What PAGA Claims Must be Submitted to Arbitration?

What PAGA Claims Must be Submitted to Arbitration?

A former Lyft driver filed suit against the rideshare company under the Private Attorneys General Act of 2004 (PAGA), alleging Lyft misclassified him and other drivers as independent contractors rather than employees, thereby violating multiple provisions of the Labor Code. Lyft moved to compel arbitration based on the arbitration provision in the “Terms of Service” (TOS) that it required its drivers to accept in order to offer rides through Lyft's smartphone application.

Drivers who didn’t want to be bound by the arbitration provision could opt out in the 30-day period following their acceptance of the TOS. Those who didn’t exercise this option during that period were bound by the arbitration provision. Here, Seifu agreed to the TOS and didn’t opt out of the arbitration provision.

Background

Seifu filed a complaint against Lyft in July 2018, alleging a single PAGA claim on behalf of the state of California and other similarly situated individuals who worked as drivers for Lyft in California. He alleged that Lyft willfully misclassified its drivers as independent contractors, resulting in numerous Labor Code violations. Seifu sought civil penalties under PAGA.

Lyft petitioned to compel arbitration of Seifu's PAGA claim and stay proceedings in the trial court pending arbitration, arguing that the PAGA waiver in the TOS was enforceable. Seifu opposed the petition to compel arbitration. He argued that the PAGA waiver was unenforceable under California law, relying on Iskanian v. CLS Transportation Los Angeles.

The trial court denied the motion, finding the PAGA waiver in the arbitration provision unenforceable under then-controlling California law. Lyft appealed, and in June 2021, the Court of Appeals affirmed the denial of Lyft's motion to compel arbitration.

Lyft petitioned the United States Supreme Court for a writ of certiorari. In June 2022, the court granted Lyft's petition, vacated the judgment, and remanded the case for further consideration in light of Viking River Cruises, Inc. v. Moriana (2022). The Court of Appeals recalled the remittitur, vacated its prior decision, and requested supplemental briefing from the parties on the application of Viking River to this case.

Seifu conceded that under Viking River his claim for civil penalties based on alleged Labor Code violations he personally suffered (his individual PAGA claim) was subject to arbitration. Judge Audrey B. Collins of the California Court of Appeals, Second Appellate District, wrote that “[t]he crux of the parties' dispute here is the fate of Seifu's remaining claims for civil penalties based on alleged Labor Code violations suffered by other employees (his nonindividual PAGA claims).”

Lyft argued that Seifu lacked standing to litigate the nonindividual claims once his individual claims were sent to arbitration, and the former claims therefore must be dismissed. Seifu said that, as a matter of state law, he retained standing to pursue the nonindividual PAGA claims in court.

Applying Iskanian, the trial court found that the PAGA waiver was unenforceable and therefore denied Lyft's petition to compel arbitration. Lyft appealed.

In the Court of Appeals’ prior opinion, the court affirmed the trial court's decision, concluding that pursuant to Iskanian, “an employee's right to bring a PAGA action is unwaivable,” and thus “where … an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”

In June 2022, the United States Supreme Court decided Viking River, abrogating Iskanian in part and holding that an employer could enforce an agreement calling for arbitration of individual PAGA claims. That same month, the U.S. Supreme Court granted Lyft's petition for writ of certiorari, vacated this court's judgment, and remanded the case for further consideration in light of Viking River.

Discussion

Judge Collins wrote that California's Labor Code has a number of provisions aimed at protecting the health, safety, and compensation of workers. Employers who violate these statutes may be sued by employees for damages or statutory penalties. Several Labor Code statutes provide for additional civil penalties, generally paid to the state unless otherwise provided. Before PAGA's enactment, only the state could sue for civil penalties. The Legislature enacted PAGA to allow aggrieved employees to act as private attorneys general and recover civil penalties for Labor Code violations. The Legislature's declared purpose in enacting PAGA was “to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”

PAGA deputizes an “aggrieved” employee to bring a lawsuit “on behalf of himself or herself and other current or former employees” to recover civil penalties for Labor Code violations that would otherwise be assessed and collected by the state. An “aggrieved employee” for purposes of bringing a PAGA claim is defined under the statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Although an aggrieved employee is the named plaintiff in a PAGA action, an employee suing under PAGA “‘does so as the proxy or agent of the state's labor law enforcement agencies.’” Thus, “[e]very PAGA claim is ‘a dispute between an employer and the state’” and “[r]elief under PAGA is designed primarily to benefit the general public, not the party bringing the action.

In Iskanian, the California Supreme Court held that “an employee's right to bring a PAGA action is unwaivable.” The Supreme Court rejected the employer's argument that the arbitration agreement was enforceable because it allowed an individual PAGA claim, barring only “representative” (i.e., nonindividual) PAGA claims, concluding that an agreement waiving an employee's right to bring representative PAGA claims was “contrary to public policy and unenforceable as a matter of state law.”

The U.S. Supreme Court’s Decision in Viking River

In June 2022, the Supreme Court decided Viking River, addressing the extent to which the Federal Arbitration Act (FAA) preempts the Iskanian rule barring PAGA waivers. The Supreme Court explained that PAGA claims are “representative” in two ways: first, all PAGA claims are “representative” because a plaintiff brings a PAGA claim as an agent or proxy for the state. Second, some PAGA claims are “representative” because they are brought by employees to address violations suffered by other employees, as well as themselves. In light of this distinction, the Supreme Court held that Iskanian’s “principal rule” prohibiting “wholesale” waivers of all PAGA claims was not preempted by the FAA.

However, Judge Collins explained that the “secondary rule” of Iskanian, prohibiting the separation of individual and nonindividual PAGA claims, was preempted by the FAA. As the court explained, Iskanian’s “prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’ and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent,’” As a result, an arbitration agreement compelling individual claims to arbitration was enforceable as to the individual portion of a PAGA claim.

The Viking River Court then dismissed the plaintiff's nonindividual PAGA claims, reasoning that “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” The court continued, “When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. As a result, [the plaintiff] lacks statutory standing to continue to maintain her nonindividual claims in court, and the correct course is to dismiss her remaining claims.”

Individual PAGA claims

In light of Viking River, the Court first assessed the part of Lyft's motion to compel arbitration of Seifu's individual PAGA claim. The PAGA waiver in the TOS contained two parts. First, the agreement waived the parties' right to bring PAGA claims “on behalf of others” in “any court or in arbitration.” Second, the agreement required any individual PAGA claims to be resolved in arbitration. For the purposes of the current appeal, the parties didn’t dispute that the first clause, constituting a wholesale waiver of Seifu's right to bring nonindividual PAGA claims in any forum, was unenforceable under Iskanian. Nor did they dispute that Viking River left intact the portion of Iskanian's rule “prevent[ing] parties from waiving representative standing to bring PAGA claims in a judicial or arbitral forum.”

As such, the first part of the PAGA waiver here is unenforceable under Iskanian and cannot bar Seifu from bringing nonindividual PAGA claims, Judge Collins and the Court of Appeals concluded.

In addition, Seifu didn’t dispute that Viking River allows division of his PAGA claim into individual and nonindividual claims. Under the second clause in the PAGA waiver, Seifu conceded that he must submit his individual PAGA claim to arbitration.

Nonindividual PAGA claims

Next, the Court considered what becomes of Seifu's nonindividual PAGA claims, as they weren’t subject to arbitration. Seifu contended that he maintained standing to pursue those claims in court. Lyft asserted that Viking River compels the dismissal of the nonindividual claims.

California courts are not bound by the United States Supreme Court's interpretation of California law, Judge Collins noted. As such, the Court of Appeals isn’t required to follow the U.S. Supreme Court's interpretation of PAGA and its standing requirements in Viking River.

The Court of Appeals concluded that Seifu had satisfied the standing requirements to maintain his nonindividual PAGA claims at this stage of the proceedings. Seifu's operative complaint alleged that he was employed by Lyft and that one or more of Lyft's alleged Labor Code violations was committed against him. He is therefore an “aggrieved” employee within the meaning of PAGA with standing to assert PAGA claims on behalf of himself and other employees.

Further, the requirement that Seifu resolve his individual PAGA claim in a different forum—arbitration—didn’t strip him of this standing. Judge Collins said that this interpretation is consistent with PAGA's remedial purpose, because revoking an employee's standing to pursue nonindividual claims would “‘severely curtail[] PAGA's availability to police Labor Code violations.’”

The order denying Lyft's motion to compel arbitration was reversed in part and affirmed in part. The order is reversed as to Seifu's individual PAGA claim. The order was affirmed as to Seifu's nonindividual PAGA claims. (Seifu v. Lyft, Inc. 89 Cal. App. 5th 1129, 306 Cal. Rptr. 3d 641 (Cal. App. Second Appellate District, 3/30/ 2023)).

Bottom Line

The Court of Appeals concluded that it wasn’t bound by the analysis of PAGA standing set forth in a recent U.S. Supreme Court decision. Therefore, an arbitration agreement compelling individual claims to arbitration was enforceable as to the individual portion of a PAGA claim.

However, the Court of Appeals concluded that until it has guidance from the California Supreme Court, a plaintiff isn’t stripped of standing to pursue nonindividual PAGA claims in court simply because his or her individual PAGA claim is compelled to arbitration.

Danielle G. Eanet can be reached at Eanet, PC in Los Angeles, CA at danielle@eanetpc.com.

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