PAGA Claims Cannot Be Split, California Appellate Court Rules

If an employee brings a solitary Private Attorneys General Act (PAGA) claim, may a trial court split that claim, sending the employee to arbitration to recover his underpaid wages but retaining jurisdiction to award the additional, statutorily prescribed amounts?

No, a California appellate court has ruled, affirming a denial of the employer’s motion to compel arbitration.

The dispute began when Arthur Zakaryan sued The Men’s Wearhouse in 2017, alleging that the national clothing retailer misclassified its store managers as exempt from California’s laws regarding overtime as well as meal and rest breaks. His sole claim was under PAGA.

Relying on two different arbitration agreements Zakaryan signed during his 14 years with the company, The Men’s Wearhouse moved to compel arbitration of the portion of the plaintiff’s PAGA claim seeking reimbursement of underpaid wages. The employer relied upon Esparza v. KS Indus., L.P., a 2017 California appellate court decision that sanctioned such an order.

When the trial court denied the order, the employer appealed. But the appellate panel affirmed the denial, emphasizing the role of the plaintiff in a PAGA action as “the proxy or agent of the state’s labor law enforcement agencies.”

“Nearly every contour of a PAGA claim flows from the ineluctable premise that a PAGA action is ‘fundamentally a law enforcement action designed to protect the public and not to benefit private parties,’” the court wrote. “Just as an action by the agency would be on behalf of all aggrieved employees, the individual PAGA plaintiff also represents all other aggrieved employees.”

While recognizing that arbitration agreements are enforceable as a matter of federal law, the court also noted that the California Supreme Court carved out an exception to the general rule when it held that an employee could not contractually agree to give up a potential PAGA claim against his or her employer in Iskanian v. CLS Transportation.

Putting these pieces together, the court concluded that splitting a PAGA claim based on the remedies sought was both legally impermissible and inconsistent with labor and arbitration law.

Splitting a PAGA claim into two claims “runs afoul of the primary rights doctrine because it impermissibly divides a single primary right,” the panel wrote. “That is because an individual employee bringing a PAGA claim is vindicating one and only one‘particular injury’—namely, the injury to the public that the ‘state labor law enforcement agencies’ were created to safeguard.”

The individual PAGA plaintiff’s “personal claim” for underpaid wages is not at stake, the court said, and other aggrieved employees represented by that PAGA claim may still bring separate individual claims for underpaid wages.

“Because an individual PAGA plaintiff is at all times acting on behalf of the agency when seeking underpaid wages as well as the $50/$100 penalty, his pursuit of both remedies ‘involv[es] the same parties seek[ing] compensation for the same harm’ and thus involves ‘the same primary right,’” the court said. Plaintiffs filing lawsuits under other statutes may sometimes wear two hats, but “the employee who brings a solitary PAGA action always wears but one.”

Labor law also posed an obstacle to the employer’s desire to split the PAGA claim, the court said, as the statute’s text mandates the allocation of a single, indivisible “civil penalty” between the agency and aggrieved employees in a 75/25 split. As the later-enacted statute, PAGA’s allocation rule trumped that of the state’s labor law found at section 558 of the Labor Code.

Further, a PAGA claim is fundamentally a representative claim, the panel added. “Breaking off the portion of a PAGA claim seeking underpaid wages on the ground that those wages constitute ‘victim-specific relief,’ as The Men’s Wearhouse urges, ignores the representative nature of a PAGA claim as well as one of the cornerstone principles of Iskanian.”

Finally, the court said that an aggrieved employee’s choice to bring a solitary PAGA claim is his or hers to make. “Where, as here, the employee-plaintiff elected to file a solitary PAGA claim, splitting that claim into two effectively rewrites his complaint into one asserting an individual claim for underpaid wages (which is shunted to arbitration) and a PAGA claim (which is not),” the panel wrote. “This makes the employee’s choice meaningless.”

As for arbitration law, splitting a PAGA claim “eviscerates Iskanian’s mandate because it sends the chief issue underlying a PAGA claim—that is, whether the employer violated labor law (thereby entitling the employee to underpaid wages)—to arbitration,” the court said. “It also offends Iskanian’s reasons for barring arbitration because it effectively allows the employee, by contract, to bind the agency to arbitration.”

The panel rejected the position “that any portion of a PAGA claim is ‘private’ because ‘the real party in interest’ for a PAGA claim is at all times ‘the government entity on whose behalf the [employee-]plaintiff files suit.’”

To read the opinion in Zakaryan v. The Men’s Wearhouse, Inc., click here.

Why it matters: The California appellate panel recognized that sister courts have reached different conclusions on the issue of the division of PAGA claims, but held that courts may not split a solitary PAGA claim and send it to two different fora, emphasizing the unique nature of the plaintiff’s position as a PAGA plaintiff, in a representative action where the employee stands in the shoes of a governmental agency.