CA Court Allows Claim to Proceed Under Private Attorney General’s Act (PAGA)

Many Californians are asked to sign mandatory arbitration agreements by their employers. These agreements ostensibly waive the rights of workers to file lawsuits against their employers and to instead resolve their legal issues through arbitration. However, as Collie v. The Icee Co., Cal. Ct. App. Case No. E071674 shows, arbitration agreements that purportedly waive employees’ right to file lawsuits under the Private Attorneys General Act might be invalid.

Factual Background of the Case

Taraun Collie was employed by The Icee Company from Nov. 2014 to Aug. 2015. At the time that he was employed, he was asked to sign a mandatory arbitration agreement. The agreement purported his right to file a lawsuit against the company on his behalf and the behalf of other employees. It stated that he and the company agreed to waive all potential causes of action from the past, present, and future, including actions that might arise out of his employment. The arbitration agreement purported to waive his right to sue for wages and compensation and violations of local, state, and federal laws. It also stated that the Federal Arbitration Act would govern the interpretation of the arbitration agreement.

After he left his employment, Collie filed a lawsuit against The Icee Company under the Private Attorneys General Act in California. The Icee Company filed a motion to compel arbitration, arguing that Collie had waived his right to sue the company in the arbitration agreement. It also argued that he could not file a claim on behalf of other employees because of his bilateral agreement with the company. The trial court denied Icee’s motion to compel arbitration based on the California Supreme Court’s decision in Ishkaniaan v. CLS Transportation, 59 Cal.4th 348 (2014). Icee filed an appeal of the trial court’s decision.

Issue: Can a mandatory arbitration agreement waive a worker’s right to file a PAGA claim against his or her employer?

The issue on appeal was whether the mandatory arbitration agreement that Collie signed waived his right to file a PAGA claim against his employer in California. PAGA claims allow workers to file civil actions against their employers for violations of the labor code. However, when a worker signs an arbitration agreement, he or she contracts with his or her employer to settle any disputes that might arise through private arbitration instead of in court. The California Court of Appeals was asked to determine whether Collie was barred from filing an action against The Icee Company because of the agreement that he signed and if his dispute should instead be settled through private arbitration.

Rule: The Private Attorneys General Act allows employees to file civil actions against their employers on their behalf and the behalf of others.

Under the Private Attorneys General Act, employees may file civil actions against their employers on their behalf and the behalf of other employees. Before an employee can file a PAGA claim, he or she must first provide notice of the specific violations of the labor code to the Labor and Workforce Development Agency and his or her employer. If the LWDA chooses to investigate, the employee cannot file a claim. A PAGA claim can only be filed if the LWDA grants the employee the right to do so. When an action is filed, the worker is acting as a proxy on behalf of the state. Out of the damages that are recovered, 75% goes to the state while the employee receives 25%.

Analysis

In California, employers are required to comply with state and federal laws regarding wage and hour rules. When the state’s rules give employees more rights than federal laws, employers must comply with the laws that give workers greater protections. Employers must pay their employees on time and must keep records. They can only make deductions from their employees’ wages that are allowed under federal and state law. Employers must pay their employees at least the minimum wage and must pay their non-exempt statutory workers overtime compensation for all hours worked beyond eight in a day or 40 in a week. They must also pay double-time for all hours worked beyond 12 in a day. When employers violate the wage and hour rules, one type of claim that can be filed is a PAGA claim for wage and hour violations.

The court began its analysis by reviewing the Private Attorneys General Act. It noted that before an aggrieved worker can file a claim, her or she must first notify the employer of the alleged violations. The employee must also notify the LWDA. If the LWDA decides to prosecute the case against the employer, the worker cannot file a PAGA claim. However, if the LWDA gives the employee the right to file a claim, the employee may file a PAGA claim against the employer. If money is recovered, 75% goes to the LWDA, and 25% goes to the employee.

The court noted that with PAGA claims, the employee is suing the employer on behalf of the state. These claims are representative actions in which the employee serves as a proxy plaintiff for the state. PAGA claims seek to recover civil penalties for the state and are viewed as law enforcement actions. The state is not a party to pre-dispute arbitration agreements. An employer may not rely on an arbitration agreement to avoid PAGA claims. The state is not bound by an employee’s arbitration agreement, and employers may not rely on arbitration agreements with employees to get around their disputes with the state.

When Collie signed the arbitration agreement, it was at the time that he started working for Icee. His PAGA claim had not arisen at that time, and he was not able to negotiate on behalf of the state at the time that he entered into the agreement with his employer.

Conclusion

The court found that the trial court properly denied The Icee Company’s motion to compel arbitration. It held that the real party in interest was the state and not Collie, meaning that Collie did not have the power to waive the state’s right to recover civil penalties through Collie’s PAGA action against his employer. The court returned the case to the trial court for further proceedings and ordered that Collie should receive his costs on appeal.

Get Help from Employment Law Attorney Steven M. Sweat

While many employers require their employees to sign arbitration agreements at the time that they are hired, these agreements may be invalid when employers try to assert them in wage and hour claims. People who believe that their employers have violated the state’s wage and hour laws may want to consult with an experienced employment law attorney in Los Angeles. Contact the law firm of Steven M. Sweat APC today by calling us at 866.966.5240.