The Employee Brought A Single Cause Of Action For PAGA Violations.
At first blush, Betancourt v. Prudential Overall Supply, E064326 (4/2 March 3, 2017) (Miller, Ramirez, McKinster), another opinion holding that PAGA claims cannot be arbitrated (more about the holding), is unremarkable. However, there are interesting points in the case that help explain why it was worthy for publication.
First, plaintiff/respondent Betancourt sued for a single cause of action: labor violations of the Private Attorneys General Act (PAGA). Betancourt's single shot approach is testimony to the recognition of plaintiffs' attorneys in employment cases that a carefully pleaded PAGA complaint is likely, for now, to avoid arbitration.
Second, Betancourt, in his single PAGA- cause complaint, sought remedies that did not fall within a PAGA cause of action. Therefore, the employer argued that the PAGA cause of action was an effort to end-run a standard wage and hour case around the arbitration requirement. This argument did not succeed, with the trial court and the Court of Appeal explaining that the proper procedural step was a motion to strike, not a motion to compel arbitration. Query: if the employer had filed a demurrer or a motion to strike to clarify the complaint, would the employee then have argued that the employer had delayed and waived the right to move to compel arbitration? Yet in proper circumstances, a motion to clarify the complaint would seem proper, and should not necessarily result in a waiver of the right to seek arbitration.
Third, the trial court did not issue a statement of decision. However, it did say that it was relying upon Iskanian when giving its tentative reasons for denying the motion. The Court of Appeal took this as an indication that the trial court based its ruling on a decision of law, and that therefore the de novo standard of review applied.
Fourth, the Court agreed that PAGA claims lie outside the Federal Arbitration Act's coverage, because the claim, like a qui tam claim, is essentially between the employer and the state, not between the employer and the employee.
Fifth, the Court of Appeal considered different interpretations of Iskanian. On the one hand, the employer argued that PAGA does not hold that PAGA claims are exempt from arbitration, only that predispute waivers of the right to bring a representative action are unenforceable, and presumably a representative PAGA action could be brought in arbitration or in court. But the Court interpreted Iskanian broadly to mean that a predispute waiver of the right to bring a representative action is unenforceable because the state cannot be bound by the predispute agreement.
Sixth, the Court held that FAA preemption did not apply, because it was not ruling that Iskanian required a blanket prohibition against arbitration in PAGA cases, only that "a defendant's reliance on a predispute arbitration agreement to compel arbitration when an employee becomes a type of qui tam plaintiff in a PAGA action" is prohibited. This part of the ruling seems a bit murky to me, because under Supreme Court cases such as Concepcion, it is not clear that a blanket prohibition of arbitration of all PAGA cases would need to occur for FAA preemption to apply – i.e., if a Court believed that arbitration was unduly burdened, that might satisfy one formulation of what FAA preemption requires.
However, the bottom line is that California state courts are strongly endorsing the view that PAGA claims are, like qui tam actions, really between the state and the employer, and that therefore, predispute arbitration clauses cannot bind the state and compel arbitration of PAGA claims.
NOTE: Efforts to compel arbitration are sometimes styled as "petitions" and sometimes as "motions." As the Court explains in footnote 2, "petition" is the proper terminology for a document commencing an independent action, whereas "motion" is the proper label for a document filed in an existing action.