
Before addressing the substance of the parties' contentions, we will first briefly review the statutory scheme that governs private arbitration in California and the standard of review that applies to an order denying a motion to compel arbitration. We will then consider the characteristics of a PAGA claim, the California Supreme Court's ruling in Iskanian prohibiting PAGA waivers, and appellate court decisions since Iskanian that have addressed the arbitrability of PAGA claims. We will then address the substance of the parties' contentions.
A. The Statutory Scheme and the Standard of Review
California's procedures for a petition to compel arbitration apply in California courts even if the arbitration agreement is governed by the FAA. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 409-410.) The party seeking arbitration bears the burden of proving the existence of an arbitration agreement by the preponderance of the evidence, and the party opposing arbitration bears the burden of proving by a preponderance of the evidence any defense. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle); Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) In ruling on a petition to compel arbitration, "the court must determine whether the parties entered into an enforceable agreement to arbitrate that reaches the dispute in question, construing the agreement to the limited extent necessary to make this determination. [Citation.] If such an agreement exists, the court must order the parties to arbitration unless arbitration has been waived or grounds exist to revoke the agreement. [Citation.]" (California Correctional Peace Officers Assn. v. State of California (2006) 142 Cal.App.4th 198, 204-205.)
" 'The scope of arbitration is a matter of agreement between the parties.' [Citation.] 'A party can be compelled to arbitrate only those issues it has agreed to arbitrate.' [Citation.] Thus, 'the terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.' [Citation.] For that reason, 'the contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration' by the court. [Citation.]" (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705 (Molecular).) "Any doubts or ambiguities as to the scope of the arbitration clause itself should be resolved in favor of arbitration." (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 386; accord Molecular, supra, at p. 705.)
An order denying a petition to compel arbitration is an appealable order. (§ 1294, subd. (a).) "Where, as here, the evidence is not in conflict, we review the trial court's denial of arbitration de novo. [Citation.]" (Pinnacle, supra, 55 Cal.4th at p. 236.)
B. PAGA
Some Labor Code violations may be prosecuted as misdemeanors. Several statutes also provide for civil penalties, which may be sought by the Labor Commissioner in a civil action and paid into a fund created by the Labor and Workforce Development Agency (LWDA). (Iskanian, supra, 59 Cal.4th at p. 378.) To improve enforcement, the Legislature enacted PAGA. "The Legislature declared that adequate financing of labor law enforcement was necessary to achieve maximum compliance with state labor laws, that staffing levels for labor law enforcement agencies had declined and were unlikely to keep pace with the future growth of the labor market, and that it was therefore in the public interest to allow aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, with the understanding that labor law enforcement agencies were to retain primacy over private enforcement efforts. [Citation.]" (Arias v. Superior Court (2009) 46 Cal.4th 969, 980 (Arias).)
Under PAGA, a civil action may be brought by "an aggrieved employee on behalf of himself or herself and other current or former employees" to recover civil penalties for an employer's Labor Code violations. (§ 2699, subd. (a); see also id., subd. (g)(1).) An "aggrieved employee" is defined as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." (Id., subd. (c).) The civil penalties recovered in the PAGA action are to be distributed as follows: 75 percent to the LWDA, and 25 percent to the aggrieved employees. (§ 2699, subd. (i).)
"Before bringing a civil action for statutory penalties, an employee must comply with Labor Code section 2699.3. [Citation.] That statute requires the employee to give written notice of the alleged Labor Code violation to both the employer and the Labor and Workforce Development Agency . . . . [Citation.] If the agency notifies the employee and the employer that it does not intend to investigate . . . , or if the agency fails to respond within [the statutory timeframe], the employee may then bring a civil action against the employer. [Citation.] If the agency decides to investigate, it then has [a statutorily specified timeframe] to do so. If the agency decides not to issue a citation, or does not issue a citation within [the statutory timeframe], the employee may commence a civil action. [Citation.]" (Arias, supra, 46 Cal.4th at p. 981.) In addition to bringing an action under PAGA, an employee may "pursue or recover other remedies available under state or federal law, either separately or concurrently" with a PAGA claim. (§ 2699, subd. (g)(1).)
In Arias, the California Supreme Court explained the nature of a representative action under PAGA and the effect of a judgment in a PAGA action. "In a 'representative action,' the plaintiff seeks recovery on behalf of other persons. There are two forms of representative actions: those that are brought as class actions and those that are not. [Citations.]" (Arias, supra, 46 Cal.4th at p. 977, fn. 2.) A representative action under PAGA need not satisfy class action requirements. (Arias, supra, at p. 975.)
Although a PAGA action need not satisfy class action requirements, the California Supreme Court stated that a judgment in a PAGA action "is binding not only on the named employee plaintiff but also on government agencies and any aggrieved employee not a party to the proceeding." (Arias, supra, 46 Cal.4th at p. 985.) In reaching this conclusion, the court explained that an employee plaintiff suing under PAGA "does so as the proxy or agent of the state's labor law enforcement agencies. . . . In a lawsuit brought under the act, the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies—namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency. [Citations.] . . . Because collateral estoppel applies not only against a party to the prior action in which the issue was determined, but also against those for whom the party acted as an agent or proxy [citations], a judgment in an employee's action under the act binds not only that employee but also the state labor law enforcement agencies." (Arias, supra, at p. 986.)
The court further explained that, "[b]ecause an aggrieved employee's action under the [PAGA] functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations [citations], and an action to recover civil penalties 'is fundamentally a law enforcement action designed to protect the public and not to benefit private parties' [citation]. When a government agency is authorized to bring an action on behalf of an individual or in the public interest, and a private person lacks an independent legal right to bring the action, a person who is not a party but who is represented by the agency is bound by the judgment as though the person were a party. [Citation.] Accordingly, with respect to the recovery of civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under the act . . . ." (Arias, supra, 46 Cal.4th at p. 986.)
C. Iskanian
In Iskanian, the California Supreme Court addressed whether an arbitration agreement may require an employee as a condition of employment to give up the right to bring a representative PAGA action in any forum. In concluding that such a waiver is contrary to public policy (Iskanian, supra, 59 Cal.4th at p. 360), the court addressed the characteristics of a PAGA representative action.
The court explained that "[t]he civil penalties recovered on behalf of the state under the PAGA are distinct from the statutory damages to which employees may be entitled in their individual capacities." (Iskanian, supra, 59 Cal.4th at p. 381.) "A PAGA representative action is therefore a type of qui tam action. 'Traditionally, the requirements for enforcement by a citizen in a qui tam action have been (1) that the statute exacts a penalty; (2) that part of the penalty be paid to the informer; and (3) that, in some way, the informer be authorized to bring suit to recover the penalty.' [Citation.] The PAGA conforms to these traditional criteria, except that a portion of the penalty goes not only to the citizen bringing the suit but to all employees affected by the Labor Code violation. The government entity on whose behalf the plaintiff files suit is always the real party in interest in the suit. [Citation.]" (Id. at p. 382.)
The court observed that qui tam actions have been used for a long time. The federal False Claims Act, which allows "individuals to share the recovery achieved by the reporting of false claims, originated during the Civil War." (Iskanian, supra, 59 Cal.4th at p. 382.) "The qui tam plaintiff under the federal False Claims Act has standing in federal court . . . even though the plaintiff has suffered no injury in fact, because that statute 'can reasonably be regarded as effecting a partial assignment of the Government's damages claim.' [Citation.]" (Ibid.)
In concluding that an employee's right to bring a representative PAGA claim is unwaivable, the court first explained that PAGA was enacted "to augment the limited enforcement capability of the [LWDA] by empowering employees to enforce the Labor Code as representatives of the [LWDA]. Thus, an agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code. Because such an agreement has as its 'object, . . . indirectly, to exempt [the employer] from responsibility for [its] own . . . violation of law,' it is against public policy and may not be enforced. (Civ. Code, § 1668.)" (Iskanian, supra, 59 Cal.4th at p. 383.)
Second, the court explained that "[s]uch an agreement also violates Civil Code section 3513's injunction that 'a law established for a public reason cannot be contravened by a private agreement.' [Citation.] The PAGA was clearly established for a public reason, and agreements requiring the waiver of PAGA rights would harm the state's interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations." (Iskanian, supra, 59 Cal.4th at p. 383.)
Moreover, the court explained that "whether or not an individual claim is permissible under the PAGA, a prohibition of representative claims frustrates the PAGA's objectives." (Iskanian, supra, 59 Cal.4th at p. 384.) " '[A]ssuming it is authorized, a single-claimant arbitration under the PAGA for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code. That plaintiff and other employees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has collateral estoppel effects. [Citation.] Other employees would still have to assert their claims in individual proceedings.' [Citation.]" (Ibid.)
The court also concluded that the rule prohibiting the waiver of PAGA claims did not frustrate the FAA's objectives and was therefore not preempted by the FAA. (Iskanian, supra, 59 Cal.4th at p. 384.) Relying on the text of the FAA, legislative history, and a review of the United States Supreme Court's FAA jurisprudence (Iskanian, supra, at pp. 384-386), the California Supreme Court determined that "the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Agency." (Id. at p. 384.) "There is no indication that the FAA was intended to govern disputes between the government in its law enforcement capacity and private individuals." (Id. at p. 385.)
The California Supreme Court continued: "Simply put, a PAGA claim lies outside the FAA's coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the Agency or aggrieved employees—that the employer has violated the Labor Code. Through his PAGA claim, Iskanian is seeking to recover civil penalties, 75 percent of which will go to the state's coffers. We emphasized in Arias that 'an action to recover civil penalties "is fundamentally a law enforcement action designed to protect the public and not to benefit private parties" '; that '[i]n a lawsuit brought under the [PAGA], the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies'; and that 'an aggrieved employee's action under the [PAGA] functions as a substitute for an action brought by the government itself.' [Citation.] The fact that any judgment in a PAGA action is binding on the government confirms that the state is the real party in interest. [Citation.] It is true that 'a person may not bring a PAGA action unless he or she is "an aggrieved employee" [citation]' [citation], but that does not change the character of the litigant or the dispute. . . . '[E]very PAGA action, whether seeking penalties for Labor Code violations as to only one aggrieved employee—the plaintiff bringing the action—or as to other employees as well, is a representative action on behalf of the state.' [Citation.]" (Iskanian, supra, 59 Cal.4th at pp. 386-387.) "Representative actions under the PAGA, unlike class action suits for damages, do not displace the bilateral arbitration of private disputes between employers and employees over their respective rights and obligations toward each other. Instead, they directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws. In crafting the PAGA, the Legislature could have chosen to deputize citizens who were not employees of the defendant employer to prosecute qui tam actions. The Legislature instead chose to limit qui tam plaintiffs to willing employees who had been aggrieved by the employer in order to avoid 'private plaintiff abuse.' [Citation.] This arrangement likewise does not interfere with the FAA's policy goal." (Id. at p. 387.)
"In sum, the FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement. It does not aim to promote arbitration of claims belonging to a government agency, and that is no less true when such a claim is brought by a statutorily designated proxy for the agency as when the claim is brought by the agency itself. The fundamental character of the claim as a public enforcement action is the same in both instances." (Iskanian, supra, 59 Cal.4th at p. 388.)
D. Post-Iskanian Decisions
Although Iskanian held that a complete waiver of the right to bring a representative PAGA claim in any forum is unenforceable, some appellate courts have interpreted Iskanian to also prohibit a waiver of the right to bring a PAGA claim in court and require arbitration. For example, one appellate court has stated in dicta that "PAGA claims are not subject to private arbitration agreements," citing Iskanian. (Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 657.) Similarly, another appellate court has noted that "one might reasonably conclude" from certain language in Iskanian "that a court could never compel arbitration of a PAGA claim unless the state, as opposed to the individual plaintiff, had entered into an arbitration agreement with the defendant." (Garden Fresh Restaurant Corp. v. Superior Court (2014) 231 Cal.App.4th 678, 688, fn. 3, disapproved on another ground in Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 256-257, 260, fn. 9.)
A similar conclusion was reached in Williams v. Superior Court (2015) 237 Cal.App.4th 642 (Williams). In Williams, the employer and employee had entered into an arbitration agreement which precluded the employee from bringing a representative PAGA action in arbitration or court. (Williams, supra, at p. 646, fn. 2.) The employee thereafter filed a representative PAGA action against the employer for allegedly failing to provide rest periods. (Williams, supra, at p. 645.) The employer moved to enforce the employee's waiver of his representative PAGA claim or, in the alternative, for an order compelling the employee to submit the rest period issue to arbitration, while staying the PAGA claim pending the outcome of arbitration. (Williams, supra, at p. 645.) The trial court denied the employer's motion to enforce the PAGA waiver, but granted the alternative relief. (Williams, supra, at p. 646.)
The appellate court granted the employee's petition for writ of mandate seeking to reverse the trial court's order. The appellate court observed that the employee's complaint alleged only a representative cause of action under PAGA. (Williams, supra, 237 Cal.App.4th at p. 649.) However, the trial court had ordered the employee to submit the " 'underlying controversy' " to arbitration for a determination of whether the employee was an " 'aggrieved employee' " with standing to bring a representative PAGA claim. (Williams, supra, at p. 649.) The appellate court observed that "case law suggests that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim." (Ibid.) The appellate court explained that the employee in the case before it " 'does not bring the PAGA claim as an individual claim, but "as the proxy or agent of the state's labor law enforcement agencies." ' [Citations.] Accordingly, [the employee] cannot be compelled to submit any portion of his representative PAGA claim to arbitration, including whether he was an 'aggrieved employee.' " (Ibid.)
Recently, in Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408 (Perez), an appellate court held that "California law precludes an employer from requiring an employee to individually arbitrate whether he or she qualifies as an 'aggrieved employee' within the meaning of the PAGA, while simultaneously preserving its right to a judicial forum for all other aspects of the claim." (Id. at p. 422.) In reaching this determination, the appellate court declined to "determine whether PAGA claims are categorically exempted from private arbitration agreements." (Ibid.)
The arbitration agreement in Perez contained a waiver of the right to bring claims as a representative or in a private attorney general capacity. The agreement also stated that it was governed by the FAA. (Perez, supra, 3 Cal.App.5th at p. 413.) The plaintiff employees thereafter filed civil actions alleging representative PAGA claims. (Perez, supra, at p. 413.) The defendant employer sought to compel the plaintiffs "to individually arbitrate the 'predicate issue of whether' they had personally been subjected to any Labor Code violation, and therefore had standing to assert a PAGA claim." (Ibid.) The trial court denied the motion to compel.
On appeal, the defendant employer conceded that the PAGA waiver was unenforceable under Iskanian, and that the plaintiff employees were entitled to pursue their PAGA claims in court. (Perez, supra, 3 Cal.App.5th at p. 419.) The defendant contended, however, that the plaintiffs should be compelled to individually arbitrate the predicate issue of whether they were aggrieved employees within the meaning of PAGA and thus have standing to bring the representative claims.
The appellate court rejected the defendant's argument. The court determined that the parties' arbitration agreement did not encompass the issue of whether the plaintiffs were aggrieved employees within the meaning of PAGA. (Perez, supra, 3 Cal.App.5th at pp. 419-420.) The court further stated that, even if the issue was within the scope of the parties' arbitration agreement, it was "not aware of any authority supporting [the defendant's] argument that an employer may legally compel an employee to arbitrate the individual aspects of his or her PAGA claim, while simultaneously preserving its own right to litigate the representative aspects of the claim in court." (Id. at p. 420.) The appellate court agreed "with Williams's conclusion that California law prohibits the enforcement of an employment agreement provision that requires an employee to individually arbitrate whether he or she qualifies as an 'aggrieved employee' under the PAGA, and then (if successful) to litigate the remainder of the 'representative action in the superior court.' " (Id. at p. 421.) The appellate court agreed with the conclusion in Williams for two reasons.
First, the appellate court in Perez, citing Iskanian, stated that " ' "every PAGA action, whether seeking penalties for Labor Code violations as to only one aggrieved employee—the plaintiff bringing the action—or as to other employees as well, is a representative action on behalf of the state." ' [Citation.]" (Perez, supra, 3 Cal.App.5th at p. 421.) Moreover, "requiring an employee to bring a PAGA claim in his or her 'individual' capacity, rather than in a 'representative' capacity, would undermine the purposes of the statute. [Citation.]" (Ibid.) Based on these conclusions, the appellate court did "not believe an employer may force an employee to split a PAGA claim into 'individual' and 'representative' components, with each being litigated in a different forum." (Ibid.)
Second, the appellate court reasoned that "an employer is not permitted to impose arbitration provisions that impede an aggrieved employee's ability to bring a PAGA claim, which is ' "fundamentally a law enforcement action designed to protect the public . . . ." [Citation].' [Citations.] Under 'Iskanian's . . . public policy rationale,' an arbitration provision is unenforceable if it 'circumvents [the PAGA's] intent to empower employees to enforce the Labor Code as agency representatives and harms the state's interest in enforcing the Labor Code.' [Citation.] In this cause, [the defendant] is, in effect, attempting to impose its preferred forum for different aspects of the PAGA claim by requiring plaintiffs to individually arbitrate whether a Labor Code violation was committed against them, while simultaneously preserving its right to a judicial forum for the 'representative' issues. We think it clear that a private agreement requiring an employee to litigate his or her PAGA claim in multiple forums that have been selected based solely on the employer's own preferences interferes with 'the state's interests in enforcing the Labor Code,' and is therefore against public policy. [Citation.]" (Perez, supra, 3 Cal.App.5th at pp. 421-422.)
"In [AT&T Mobility LLC v. Concepcion (2011)] 563 U.S. 333, which involved the validity of consumer class action waivers, the United States Supreme Court observed that while defendants generally favor arbitration for 'individual disputes,' they are unwilling to participate in arbitration on a classwide basis: Although '[t]he absence of multilayered review [in arbitration] makes it more likely that errors will go uncorrected[,] [d]efendants are willing to accept the costs of these errors in [individual] arbitration, since their impact is limited to the size of individual disputes, and presumably outweighed by savings from avoiding the courts. But when damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will often become unacceptable. Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.' [Citation.]"
E. Analysis
Defendant contends that a portion of plaintiff's PAGA claim falls within the scope of the parties' arbitration agreement. Specifically, according to defendant, the issue of whether plaintiff is an aggrieved employee within the meaning of PAGA, and therefore has standing to bring a representative PAGA action on behalf of other current and former employees, is an issue that is subject to arbitration.
We determine that plaintiff may not be compelled to arbitrate the issue of whether he is an aggrieved employee because the provision in the parties' arbitration agreement providing for arbitration of that issue is not enforceable. Moreover, other provisions in the arbitration agreement render the entire arbitration agreement unenforceable.
1. Provision requiring arbitration of aggrieved person status
Paragraph 12.A. of the arbitration agreement provides "private attorney general representative actions are not covered within the scope of this Agreement and may be maintained in a court of law, but an Employee may seek only in arbitration individual remedies for himself or herself under any applicable private attorney general representative action statute, and the arbitrator shall decide whether an Employee is an aggrieved person under any private attorney general statute." (Italics added.) An employee "cannot be compelled to submit any portion of his representative PAGA claim to arbitration, including whether he was an 'aggrieved employee.' " (Williams, supra, 237 Cal.App.4th 649; accord, Perez, supra, 3 Cal.App.4th at pp. 421-422.) We therefore determine that defendant may not compel arbitration of the "aggrieved person" issue under the parties' arbitration agreement.
Plaintiff contends that the language providing for arbitration of the "aggrieved person" issue applies only to disputes in which the employee is seeking individual remedies and not to his representative PAGA action. Defendant contends that arbitration of the "aggrieved person" issue applies to all private attorney general representative actions that otherwise must be litigated in court and do not involve individual remedies. In this appeal, we will assume, without deciding, that the provision in the parties' arbitration agreement requires arbitration of the "aggrieved person" issue for any representative PAGA claim. --------
We are not persuaded by defendant's attempt to analogize plaintiff's representative PAGA claim, or the issue of plaintiff's status as an aggrieved employee under PAGA, to a retaliation claim under the federal False Claims Act (31 U.S.C. § 3730(h)). A retaliation claim under the federal False Claims Act "is distinct from other [False Claims Act] provisions 'in that claims thereunder are not brought as qui tam actions but rather on behalf of the plaintiff.' [Citation.]" (United States ex rel. Cassaday v. KBR, Inc. (S.D.Tex. 2008) 590 F.Supp.2d 850, 858 (Cassaday); accord, Orcutt v. Kettering Radiologists, Inc. (S.D. Ohio 2002) 199 F.Supp.2d 746, 756.) "[T]he 'government has no monetary interest in [False Claims Act retaliation] claims and is not a party thereto.' " (Cassaday, supra, at p. 858; see 31 U.S.C. § 3730(h)(1) & (2).) A retaliation claim under the federal False Claims Act is thus analogous to a statutory claim for damages by an employee in his or her individual capacity, and distinct from a representative PAGA action on behalf of the state for recovery of civil penalties. (See Iskanian, supra, 59 Cal.4th at p. 381.) We therefore do not find the authority requiring arbitration of retaliation claims under the federal False Claims Act as persuasive support for defendant's contention that the aggrieved employee issue under PAGA must also be arbitrated.
In sum, we determine that defendant may not compel arbitration of the "aggrieved person" issue under the parties' arbitration agreement.
2. Provision waiving PAGA claim
In addition, certain other provisions in the arbitration agreement render the entire arbitration agreement unenforceable. Specifically, paragraph 12.D. provides that "there will be no right or authority for any dispute to be brought, heard or arbitrated as a class or collective action ('Class Action Waiver'), or in a representative or private attorney general capacity on behalf of a class of persons or the general public." A waiver of the right to bring a representative PAGA claim in any forum is unenforceable under Iskanian. (Iskanian, supra, 59 Cal.4th at pp. 383-384; see Securitas Security Services USA, Inc. v. Superior Court (2015) 234 Cal.App.4th 1109, 1114, 1123 (Securitas) [construing similar language as an unenforceable PAGA waiver under Iskanian].)
On appeal defendant contends that paragraph 12.D.'s prohibition of representative or private attorney general actions applies only in arbitration, and that paragraph 12.A. of the arbitration agreement specifically allows "private attorney general representative actions . . . [to] be maintained in a court of law."
It is not clear that paragraph 12.D.'s prohibition of representative or private attorney general actions applies only in arbitration. Defendant itself initially argued in its motion papers in the trial court that other language in paragraph 12.A., which limits an employee to "seek only in arbitration individual remedies for himself . . . under any applicable private attorney general representative action statute," constitutes an express waiver of plaintiff's right to seek PAGA penalties on behalf of other employees, that Iskanian was wrongly decided, and that therefore plaintiff's PAGA claim on behalf of others should be dismissed. Even in its briefing on appeal, defendant makes references to plaintiff's waiver of a representative PAGA claim, including the statement that plaintiff "waived his ability to pursue certain claims on behalf of others via class, representative or private attorney general action procedures." In other words, defendant itself has offered conflicting interpretations of the arbitration agreement as to whether an employee may bring a representative PAGA claim at all.
Moreover, other language in paragraph 12.D. suggests that the provisions in that paragraph are not limited to the arbitral forum. For example, paragraph 12.D. refers to the filing of a class action by an employee in "any forum," and the right of the employer to seek dismissal of the class action based on the "Class Action Waiver." This suggests that the "Class Action Waiver" applies not only in the arbitral forum but in "any forum," and that the waiver of the right to bring a representative or private attorney general claim, which is earlier described in the same sentence as the "Class Action Waiver," is similarly not limited to the arbitral forum.
We believe that the language in the arbitration agreement yields conflicting interpretations as to whether an employee may bring a representative PAGA claim. Where an arbitration agreement's "language is uncertain on the point and one can glean a different outcome from the language, . . . 'a court should construe ambiguous language against the interest of the party that drafted it.' [Citations.]" (Securitas, supra, 234 Cal.App.4th at p. 1126.) In this case we construe the ambiguous language against defendant, as defendant apparently drafted the agreement and required plaintiff to sign it as a condition of employment. We determine that the arbitration agreement contains a waiver of the right to bring a representative PAGA action in any forum, and that such a waiver is unenforceable under Iskanian.
We next consider the question of whether the invalid PAGA waiver is severable from the rest of the arbitration agreement. The arbitration agreement and the employment agreement in which it is located contain several provisions regarding severability. In paragraph 12.D. of the arbitration agreement, the sentence immediately following the invalid PAGA waiver states: "Notwithstanding any other clause contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class or collective action, or in a representative or private attorney general capacity on behalf of a class of persons or the general public." Paragraph 12.H. of the arbitration agreement states: "In the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable. If the Class Action Waiver is deemed to be unenforceable, the Company and Employee agree that this Agreement is otherwise silent as to any party's ability to bring a class and/or collective action in arbitration." Paragraph 13.C. of the parties' employment agreement, which includes the arbitration provision, states: "If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect."
We determine that the nonseverability clause in paragraph 12.D. of the arbitration agreement applies to the invalid PAGA waiver in this case. The invalid PAGA waiver is in the "preceding sentence" of the nonseverability clause, and the "dispute to be arbitrated," that is, some or all of plaintiff's civil action arising out of or related to his employment, "is brought . . . in a representative or private attorney general capacity on behalf of a class of persons or the general public," that is, a PAGA action. Further, this nonseverability clause in paragraph 12.D. applies "[n]otwithstanding any other clause contained in this Agreement," such as the provisions found in paragraphs 12.H. and 13.C. Therefore, because the PAGA waiver in paragraph 12.D. is not enforceable under Iskanian, and that waiver is not severable, the entire arbitration agreement is unenforceable.
The same result was reached in Securitas, supra, 234 Cal.App.4th 1109, which addressed an employment dispute resolution agreement containing a similarly invalid PAGA waiver and similar severability provisions. The agreement provided in paragraph No. 4 that " '[t]here will be no right or authority for any dispute to be brought, heard or arbitrated as a class, collective or representative action ("Class Action Waiver"). Notwithstanding any other clause in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action." (Securitas, supra, at p. 1114.) The agreement also provided in paragraph No. 10 that, " '[i]n the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable. If the Class Action Waiver is deemed to be unenforceable, [the employer] and [the employee] agree that this Agreement is otherwise silent as to any party's ability to bring a class, collective or representative action in arbitration.' " (Ibid.)
Based on contractual interpretation and severability principles, the appellate court determined that "paragraph No. 4 unambiguously reflects the parties' intent that where a dispute is subject to the arbitration agreement (i.e., 'to be arbitrated') and is 'brought as a class, collective or representative claim' as would be [the employee's] claims including her PAGA claim, the provision waiving such claims, even if later determined to be illegal or unenforceable, cannot be severed from the remainder of the agreement. This is so '[n]otwithstanding any other clause in th[e] Agreement,' including the severance clause of paragraph No. 10." (Securitas, supra, 234 Cal.App.4th at p. 1126.) The court thus concluded that, based on the invalid PAGA waiver and the nonseverability clause, the entire dispute resolution agreement was unenforceable. (Securitas, supra, at pp. 1126-1127.)
In sum, we conclude that the provision in the parties' arbitration agreement requiring arbitration of the "aggrieved person" issue is not enforceable. We further conclude that the arbitration agreement contains an invalid PAGA waiver under Iskanian, and that because the waiver is not severable, the entire arbitration agreement is unenforceable. The trial court therefore properly denied defendant's motion to compel arbitration. In view of our conclusion that defendant's motion was properly denied, we need not address defendant's remaining contention that the court erroneously failed to stay judicial proceedings pending arbitration.
IV. DISPOSITION
The February 20, 2015 order denying defendant motion to compel arbitration is affirmed.
/s/_________
BAMATTRE-MANOUKIAN, J. WE CONCUR: /s/_________
ELIA, ACTING P.J. /s/_________
MIHARA, J.