Brown v. Morgan Tire & Auto: California Appellate Court Holds Arbitration Agreement Can’t Block PAGA Representative Actions

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In the continuing battle over class and representative actions, in which arbitration agreements have been increasingly found to be a valid tool for preventing groups of plaintiffs to adjudicate claims in a single proceeding, workers scored a victory this week: California’s Sixth Appellate District has held that the Federal Arbitration Act (FAA) does not require the enforcement of arbitration agreements that nullify workers’ statutory right to bring actions for recovery of civil penalties under PAGA, the California Labor Code’s Private Attorneys General Act. See Brown v. Super Ct. (Morgan Tire), No. H037271 (Cal. Ct. App. June 4, 2013) (available here).

“[A] private agreement purporting to waive the right to take representative action is unenforceable,” the unanimous three-judge panel held, “because it wholly precludes the exercise of this unwaivable statutory right.” Slip op. at 1. The panel noted that AT&T Mobility v. Concepcion, the leading case for those seeking to squelch representative actions through arbitration agreements, “does not require otherwise.” Slip op. at 2.

The plaintiffs worked for the defendant’s “Wheel Works” subsidiary and alleged various wage-and-hour violations. See slip op. at 2. In addition to seeking restitution and damages, the plaintiffs also sought to recover civil penalties, as the state’s proxy, arising from the same workplace violations. The plaintiffs signed a standard dispute-resolution contract, which provided for arbitration of disputes and prohibited arbitration “‘on a class basis or as a collective action or representative action.’” Slip op. at 3. When the action was filed, California had unambiguously made a public policy choice to invalidate representative action waivers in both consumer and wage-and-hour cases. Thereafter, however, a narrow majority of U.S. Supreme Court justices held, in Concepcion, that at least in the consumer context, the FAA trumped California’s policy decision as to representative action waivers. Seizing on the opportunity to extend Concepcion, the Brown defendant moved to compel arbitration, arguing that the FAA also abrogated California’s invalidation of representative action waivers in wage-and-hour actions. The trial court agreed and granted the defendant’s motion. Slip op. at 3.

The Court of Appeal reversed, formally by way of a writ of mandate. See slip op. at 4, 20. The decision comes amid anything but judicial unanimity on the dispositive issue, with Iskanian v. CLS Transportation coming down in favor of enforcing representative action waivers, whereas Franco v. Arakelian Ent. and Brown v. Ralphs hold that Concepcion does not require the enforcement of such waivers. The California Supreme Court is likely to forge the issue’s ultimate resolution when it decides whether to reverse or uphold Iskanian. And if, as did Associate Justice Eugene Premo in Brown v. Morgan Tire, the Supreme Court relies on Brown v. Ralphs, then reversal would appear likely in Iskanian, too.

Justice Premo explained that, similar to the Ralphs appellate court’s holding that FAA preemption would essentially nullify the benefits of PAGA, “[i]n the present case, the EDRP does not explicitly prohibit private attorney general actions but it does prohibit representative actions. Accordingly, it effectively prohibits the employee from prosecuting any PAGA claim at all.” Slip op. at 16. Thus, neither the FAA nor a particular arbitration contract may altogether block a worker from pursuing PAGA civil penalties on a class or collective basis, because a PAGA claim is intrinsically representative. See slip op. at 17.