The Central District of California held that a waiver of representative actions in an employment agreement’s arbitration provision did not preclude a former employee from pursuing in court a claim under California’s Private Attorneys General Act of 2004 (PAGA).  The court further held that the PAGA claim could only be brought in court and not in arbitration.  The plaintiff asserted, on behalf of a putative class, several claims against his former employer for the alleged refusal to allow rest and meal breaks and failure to pay all wages owed and maintain accurate wage records. In addition, the plaintiff sought penalties on behalf of the state under the PAGA. The defendant moved to dismiss and compel arbitration, arguing that, as part of his employment contract, the plaintiff signed an arbitration agreement waiving the right to pursue class and representative actions.

Before addressing whether the arbitration agreement’s representative action waiver precluded the PAGA claim, the court, citing AT&T Mobility LLC v. Concepcion, noted that “‘[t]he principal purpose of the [Federal Arbitration Act (FAA)] is to ensure that private arbitration agreements are enforced according to their terms’” and that “an individual cannot contract away the government’s right to enforce its laws.” The plaintiff argued that “his PAGA claim, which is on behalf of the state and resembles a qui tam action . . . cannot be the subject of an arbitration agreement, because the state is not a party to the arbitration agreement[.]” The defendant argued that “after Concepcion it is clear that the FAA ‘displaces’ a state’s ‘policy concerns’ about enforcement of its labor laws.”

As the court saw it, the PAGA-waiver issue presented two questions: (1) whether “a blanket waiver of PAGA claims in an employment contract [is] possible under California law”; and (2) if not, whether “the claim nonetheless [is] subject to the arbitration agreement.”  Regarding the first question, the court found that the plaintiff’s PAGA claim had not been waived because it was a claim on behalf of the state, as opposed to the claim of a private party arising out of a contractual relationship. In support, the court noted that, before bringing a PAGA claim, a plaintiff “must give notice to the [Labor and Workforce Development Agency (LWDA)]” and “may only bring the claim if the LWDA declines to pursue the action itself.”  Regarding the second question, the court found that “the PAGA claim should not be submitted to arbitration” because, as a claim belonging “primarily to the state, it should be the state . . . that agrees to waive the judicial forum.” The court also stated that the legislature “explicitly selected a judicial forum as the default forum” for the resolution of PAGA claims. The court ordered the parties to engage in arbitration under the terms of the arbitration agreement as to all claims except the PAGA claim, which was to remain before the court.

Valdez v. Terminix Int’l Co. Ltd. P’ship, No. 14-09748 (C.D. Cal. July 16, 2015).