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Thursday, June 6, 2013

Brown v. Superior Court: Court Invalidates Arbitration Agreement's Waiver of PAGA Representative Action

In Brown v. Ralphs Grocery Co. (7/12/11) 197 Cal.App.4th 489, review denied 10/19/2011 (discussed here), the Court of Appeal held that the Federal Arbitration Act (FAA), as explained in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ (discussed heredoes not preempt California law invalidating an employee's waiver of her right to bring an action under the Labor Code Private Attorneys General Act (PAGA). That's a mouthful, but in other words, even if an employee waives the right to bring a PAGA representative action, he or she can bring the action because the waiver is invalid.

On June 4, the Court of Appeal issued another Brown case on the same issue: Brown v. Superior Court (Morgan Tire & Auto, LLC) (6/4/13) --- Cal.App.4th ---. The Court reversed in part a trial court order compelling individual arbitration of wage claims, again holding that the FAA does not preempt California law prohibiting waiver of an employee's right to bring a PAGA representative action.  

A plaintiff suing for PAGA civil penalties is suing as a proxy for the State. A PAGA claim is necessarily a representative action intended to advance a predominately public purpose. When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right. AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, does not require otherwise. 
Slip op. at 1-2.  

The Court held as follows: 

The defendant did not waive its right to compel arbitration by litigating the case in court for ten months before the U.S. Supreme Court issued its decision in Concepcion. In light of Gentry v. Superior Court (2007) 42 Cal.4th 443, it was reasonable for the defendant to believe that bringing a motion to compel individual arbitration would have been futile. Slip op. at 7-12. 

The National Labor Relations Board (NLRB) incorrectly decided D.R. Horton, Inc. (2012) 357 NLRB No. 184 (discussed here), and the National Labor Relations Act (NLRA) did not make the representative action waiver unenforceable. Citing Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 514-515 (discussed here) and Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115, 1132-1135, review denied 11/2/12 (discussed here). Slip op. at 12-13. 

The FAA does not require "enforcement of a private agreement that wholly prevents the exercise of a statutory right intended for a predominantly public purpose." Slip op. at 16. The Court held that all PAGA actions are representative actions: 
The obvious public purpose of the law suggests that it is necessarily a representative action. Law enforcement does not take place on an individual basis. The PAGA does not give an employee any substantive rights. The PAGA merely allows the employee to act on behalf of the state when the employer violates other sections of the Labor Code. 
Slip op. at 17. 

The Court held that the portion of the agreement waiving the employee's right to bring a PAGA representative action was invalid, but the remainder of the agreement was valid, and the trial court should have compelled individual arbitration of the plaintiff's non-PAGA claims: 
It follows that the PAGA claim must be excluded from the order compelling arbitration and stayed pending resolution of the arbitration. 
Slip op. at 20. 

Even though the California Supreme Court denied review of Brown v. Ralphs Grocery back in 2011, I assume that it will grant review of this Brown decision and hold pending its decision in Iskanian v. CLS Transportation L.A., LLC (6/4/12) 206 Cal.App.4th 949, review granted 9/19/12 (discussed here). 

Brown v. Superior Court is available here.  

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