The appeal in Duran v. Employbridge Holding Co. (CA5 F084167) challenged the denial of a motion to compel arbitration of claims seeking to recover civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.) after the United States Supreme Court in Viking River Cruises, Inc. v. Moriana held that “individual” PAGA claims could be compelled to arbitration. However, the arbitration agreement in question contained a carve-out provision stating that “claims under PAGA … are not arbitrable under this Agreement.” The trial court determined that the phrase "claims under PAGA" must include all PAGA claims, thus making the agreement's carve-out effectively exclude even “individual” PAGA claims from arbitration. The Court of Appeals affirmed the trial court's ruling.

This ruling highlights the importance of the language of an arbitration agreement in enforcing the agreement to the fullest extent allowed by law.

Background Facts

As part of her application for employment with Employbridge, LLC, Plaintiff Griselda Duran signed an arbitration agreement. The arbitration agreement was governed by the rules of the Federal Arbitration Act, contained a broad agreement to arbitrate claims, specifically encompassing wage and hour disputes, and contained a representative action waiver.

The agreement also contained a carve-out provision, which stated “[c]laims for unemployment compensation, claims under the National Labor Relations Act, claims under PAGA, claims for workers’ compensation benefits, and any claim that is non-arbitrable under applicable state or federal law are not arbitrable under this Agreement.” The agreement further contained a severability provision that provided “Should any term or provision, or portion of this Agreement, be declared void or unenforceable or deemed in contravention of law, it shall be severed and/or modified by the court, and the remainder of this Agreement shall be fully enforceable.”

Plaintiff filed an action seeking PAGA penalties. The employer filed a motion to compel arbitration of Plaintiff’s PAGA claim on an individual, nonrepresentative basis, pursuant to Viking River’s ruling, arguing the representative action waiver was enforceable.

The trial court denied the motion, concluding that the arbitration agreement specifically excluded PAGA claims from arbitration. The Court of Appeal agreed.

History of Protecting PAGA Claims and the Anti-Waiver Rule

In 2014, the California Supreme Court laid down a bright line rule that a predispute categorical waiver of the right to bring a PAGA action is unenforceable. In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the court ruled that "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy."

The Viking River Cruise case decided by the United States Supreme Court held that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” Thus, Viking River requires enforcement of agreements to arbitrate a PAGA plaintiff's individual PAGA claims if the agreement is covered by the FAA.

The California Supreme Court recently resolved the question of what happens to the “representative” PAGA claim, once a plaintiff’s “individual” PAGA claim is compelled to arbitration. The Court in Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104 held that arbitrating a PAGA plaintiff’s individual claim does not extinguish the plaintiff’s status as an aggrieved employee, and, therefore, his or her ability to bring a PAGA claim on a representative basis. The Court implied that the way to effect Viking River’s holding is to stay the representative claims pending the outcome of the arbitration of individual PAGA claims.

Applicability and Interpretation of the Arbitration Agreement and the Importance of the Carve-Out Provision

In affirming the trial court’s ruling, the Court of Appeal relied on basic contract interpretation principles. "A party cannot be required to arbitrate a dispute that he or she has not agreed to submit to arbitration." Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 252. Determining whether the parties in a particular case agreed to arbitrate their disputes, depends upon the language employed in the arbitration agreement. Courts seek to give effect to the original intent of the parties when they entered into the contract. "California has strong public policy favoring arbitration and, as a result, ambiguities or doubts about the scope of the arbitration provision should be resolved in favor of arbitration." Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal. App.4th 761, 77 "In accordance with this policy, an exclusionary clause in an arbitration provision should be narrowly construed." Id.

However, the parties presented no extrinsic evidence to resolve any ambiguity in the carve-out provision, and therefore the court resolved the question of ambiguity based solely on the contents of the agreements. The Court found that the language of the agreement that “claims under PAGA … are not arbitrable under this Agreement” clearly excluded any PAGA claims from arbitration because it lacked any qualifying language.

The severability provision did not save the employer because the PAGA claims fell within the exception to the representative waiver provision, and there was no invalid provision to sever from the agreement.

The employer argued that the clear intention of the carve-out provision was to identify claims that applicable law prohibits from being arbitrated. However, the Court concluded that if the employer had intended that only nonarbitrable PAGA claims would not be arbitrable under the agreement – it should have drafted the clause to say so.

Employer Takeaways

  • Adolph v. Uber Technologies, Inc. and Viking River Cruises v. Moriana placed employers in a better position to compel arbitration of PAGA claims, albeit while still allowing representative actions to proceed pending the outcome of the arbitration. Duran v. Employbridge Holding Co. highlights the importance of the language used to meet that objective.
  • The burden is on the employer to draft clear arbitration agreements accurately reflecting the employer’s intention.
  • Employers should review their arbitration agreements to ensure compliance with the current employment arbitration standards in order to preserve the ability to compel arbitration to the fullest extent of the law.
  • The landscape for employment arbitration agreements is ever-evolving. If you have questions regarding this topic, the seasoned employment attorneys at WSHB can assist.

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