Esparza v. KS Industries LLC, 8/2/17, CA5
Plaintiff filed a representative Private Attorney General Act (PAGA) case against his former employer, KS Industries. PAGA action remedy sections authorize both civil penalties for violating the labor code and the recovery of unpaid wages for the employee. In this case, citing PAGA, plaintiff sought to recover both civil penalties and, per the prayer section of his complaint, his individual wages. Employer filed a motion to compel arbitration on plaintiff’s individual wage/hour claims. The trial court denied employer’s motion and employer appealed. Held: Reversed and remanded.
The Federal Arbitration Act (9 U.S.C. s. 1) requires the enforcement of arbitration agreements covering private disputes. A recent California Supreme Court case, Iskanian v. CLS Transportation Los Angeles LLC, (2014) 59 Cal.4th 348, held that PAGA claims for civil penalties, the functional equivalent of a qui tam action, are not subject to a private arbitration agreement.
PAGA’s civil penalties go to Labor and Workforce Development Agency; recovery of unpaid wages go entirely to the employee. This court explained that the rule adopted in Iskanian attempted to define the boundary between the two types of claims by stating that PAGA representative claims for civil penalties are not subject to arbitration.
The court concluded that, for purposes of the Iskanianrule, PAGA representative claims for civil penalties are limited to those where a portion of the recovery is allocated to the Labor and Workforce Development Agency. Claims for unpaid wages, based on Labor Code section 558, are not allocated in this manner and, therefore, the Iskanian rule does not exempt such claims from arbitration.
If the rule were otherwise, then PAGA would be an easy end-run around the FAA and the strong policy, at the federal and state level, of enforcing private arbitration agreements.
If the rule were otherwise, then PAGA would be an easy end-run around the FAA and the strong policy, at the federal and state level, of enforcing private arbitration agreements.
The court remanded the case to allow the employee to definitively state whether he was seeking to recover his own unpaid wages, i.e., individualized relief. If so, the court explained that those claims must be sent to arbitration.