Why it matters

A California appellate panel denied an employer’s motion to compel arbitration in a wage and hour dispute, ruling that the arbitration agreement in the employee handbook was unenforceable. Carlos Juarez was an hourly employee at Wash Depot. He filed suit alleging various labor code violations, along with a Private Attorneys General Act (PAGA) claim. Pointing to a mandatory arbitration provision in the employee handbook, complete with a waiver of PAGA claims—printed in both English and Spanish—the employer moved to compel arbitration of the case. But the trial court denied the motion and the appellate panel affirmed. The English-language handbook stated that the denial of the right to bring a PAGA action was severable if the denial was found by a court to be unenforceable, but the Spanish-language version said the provision was not severable. The PAGA waiver was invalid, the appellate court said, and the differences between the two handbooks was at best negligent and at worst deceptive. Refusing to condone the employer’s purported attempt to have it both ways, the appellate panel affirmed denial of the motion to compel arbitration.

Detailed discussion

An hourly employee at Wash Depot’s hand car wash in Ventura, CA, Carlos Juarez, filed suit against his employer in December 2016, alleging 13 causes of action for various wage and hour violations (failure to pay earned wages, minimum wages and overtime compensation, for example). He also alleged a representative action pursuant to PAGA.

Wash Depot responded with a motion to compel arbitration based on Section EE of the employee handbook, titled “Dispute Resolution Agreement.”

Paragraph EE(1) provided in part: “Except as it otherwise provides, this Agreement is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law, and therefore this Agreement requires all such disputes to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial.” The paragraph specifically included the employment relationship and compensation, breaks, and rest period claims, among others, within the arbitration mandate.

Section EE(4)(c) stated a waiver of the employee’s right to bring a representative PAGA action: “There will be no right or authority for any dispute to be brought, heard or arbitrated as a private attorney general action.” The English-language version of the handbook also provided that the PAGA waiver was severable from the arbitration agreement, should a court find the waiver unenforceable.

However, the Spanish-language version of the handbook provided that the PAGA waiver was not severable from the arbitration agreement. Juarez signed two acknowledgments—one in Spanish and one in English—stating that he received the handbook and agreed to its terms.

The trial court denied the employer’s motion to compel arbitration. On appeal, the appellate panel affirmed, beginning with the California Supreme Court’s decision in Iskanian v. CLS Transportation.

“The trial court properly concluded that the PAGA waiver set forth in the handbook is unenforceable as against public policy,” the court said. “Our Supreme Court in Iskanian … held that an employee’s right to bring a PAGA action may not be waived: ‘We conclude that 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.’ This is so because a waiver indirectly exempts the employer from responsibility for his own violation of law.”

Further, the trial court did not abuse its discretion by declining to sever the PAGA waiver and enforce the remaining arbitration agreement, the panel wrote, rejecting Wash Depot’s assertion that courts must interpret arbitration agreements in a manner to preserve the right to arbitrate, including severing invalid clauses when necessary.

“At best, the difference in the severability clauses in the English-language and Spanish-language versions of the handbook is negligent; at wors[t] it is deceptive,” the court said. “Under the circumstances, we construe the ambiguous language against the interest of the party that drafted it. This rule applies with particular force in the case of a contract of adhesion. Indeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’”

To read the opinion in Juarez v. Wash Depot Holdings, Inc., click here.