Why it matters

The Supreme Court’s decision to pass on a California appellate opinion keeps in place the state court’s holding that a predispute waiver by a private employee cannot compel arbitration in a Private Attorneys General Act (PAGA) case which is brought on behalf of the state. The case began when Roberto Betancourt filed suit alleging he and other employees of Prudential Overall Supply worked more than eight hours per day or more than 40 hours per week but were not compensated for overtime or for missed breaks and meal periods. Pursuant to an employment handbook, Prudential moved to compel arbitration of the action. A trial court denied the motion and an appellate panel affirmed, ruling that Betancourt’s single PAGA claim was brought on behalf of the state, which was not a party to the arbitration agreement. Prudential filed a writ of certiorari with the Supreme Court, but the justices denied the petition, leaving the California appellate panel’s opinion in place and employers facing conflicting authority. The U.S. Court of Appeals, Ninth Circuit recently permitted arbitration of PAGA claims, holding that an individual employee contract can bind government parties.

Detailed discussion

Roberto Betancourt filed a single count under the Private Attorneys General Act (PAGA) against his employer, Prudential Overall Supply, alleging that he and his fellow employees worked overtime but were not compensated for all their hours worked or for missed breaks and meal periods.

Prudential responded with a motion to compel arbitration pursuant to an agreement signed by Betancourt in 2006 that also waived “any right to bring claims on a representative or class member basis.” A trial court denied the motion, relying on Iskanian v. CLS Transportation, where the California Supreme Court held that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

The employer appealed, arguing that Betancourt’s PAGA claim was not exempt from arbitration because it was not really a PAGA action and was in substance a standard wage-and-hour case.

Affirming the trial court, the appellate panel disagreed. If Prudential wanted to argue that Betancourt’s complaint sets forth non-PAGA causes of action, the defendant missed a procedural step, the court said. Instead of a motion to compel arbitration, the employer should have challenged the pleadings and, if there are private, non-PAGA claims, seek arbitration on those matters.

Otherwise, Iskanian foreclosed Prudential’s motion to compel arbitration because “a defendant cannot rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state,” the court said. “This is currently a PAGA case, and Prudential is relying on a 2006 predispute arbitration agreement by Betancourt to compel arbitration in this 2015 case brought on behalf of the state. The state is not bound by Betancourt’s predispute agreement to arbitrate.”

The fact that Betancourt agreed to arbitrate his private employment disputes with Prudential is not relevant, the California appellate panel wrote. “Betancourt’s lawsuit is a PAGA claim, on behalf of the state,” the court said. “The state is not bound by Betancourt’s predispute arbitration agreement. As a result, we find Prudential’s reliance on Betancourt’s arbitration agreement to be unpersuasive.”

Prudential appealed, filing a writ of certiorari with the Supreme Court. But the justices denied the petition without comment, leaving in place the appellate court’s decision.

To read the California appellate panel’s opinion in Betancourt v. Prudential Overall Supply, click here.

To read the Supreme Court’s order list denying cert, click here.