Why it matters

A California appellate court affirmed that arbitration is not permitted for Private Attorneys General Act (PAGA) claims, affirming denial of an employer’s motion to compel arbitration. A warehouse employee filed a single-count action under PAGA against her employer, alleging multiple violations of state labor law. The employer argued that the plaintiff had to first arbitrate her individual dispute to show that she was an “aggrieved party” under PAGA before the representative action could proceed in court. A trial court disagreed and denied the motion to compel arbitration. The employer appealed, contending that the Federal Arbitration Act (FAA) permits an employer and employee to individually arbitrate discreet disputes underlying a PAGA claim, which can then be collectively litigated. But the appellate panel affirmed denial of the motion to compel arbitration. “This dispute does not involve an individual claim by [the plaintiff],” the court wrote, “but rather an action brought for civil penalties under PAGA for violating the Labor Code.”

Detailed discussion

Martina Hernandez worked in a Ross Stores, Inc. warehouse in Moreno Valley, CA as a nonexempt, hourly-paid employee. She filed a single-count representative action under the state’s Private Attorneys General Act (PAGA) alleging that her employer violated numerous Labor Code laws, including failure to pay all appropriate wages, failure to properly itemize hours worked and paid, and failure to pay overtime. She sought recovery under the PAGA civil penalties.

Ross moved to compel arbitration, arguing that Hernandez first had to establish that she was an “aggrieved party” pursuant to the statute before she could proceed in court. The employer pointed to an employment agreement Hernandez signed when she was hired that stated: “This Arbitration Policy … applies to any disputes, arising out of or relating to the employment relationship between an associate and Ross or between an associate and any of Ross’ agents or employees, whether initiated by an associate or Ross. This Policy requires all such disputes to be resolved only by an Arbitrator through final and binding arbitration.”

The determination of whether or not Hernandez was an “aggrieved party” necessarily involved the resolution of whether she was subject to a Labor Code violation, Ross said, which was a “dispute” that must be arbitrated as it involved whether she was subject to the violation.

A trial court disagreed, relying on Iskanian v. CLS Transportation to hold that because Hernandez’s complaint consisted of a single count under PAGA—a representative action on behalf of the state—no individual claims or “disputes” existed between the plaintiff and Ross.

Ross appealed but the appellate court affirmed denial of the motion to compel arbitration.

“[T]he dispute between Ross and Hernandez is not a dispute between the employer and the employee,” the court wrote. “Rather, this is a representative action and Hernandez is acting on behalf of the state. This dispute does not involve an individual claim by Hernandez regarding the Labor Code violations but rather an action brought for civil penalties under PAGA for violating the Labor Code. There are no ‘disputes’ between the employer and employee as stated in the arbitration policy. The trial court properly determined it had no authority to order arbitration of the PAGA claim.”

The determination of whether the party bringing the PAGA action is an aggrieved party should not be decided separately by arbitration, the court added. The use of the word “dispute” in the employment agreement rather than “claim” was, according to the court, “a distinction without a difference.”

“The term ‘dispute’ is clearly intended in the agreement to refer to all claims, disputes, and actions brought by the employee against the employer for personal Labor Code violations,” the court wrote. “Again, this case involves a dispute, claim or action brought on behalf of the state by Hernandez. Hernandez did not allege any individual claims or disputes.”

Public policy further supported this conclusion, the court stated, since “requiring an employee to litigate a PAGA claim in multiple forums would thwart the public policy of PAGA to ‘empower employees to enforce the Labor Code’ on behalf of the state.”

To read the decision in Hernandez v. Ross Stores, Inc., click here.