Restrictions on Employers Limiting PAGA Claims With Arbitration Agreements

The employment litigation attorneys at Gehres Law Group, P.C. represent California owners and their businesses in defending their rights in court, through mediation or arbitration. Under certain circumstances, the Labor Code Private Attorneys General Act (PAGA) provides employees with another tool to assert claims against California employers, making it imperative that these businesses understand how PAGA works, and how they can thwart such claims. 

Julian v. Glenair Addresses Arbitration Clauses and PAGA Cases

The Labor Code Private Attorneys General Act (PAGA) provides authorization for aggrieved workers to file civil lawsuits. Civil lawsuits under PAGA allow the worker who files the suit to recover civil penalties both on his or her own behalf, or on behalf of other employees, and the state of California. Employees may recover a portion of these penalties for themselves if an employer has been found to have violated the labor code.

There are very specific requirements as to when a PAGA claim has ripened, allowing employees to assert such a claim against their employer or former employer. There are filing fees, rules for providing notice to opposing parties, and other conditions that must be met in order for a plaintiff seeking to recover civil penalties under PAGA to prevail.

However, employers have been increasingly limited in their ability to preclude employees from asserting PAGA claims through the use of arbitration agreements, as illustrated by a recent case, Julian v. Glenair.  There, the California Court of Appeals addressed the issue of arbitration agreements as a mechanism to limit the use of a judicial forum for PAGA claims.

The Julian v. Glenair case involved employees who brought claims against an employer for violations of the Labor Code, and for violations of the unfair competition act. The employees sought to make a PAGA claim for civil penalties in connection with the employer’s alleged violations. However, while the suit was pending, the employer attempted to short circuit the employees’ ability to pursue such claims, or at least to minimize the company’s exposure to liability and damages, by requiring the employees enter into a new employment agreement. More specifically, the new agreement included language indicating that continued employment with the company would constitute consent to mandatory arbitration of any employee claims. The proposed agreement stipulated that employees could no longer utilize the courts, but must submit to arbitration on a wide range of claims, including claims related to wages, rest breaks, meal periods, and all violations of federal, state, and local laws and regulations. The arbitration provision specified that the Federal Arbitration Act would govern the agreement and should, to the fullest extent permitted, preempt state laws.

The arbitration language also stressed that it was voluntary and employees could opt out. While most employees who had claims pending against the employer did opt out, two employees did not. Meanwhile, the employer continued trying to force the plaintiffs into arbitration through the pending court proceedings until the case made it to the Second Appellate District Court of Appeals for California.

While pre-dispute waivers of PAGA rights have previously been invalided in California, the Appellate court found there was no existing authority clearly determining the enforceability of a post-dispute waiver of the right to assert a PAGA claim in court. The Court utilized a two factors in determining the boundary between a permissible post-dispute waiver and an unenforceable one: a) the capacity of the employee to make a “knowing and voluntary” choice on whether to waive the right to bring a claim in a judicial forum given sufficient knowledge of the law, and b) the absence of public policy considerations.

The court reviewed past legal precedent finding that a person who acts in two legal capacities (e.g. in their individual capacity and on behalf of the state) in executing a pre-dispute agreement in one of those capacities (as an individual), does not effectively waive the rights that may exist in their other capacity (as an agent for the state). An arbitration agreement signed by an employee who has authority to commence a PAGA action which has not yet ripened does not, therefore, extend to PAGA actions because the employee isn’t the one authorized to bring the PAGA action – the state retains the control of the right to bring the underlying PAGA claim and the employee acts as an agent of the state. A pre-dispute arbitration agreement thus would not be effective in requiring the employee to arbitrate PAGA claims, even though it would typically be effective in requiring arbitration of individual claims.

The Court in Glenair further held that an individual employee may not waive their right to pursue a PAGA claim through the state courts even on a post-dispute basis if the employee was not represented by counsel, which would be necessary to reveal a “knowing and voluntarily” waiver of the employee’s rights. This analysis is required as to each employee, since the statute permits similar actions by employees against the same employer, and more than one employee can act as the state’s agent to assert PAGA claims for other employees (who may have waived their right to pursue their rights in court).

Therefore, in light of the holding in Glenair, even post-dispute arbitration agreement may be unenforceable with regard to PAGA claims if the affected employee has not retained counsel or if there is a clear public policy involved.

Getting Help from An Employment Litigation Attorney

If you or your business is being threatened with claims based on California Labor Code violations, including PAGA claims, contact the litigation lawyers at Gehres Law Group, P.C. for help. Give us a call at 858-964-2314 or contact us online to schedule a complimentary consultation with one of our knowledgeable employment litigation attorneys.

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