The ability of aggrieved individuals to pursue PAGA (Private Attorney General Action) claims in California has proven to be a powerful tool for plaintiffs, particularly in the employment context.

A California Court of Appeal recently affirmed a trial court’s order denying a motion to compel arbitration in an action seeking unpaid wages and damages by plaintiffs. In Juan Navas et al v Fresh Venture Foods LLC,[i] Defendant Fresh Venture Foods (“FVF”) moved to compel arbitration of the claims of three plaintiffs based on executed arbitration agreements. The court affirmed the denial of the motion to compel arbitration, and did so notwithstanding FVF’s contention plaintiffs “gave up the right to represent others in litigation or to participate in any class, collective, or representative action in a court of law.”[ii]

Facts

The Navas plaintiffs filed a class action lawsuit against FVF alleging a failure to pay both minimum and overtime wages.[iii] Plaintiffs also alleged a PAGA cause of action seeking civil penalties “for themselves and other current and former employees” for “labor law violations.”[iv]

FVF moved “to compel arbitration” of plaintiffs’ claims, citing the signed arbitration agreements, which addressed, among other things, plaintiffs’ ability to participate in class action litigation against FVF.

The trial court determined FVF failed to prove all plaintiffs entered into arbitration agreements, and it also found the arbitration agreement Navas signed was procedurally and substantively unconscionable.[v] Notably, the arbitration agreement Navas signed also contained “an acknowledgment that a waiver of PAGA rights occurred.”[vi]

Analysis

Under PAGA, an “aggrieved employee” may file a civil action against an employer seeking “a civil penalty” for violations of the Labor Code “on behalf of himself or herself and other current or former employees.”[vii] Considerations on appeal included whether this provision was enforceable and whether it was unconscionable under the law:  “Courts may refuse to enforce unconscionable contracts and this doctrine applies to arbitration agreements.”[viii] “Unconscionability has procedural and substantive aspects.”[ix]

With regard to PAGA, Nava claimed the arbitration agreement was unenforceable because it “requires employees to renounce…their…right to bring a PAGA action,” and such a waiver makes the agreement substantively unconscionable.[x] The arbitration agreement provided, in relevant part, “There will be no right or authority for any dispute to be brought, heard, or arbitrated as a representative action under the Private Attorney General Act (PAGA) of California…”[xi] “I will be giving up the right to represent others in litigation or to participate in any class or representative action in a court of law.”[xii] Later in the agreement, a separate unilateral provision states, “Fresh Venture Foods reserves the right” to enforce “the Waiver of Individuals to self-Representation in Trials (Private Attorney General Waiver).”[xiii]

 The court held employers may not force employees to waive their right to bring a PAGA action.[xiv] There are two types of PAGA lawsuits: 1) individual PAGA actions where the employee seeks damages for violations committed against the individual employee, and (2) “representative” actions where an employee seeks damages because of the employer’s PAGA violations committed against a group of employees.[xv] The California Supreme Court has held “where, as here, an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”[xvi]

The United States Supreme Court also recently considered this issue and did so in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906. The Court was charged with reconciling the lower court’s holding, which held, “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.”[xvii] The US Supreme Court held, “Viking was entitled to enforce the agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim.”[xviii]

Reliant on this rationale, the Navas court concluded that the Iskanian rule requiring mandatory joinder of individual and representative PAGA claims was preempted.[xix] The employer and employee may indeed agree to arbitrate an individual PAGA claim.[xx]  However, the Navas court went on to find the agreement in the matter before it did not give the employee a choice.[xxi] Instead, FVF had:

unilaterally declared a right to forfeit an employee’s individual PAGA claim without first: 1) explaining to the Spanish-speaking employee what is an individual PAGA claim, and 2) obtaining the employee’s consent to waive the right to file an individual PAGA claim in court.[xxii]

The Navas court ultimately upheld the trial court’s order, which held the agreement improperly contained “an acknowledgment” that “the right to self-representation” in PAGA cases had been waived prematurely and without an employee’s consent.[xxiii] That waiver amounted to an automatic forfeiture before the employment relationship was even established.[xxiv]

Takeaways

The Iskanian rule requiring mandatory joinder of individual and representative PAGA claims is preempted. An employer and employee may agree to arbitrate an individual PAGA claim. However, although a portion of Iskanian is preempted, the standards for obtaining individual PAGA waivers under California state law remain intact. An employee with an individual PAGA claim “is free to forgo the option of pursuing a PAGA action. But it is against public policy for an employment agreement to deprive employees of this option altogether, before any dispute arises.”[xxv]

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Sources

[i] Juan Navas, et al., v Fresh Venture Foods, LLC (2022) 85 Cal.App.5^th 626.

[ii] Id.

[iii] Id.

[iv] Id.

[v] Id.

[vi] Id.

[vii] Lab. Code, §§ 2699, subd. (a), italics added, 2698.

[viii] Salgado v Carrows Restaurants, Inc. (2019) 33 Cal.App.5^th 356.

[ix] Id at 362.

[x] Juan Navas, et al., supra, at 6.

[xi] Id at 7.

[xii] Id.

[xiii] Id. (Emphasis in original.)

[xiv] Juarez v Wash Depot Holdings, Inc. (2018) 24 Cal.5^th 1197, 1203.

[xv] Juan Navas et al., supra, at 7.

[xvi] Iskanian v CLS Transportation Los Angeles, LLC (2014) 59 Cal.4^th 348, 384.

[xvii] Id., citing Viking River Cruises, Inc. v. Moriana (2022) 213 L.Ed.2d 179, 200. (Emphasis in original).

[xviii] Id.

[xix] Juan Navas, et al., supra, at 8.

[xx] Id.

[xxi] Id.

[xxii] Id.

[xxiii] Id. (Emphasis in original).

[xxiv] Id.

[xxv] Id., citing Iskanian v CLS Transportation Los Angeles, LLC, supra, 59 Cal.4^th at 387 (Emphasis in original.)