Why it matters

Who should decide whether a Private Attorneys General Act (PAGA) claim in a wage and hour suit should be arbitrated? Finding the language of the arbitration agreement at issue unclear, a California appellate panel reversed the denial of a motion to compel arbitration and remanded the case to the trial court. When former umpire Derek Eaton filed his wage and hour suit against Big League Dreams, the employer moved to compel arbitration pursuant to an employment agreement. A trial court judge denied the motion, relying upon Iskanian v. CLS Transportation to hold that PAGA claims can never be forced into arbitration. The appellate panel found, however, that Eaton’s arbitration agreement differed sufficiently from the one at issue in Iskanian to require reversal of the lower court’s decision. Whether or not PAGA claims can be arbitrated is an “unsettled” question of law, the court held, and not necessary to decide in Eaton’s case. Instead, the panel directed the trial court to consider whether the parties agreed to arbitrate representative PAGA claims and who should decide the scope of that agreement—the court or an arbitrator.

Detailed discussion

Derek Eaton worked as an umpire for Big League Dreams (BLD) in Manteca, California. He filed suit in 2014, bringing a representative action under the Private Attorneys General Act (PAGA) for failure to pay minimum wage, failure to provide accurate wage statements, failure to maintain accurate wage statements and failure to timely pay wages, among other claims.

His former employer reminded him of his employment agreement, which included an arbitration provision stating: “Any claim by you or BLD relating to, or any controversy arising from, your employment with BLD or the termination thereof shall, on the written request of you or BLD, be submitted to arbitration and be governed by the Employment Dispute Resolution Rules of the American Arbitration Association (AAA). . . . Such arbitration shall be the exclusive remedy of you and BLD and the award of the arbitrator shall be final and binding.” Based on this agreement, BLD filed a motion to compel arbitration.

Eaton countered that the California Supreme Court’s decision in Iskanian v. CLS Transportation held that PAGA claims are not subject to arbitration. A trial court agreed with the plaintiff and denied the motion; BLD appealed.

After taking a close look at the Iskanian opinion, the appellate panel disagreed with the premise that it foreclosed the arbitration of all PAGA claims. Instead, the panel noted that the state’s highest court distinguished PAGA claims from class actions because of the means of recovery, while making clear that the employer had to answer the employee’s representative PAGA claims in some forum, whether arbitral or judicial.

“On the one hand, Iskanian suggests that representative PAGA claims are not subject to mandatory arbitration,” the court said. “For example, Iskanian says, ‘a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.’”

But, on the other hand, “Iskanian suggests that representative PAGA claims can be arbitrated,” the panel wrote. “[I]n remanding the case, the court stated that the employer ‘must answer the representative PAGA claims in some forum. . . . [I]t would be incongruous to raise the possibility of arbitration if the court intended to foreclose it.”

“Against this background, we conclude that the question whether representative PAGA claims can ever be subject to mandatory arbitration remains unsettled,” the appellate panel stated. “We need not resolve this question, at least not today, because we conclude that other questions must be answered first: Did the parties agree to arbitrate representative PAGA claims? And who should decide the scope of their agreement?”

The arbitration agreement did not specifically reference representative or class claims, so on remand, the parties must address whether the language of the agreement can be reasonably interpreted as requiring arbitration of representative PAGA claims, the panel wrote. Also up for debate: who should decide whether the parties agreed to arbitrate representative PAGA claims. Parties to an arbitration agreement may agree to delegate to the arbitrator (instead of a court) questions regarding the enforceability of the agreement, the panel noted, but the language of the clause must be clear and unmistakable.

While the parties’ incorporation of the AAA Employment Rules raised the possibility that they intended to submit questions of arbitrability to the arbitrator, neither of the parties had tackled the threshold question of “who decides” arbitrability, the panel found. Since a trier of fact is in the best position to consider such issues, the panel remanded the matter to the trial court for the opportunity to answer the question.

“On remand, the trial court is directed to conduct such further proceedings as may be required to determine whether the parties’ arbitration agreement encompasses representative PAGA claims and whether the incorporation of the AAA Employment Rules constitutes clear and unmistakable evidence of their intent to delegate questions of arbitrability to the arbitrator,” the panel wrote. “If the trial court answers the latter question in the affirmative, the court shall stay the entire action pending the arbitrator’s determination of the scope of his or her jurisdiction to decide Eaton’s representative PAGA claims.”

To read the opinion in Eaton v. Big League Dreams Manteca LLC, click here.