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PAGA Lawsuits Not Subject to Arbitration

PAGA Lawsuits

The Labor Code Private Attorneys General Act (PAGA) authorizes aggrieved employees to file PAGA lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. Employees pursuing PAGA claims must follow specified requirements. Labor Code Sections 2698 – 2699.5.

Courts enforce employer-mandated arbitration agreements more often than before. Attorneys representing employees generally view arbitration as a less-favorable place for resolving disputes. They usually prefer to be in court. A recent California Court of Appeals decision held that a PAGA lawsuit is not subject to arbitration. The court opened with:

Bernadette Tanguilig, an employee at Bloomingdale’s, Inc. (Bloomingdale’s), filed a representative action on behalf of herself and fellow employees pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.), alleging several Labor Code violations by the company. Bloomingdale’s moved to compel arbitration of Tanguilig’s “individual PAGA claim” and stay or dismiss the remainder of the complaint. The trial court denied the motion. We affirm. Under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) and consistent with the Federal Arbitration Act (FAA) (9 U.S.C. et seq.), a PAGA representative claim is nonwaivable by a plaintiff-employee via a predispute arbitration agreement with an employer, and a PAGA claim (whether individual or representative) cannot be ordered to arbitration without the state’s consent.

Iskanian and PAGA Lawsuits

Bloomingdale’s argued Iskanian was wrong under more recent U.S. Supreme Court decisions. On appeal, the company dropped it’s argument that it was distinguishable from Iskanian because the employee had the ability to opt out of the arbitration process. The court disagreed.

[W]e are bound by the Iskanian court’s interpretation of the pre-Iskanian United States Supreme Court decisions cited by Bloomingdale’s. Finally, we note that the Ninth Circuit has ruled that Iskanian correctly decided the federal question, thus superseding conflicting prior federal district court decisions cited by Bloomingdale’s. (See Sakkab v. Luxottica Retail North America, Inc., supra, 803 F.3d at p. 427.)

An essential point in Iskanian and Tanguilig is that PAGA lawsuits are not a dispute between an employer and an employee arising out of their contractual relationship. “It is a dispute between an employer and the state.” The employee is merely acting as a “deputized” agent of the state. Since the state did not sign an arbitration agreement with the employer, the company cannot force the state’s agent–e.g., the employee–into arbitration.

I can think of a couple of different unintended consequences of this analysis. For now, however, I’m keeping those close to my chest as I have a couple of ongoing cases where I may need to use the arguments. No sense giving away all my trade secrets.

Employers wishing to use arbitration agreements should review the agreements with counsel. Not all arbitration agreements are alike, and employees may be able to void an arbitration agreement as unconscionable. I anticipate seeing many more arbitration cases in the upcoming years. If you have an arbitration agreement you would like reviewed, or if you are considering using an arbitration agreement, feel free to contact the Nuddleman Law Firm, P.C.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law. We cannot answer questions about specific situations or provide legal advice over the Internet. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Do not post confidential or time-sensitive information in this blog. The Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

 

California Court Rejects Unconscionable Arbitration Agreement

Martha Carbajal sued her former employer, CW Painting, for unpaid wages.  The employer moved to compel arbitration pursuant to the employment agreement Carvajal signed.  The trial court denied the motion and refused to enforce the unconscionable arbitration agreement. CW appealed, but the Fourth Appellate District agreed with the trial court.  You can read the full opinion here.

Procedurally Unconscionable Arbitration Agreement

The appellate court held the arbitration agreement was procedurally unconscionable because it was part of an adhesion contract CW Painting imposed on Carbajal as a term of her employment.  The court took particular issue with the fact that, although the arbitration provision required the parties to arbitrate their disputes under the American Arbitration Association’s (AAA) rules, the agreement did not identify which of AAA’s many different rules would apply, CW Painting did not provide Carbajal with a copy of the rules it believed applied, and CW Painting required Carbajal to sign the agreement without telling her where she could find the governing rules or giving her an opportunity to determine which rules would apply.

Substantively Unconscionable Arbitration Agreement

The court went on to find the arbitration agreement substantively unconscionable because it allowed CW Painting to obtain injunctive relief in court while requiring Carbajal to seek relief through arbitration.  The agreement also waived the statutory requirement that CW Painting post a bond or undertaking to obtain injunctive relief, and it effectively waived Carbajal’s statutory right to recover her attorney fees if she prevailed on her Labor Code claims.

The court refused to sever these unconscionable terms and enforce the remainder of the arbitration provision,and instead declared the whole contract void because multiple unconscionable terms permeated the entire agreement.

The court rejected CW Painting’s contention the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) governed the dispute because CW Painting failed to timely present  evidence that the contract with the arbitration provision had a substantial relationship to interstate commerce.

Although many courts will enforce arbitration agreements, California courts will not rubber-stamp an employer-mandated arbitration clause.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

Another Arbitration Agreement Upheld by Supreme Court

I’ve written several articles regarding the somewhat recent shift toward courts upholding arbitration agreements.  A few years ago, California courts in particular were reluctant to force employees into arbitration even when the parties agreed to resolve all disputes through arbitration.  After AT&T Mobility LLC v. Concepcion, 563 U. S. 333, held that California’s Discover Bank rule was pre-empted by the Federal Arbitration Act, more and more courts have upheld arbitration agreements.  Still, some courts try to find ways to bring cases outside AT&T’s broad application.  The result of this case: arbitration agreement upheld.

In DirectTV, Inc. v. Imburgia the U.S. Supreme Court upheld another arbitration agreement.  DIRECTV, Inc., and its customers entered into a service agreements that included a binding arbitration provision with a class-arbitration waiver. It specified that the entire arbitration provision was “unenforceable if the ‘law of your state’ made class-arbitration waivers unenforceable.” The agreement also declared that the arbitration clause was governed by the Federal Arbitration Act. When the plaintiffs entered into that agreement, California law made class-arbitration waivers unenforceable (see Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P. 3d 1100, subsequently overruled by AT&T Mobility LLC v. Concepcion, 563 U. S. 333).

When the customers sued DirectTV, the trial court denied the company’s request to order the matter to arbitration, and the California Court of Appeal affirmed. The court thought that California law would render class-arbitration waivers unenforceable, so it held the entire arbitration provision was unenforceable under the agreement. The fact that the Federal Arbitration Act pre-empted that California law did not change the result, the court said, because the parties were free to refer in the contract to California law as it would have been absent federal pre-emption. The court reasoned that the phrase “law of your state” was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the court held, the parties had in fact included California law as it would have been without federal pre-emption.

 Arbitration Agreement Upheld

The U.S. Supreme court held that because the California Court of Appeal’s interpretation is preempted by the Federal Arbitration Act, that court must enforce the arbitration agreement. No one can deny that courts must follow Concepcion, but that does not resolve the issue because the parties are free to choose the law governing an arbitration provision, including California law as it would have been if not pre-empted.

According to the Supreme Court, the California court’s interpretation did not place arbitration contracts “on equal footing with all other contracts,” because California courts would not interpret contracts other than arbitration contracts the same way. Several considerations led to this conclusion:

  • First, the phrase “law of your state” is not ambiguous and takes its ordinary meaning: valid state law.
  • Second, California case law—that under “general contract principles,” references to California law incorporate the California Legislature’s power to change the law retroactively, Doe v. Harris, 57 Cal. 4th 64, 69–70, 302 P. 3d 598, 601– 602—clarifies any doubt about how to interpret it.
  • Third, because the court nowhere suggests that California courts would reach the same interpretation in any other context, its conclusion appears to reflect the subject matter, rather than a general principle that would include state statutes invalidated by other federal law.
  • Fourth, the language the court uses to frame the issue focuses only on arbitration.
  • Fifth, the view that state law retains independent force after being authoritatively invalidated is one courts are unlikely to apply in other contexts.
  • Sixth, none of the principles of contract interpretation relied on by the California court suggests that other California courts would reach the same interpretation elsewhere. The court applied the canon that contracts are construed against the drafter, but the lack of any similar case interpreting similar language to include invalid laws indicates that the anti-drafter canon would not lead California courts to reach a similar conclusion in cases not involving arbitration.

It worth noting that this case was decided 4 to 3, with Justices Thomas, Ginsburg and Sotomayor dissenting.  As Justice Thomas has repeatedly said in the past, he believes that the Federal Arbitration Act (FAA), does not apply to proceedings in state courts.  Justices Ginsburg and Sotomayor thought “California court’s interpretation of the ‘law of your state’ provision is not only reasonable, it is entirely right.”

Many U.S. Supreme Court decisions upholding arbitration agreements are won on a 4 to 3 vote.  It will be interesting to see what will happen when one of the Supreme Court justices retires and is replaced by a new judge.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

 

What is Alternative Dispute Resolution?

What is Alternative Dispute Resolution?

California and federal courts typically require all litigants to conduct some type of Alternative Dispute Resolution (ADR). ADR is a process in which a neutral person helps people who cannot agree, so that they can resolve their case.  ADR is designed to take place as early as possible in the life of a case, to provide an opportunity to settle all or part of the case and keep litigation expense to a minimum.  Parties in a civil case can use a mediator, neutral evaluator, arbitrator, or settlement conference neutral for assistance in resolving a case. In some programs, ADR providers determine their own fee for their services.

Types of Civil ADR available:

Mediation:

Mediation is an informal, confidential, flexible and non-binding process in which the mediator helps the parties to understand the interests of everyone involved, and their practical and legal choices. The mediator helps the parties to:

• Communicate better,

• Explore legal and practical settlement options, and

• Reach an acceptable solution of the problem.

The mediator does not decide the solution to the dispute; the parties do. The mediator does not have the power to force either party to accept any particular result, and does not render a decision regarding who will or who will not prevail in the case.  Rather, the mediator helps the parties facilitate a resolution of the case.

Mediators are allowed to charge for their time. The cost of mediation can vary depending on the mediator and the parties usually split the mediator’s fee. Some mediators charge an hourly rate, and others charge a daily rate.  Some programs offer free mediations in particular situations.

Neutral evaluation

Neutral evaluation, sometimes called “early neutral evaluation” or “ENE”, is an informal process in which the evaluator, an experienced neutral lawyer:

• Hears a compact presentation of the case from both sides,

• Gives a non-binding assessment of the strengths and weaknesses on each side, and

• Predicts the likely outcome.

The evaluator can help parties to identify issues, prepare stipulations, and draft discovery plans. The parties may use the evaluation to discuss settlement. Evaluators are allowed to charge for their time.

Like mediation, the evaluator does not have the authority to decide who wins or loses the case.  The evaluator discusses the strengths and weaknesses of the parties’ case and can offer his/her opinion as to the likelihood of prevailing.  Oftentimes, ENE will lead to settlement discussions after the parties receive feedback regarding the merits and weaknesses of their claims and defenses.

The court oftentimes provides free ENE services, but the parties can also hire a private evaluator.

Private Arbitration

Arbitration is less formal than a trial. The arbitrator:

• Hears the evidence and arguments of the parties, and then

• Makes a written decision.

The parties can agree to binding or non-binding arbitration:

• In binding arbitration the arbitrator’s decision is final and completely resolves the case, without the opportunity for appeal.

• In non-binding arbitration, the arbitrator’s decision could resolve the case, without the opportunity of appeal, unless a party timely rejects the arbitrator’s decision within 30 days and requests a trial.

Many private arbitrations are BINDING; if there is an arbitration clause in a contract, that clause may state whether or not arbitration will be binding.

Some agreements require arbitration before or in lieu of filing a lawsuit.

Civil Judge ADR

The Civil Judges ADR program allows parties to have a mediation or settlement conference with an experienced judge of the Superior Court.

Judicially supervised mediation is an informal, confidential, flexible and non-binding process in which the judge helps the parties to understand the interests of everyone involved, and their practical and legal choices, and to hopefully resolve their disputes.

A settlement conference is an informal process in which the judge:

• Meets with the parties or their attorneys,

• Hears the facts of the dispute,

• Helps identify issues to be resolved, and

• Normally suggests a resolution that the parties may accept or use as a basis for further negotiations.

Judicial Arbitration

Judicial Arbitration is like a trial, but it is less formal and there is no jury. Each side presents its case to an arbitrator. The arbitrator is either a lawyer or a retired judge, and does not take sides or give advice.

Judicial arbitration is usually free for the parties. (If your arbitration takes more than 5 hours, the arbitrator may charge you a fee, but most arbitrations take 3 hours or less.) The parties can agree to binding or non-binding arbitration:

• In binding arbitration the arbitrator’s decision is final and completely resolves the case, without the opportunity for appeal.

• In non-binding arbitration, the arbitrator’s decision could resolve the case, without the opportunity of appeal, unless a party timely rejects the arbitrator’s decision within 30 days and requests a trial.

If the parties cannot agree on a particular form of ADR, the court’s default ADR process is non-binding judicial arbitration. If the parties use non-binding judicial arbitration, then oftentimes the losing party will simply reject the arbitrator’s decision. Although this can effect the recovery of costs should the matter proceed to litigation, it does not necessarily facilitate a resolution of the claims.

Civil Early Settlement Conference

A settlement conference is an information process in which the neutral (a judge or an experienced attorney):

• Meets with the parties or their attorneys,

• Hears the facts of the dispute,

• Helps identify issues to be resolved, and

• Normally suggests a resolution that the parties may accept or use as a basis for further negotiations.

Some courts offer this service at no additional charge.

When is the right time to engage in ADR?

That depends on a number of factors.  Sometimes early ADR efforts can help the parties resolve their differences without litigation, or early in the litigation process.  Early ADR may allow the parties to resolve their differences without incurring substantial costs and before the parties become too entrenched in their positions.  If ADR occurs too early, the parties may not have sufficient time to develop the evidence and therefore may make incorrect assumptions about what the evidence will or will not show.  The inability to examine the evidence that will come out at trial may help the parties resolve their case, but it can also cause one side or the other to over-value the strengths of their position.

Given the significant costs of litigating a case, the Nuddleman Law Firm believes exploring ADR options early makes sense for most clients, but early ADR is not appropriate for every case.  If one side or the other is too entrenched in their position or has an unrealistic expectation of what will occur during the litigation, the parties may need to litigate the case until their positions become clearer or they have a better understanding of what may happen at trial.