Winns et al. v. Postmates Inc.: Postmates Fails to Deliver PAGA Claims to Arbitration in Another Epic Challenge to Iskanian

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In Winns et al. v. Postmates Inc., Cal. Ct. App. 1st Dist., No. A155717, July 20, 2021 (“Winns”) (slip op. available here), the California Court of Appeal held that Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (“Epic Systems”) does not overrule the California Supreme Court’s opinion in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) (“Iskanian”), which held that representative action waivers are unenforceable.

The plaintiffs in Winns worked for Postmates as couriers. Their Fleet Agreement with Postmates contained a broad arbitration agreement, including a representative action waiver. The agreement contained an opt-out provision, but none of the plaintiffs submitted opt-out forms. Slip op. at 3. The plaintiffs’ operative complaint alleged individual and class claims under the Labor Code and Unfair Competition Law, including that Postmates illegally withheld wages, took gratuities given to couriers, and misclassified couriers as independent contractors. The plaintiffs also alleged representative claims under the PAGA for which they sought civil penalties. Id. at 3-4.

Postmates initially filed a typical motion to compel arbitration – seeking to arbitrate the plaintiffs’ individual claims and stay their PAGA claim pending the outcome of arbitration. Slip op. at 4. However, after the United States Supreme Court decided Epic Systems, Postmates requested that the plaintiffs also be compelled to arbitrate their PAGA claim for civil penalties. Postmates’ theory was that Epic Systems implicitly overruled the California Supreme Court’s opinion in Iskanian, to the extent Iskanian held that PAGA waivers in arbitration agreements were unenforceable. Id.

The trial court granted Postmates’ motion to compel arbitration with respect to the plaintiffs’ individual claims. However, as to the plaintiffs’ PAGA claim, the court concluded that Epic Systems did not compel the plaintiffs to arbitrate the PAGA claim because Epic Systems “addressed only the question of whether class or collective action waivers were enforceable under the FAA.” Slip op. at 5. It“did not address the enforceability of waivers of representative actions, such as those brought under PAGA.” Id. The trial court concluded that “representative action waivers remain unenforceable under Iskanian.” Id. Postmates appealed.

On appeal, the first important question was whether the opportunity to opt out of the arbitration agreement and the representative action waiver, which the plaintiffs did not exercise, affected the rule of non-waiverability in Iskanian. Slip op. at 7. Postmates argued that Iskanian did not apply to bar these waivers because they were not “a mandatory condition of a courier’s employment.” Id. Postmates relied on language in Iskanian, 59 Cal.4th at 360, stating “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.” Id.

The Court of Appeal rejected the argument. It explained that “Iskanian’s holding that a PAGA waiver was unenforceable was premised on the public policy rationale that a PAGA waiver improperly circumvents the Legislature’s intent to empower employees to enforce the Labor Code as agency representatives and harms the state’s interest in enforcing the Labor Code.” Slip op. at 7. Moreover, “Iskanian did not turn on how the worker entered into the arbitration agreement, or the mandatory or voluntary nature of the worker’s consent to the agreement.” Id. Thus, under Winns, an employer cannot evade Iskanian’s holding that PAGA representative action waivers are unenforceable by virtue of an opt out option.

Postmates’ principal argument, however, was that Iskanian’s PAGA waiver rule cannot survive Epic Systems and its progeny. The Court of Appeal found the argument unavailing. Slip. op. at 8. This is not surprising because “California courts have uniformly rejected the argument that Epic Systems overruled Iskanian.Id. at 9-10 (citing cases).

The well-accepted reasoning behind these cases is the same. In Epic Systems, the Court did not decide whether representative actions like PAGA claims can be compelled to arbitration. Therefore, it did not “overrule” Iskanian. For a court to be bound by a decision of the United States Supreme Court, rather than the California Supreme Court, the United States Supreme Court must have decided the same question differently. Slip op. at 8 (citing Correia v. NB Baker Electric, Inc., 32 Cal.App.5th 602, 619 (2019)).

As the Winns court explained, “the U.S. Supreme Court did not decide or consider whether a worker may waive a right to bring a representative action on behalf of a state government.” Slip op. at 9. It follows, therefore, that “the Court’s reasoning in Epic Systems did not address the basis for our Supreme Court’s decision in Iskanian, namely, that a PAGA action is not an individual dispute between private parties but an action brought on behalf of the state by an aggrieved worker designated by statute to be a proper representative of the state to bring such an action.” Id. This situation – particularly including the involvement of the state, which is not party to any arbitration agreement – presents issues very different from those before Epic Systems.

Accordingly, the Winns court found that it was bound by the doctrine of stare decisis to follow the California Supreme Court’s decision in Iskanian that PAGA waivers are invalid under state law. It affirmed the trial court’s order denying Postmates’ petition to compel arbitration of the plaintiffs’ PAGA civil penalty claim. Slip op. at 15.

Authored by:
Robert Friedl, Senior Counsel