Posts belonging to Category PAGA

In October 2016, the California Court of Appeal held that a trial court erred in dismissing class claims due to a governing arbitration agreement. The court found that class arbitration may, in fact, be available—but that this was a question for the arbitrator to decide.

The Court of Appeal in Nguyen v. Applied Medical Resources Corporation, No. G052207 (4th Dist. Div. 3, Oct. 4, 2016) (slip op. available here), heard an appeal from Da Loc Nguyen, a former employee of surgical equipment manufacturer Applied Medical Resources Corporation (“Applied”), who had brought individual and class claims against her employer for violations of the California Labor Code and the Unfair Competition Law, and claims for civil penalties under the Private Attorneys General Act (“PAGA”). The trial court had granted Applied’s motion to compel arbitration due to an arbitration clause in Nguyen’s employment application, and had dismissed Nguyen’s class claims without prejudice, allowing only the PAGA claims to remain.

The Court of Appeal issued a writ of mandate ordering the trial court to vacate the portion of its order dismissing the class claims. Although arbitration could be compelled, the appellate court found, the trial court could not simply dismiss the class claims outright. The court’s analysis relied heavily on the California Supreme Court’s decision in Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233 (2016), which involved a very similar arbitration clause. Sandquist addressed the question of “‘who decides whether the [arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator[?]’” Nguyen, slip op. at 24, emphasis in original (citing Sandquist, 1 Cal.5th at 241).

First, the Nguyen court followed Sandquist’s holding that state law, rather than federal law, applied to the question of “who decides” whether class arbitration is available, as this is a question of contract interpretation that is usually subject to state law. Slip op. at 26. Next, the court examined the language of the arbitration clause and found that it was similar in two key respects to Sandquist: (1) the arbitration clause contained “inclusive” language, that is, it provided that all disputes (as opposed to specific, enumerated disputes) should go to arbitration; (2) the provision extended to all claims “arising from, related to, or having any relationship or connection whatsoever” with the employment relationship within the parties. Id. at 26-28 (citing Sandquist, 1 Cal. 5th at 245-46). These factors weighed in favor of allowing the arbitrator to make all decisions regarding the case—including the arbitrability of class claims. Id.

Finally, Nguyen followed Sandquist in applying two general principles of law: first, “when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration.” Slip op. at 28. Second, ambiguous terms in written contracts should be construed against the drafter—especially when the contract is one of adhesion. Id. Thus, because Applied, the employer, drafted the arbitration clause in its take-it-or-leave-it employment application, Applied could have expressly stated whether class claims could be arbitrated. It did not, so it could not benefit from that ambiguity after the fact. Id. at 28-29 (citing Sandquist, 1 Cal. 5th at 247-48). Consequently, Nguyen held that the arbitration agreement gave the arbitrator—not the trial court—the power to decide whether class arbitration may occur.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

Uber drivers suing the ride-hailing company have urged an en banc review of the Ninth Circuit panel’s recent decision that drivers must arbitrate their claims, including any challenges to that they might have to the arbitration agreements themselves. Plaintiffs-Appellees’ Petition for Rehearing En Banc, Mohamed v. Uber Technologies, Inc., et al., 15-16178, Gillette v. Uber Technologies, Inc., 15-16181, and Mohamed v. Hirease, LLC, 15-16250 (9th Cir. Sept. 7, 2016) (available here). The request to re-examine the decision stems from appeals by Uber in three proposed class actions in which drivers alleged that Uber misclassified them as independent contractors, rather than as employees, and violated the Fair Credit Reporting Act and analogous state statutes by running criminal background and credit checks on drivers without proper authorization and then improperly utilizing their consumer credit reports. The at-issue arbitration agreements were contained in two driver agreements, a 2013 agreement and a 2014 agreement, both of which contained opt-out clauses that none of the plaintiffs had utilized.

On September 7, 2016, a three-judge panel partly reversed U.S. District Judge Edward M. Chen’s June 2015 ruling that Uber’s arbitration agreements were unenforceable, and clarified that the 2013 and 2014 contracts clearly delegated the question of arbitrability to the arbitrator. Mohamed, at 6-7 (slip op. available here). The panel found that “[t]he 2013 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator except as pertained to the arbitrability of class action, collective action, and representative claims.” Id. at 14. Furthermore, “the 2014 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator under all circumstances.” Id. at 11. The panel also held that neither delegation provision was unconscionable, because the ability to opt-out of both agreements within 30 days essentially rendered both agreements procedurally conscionable, per se. Id. at 18. Indeed, although the panel acknowledged that it was likely more burdensome to opt out of the arbitration provision by overnight delivery service or in person (as required by the 2013 agreement) than it would have been by email (as allowed by the 2014 agreement), “there were some drivers who did opt out and whose opt-outs Uber recognized. Thus, the promise was not illusory.” Id. at 17. Accordingly, the court rejected Judge Chen’s finding that Uber’s arbitration provision was procedurally and substantively unconscionable on these grounds. Id. at 17-18.

In their petition for rehearing, the drivers first argue the panel’s ruling unlawfully permits otherwise unconscionable arbitration agreements to be upheld, so long as the agreement contains a “meaningful” opt-out clause, even where the terms of the clause are difficult to comply with or are purposely buried in the fine print to prevent an individual from opting out. Petition for Rehearing, at 4-7 (internal citations omitted). Second, they contend that the panel’s finding that questions of arbitrability be decided by an arbitrator conflicts with the U.S. Supreme Court’s requirement that valid delegations of arbitrability be “clear and unmistakable,” insofar as the at-issue delegation provisions contained exceptions, conflicted with other arbitration terms, and were generally ambiguous. Id. at 7-10 (internal citations omitted). Third, the drivers argue that the panel’s holding that the presence of opt-out clauses renders the agreements’ class action waivers lawful under federal labor laws is incorrect and conflicts with contrary holdings of the Seventh Circuit. Id. at 10-12. Specifically, in Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), the Ninth Circuit recently held that class action waivers violate employees’ right to engage in “concerted action” under the National Labor Relations Act (NLRA). However, this panel (in Mohamed) held that the availability of limited and burdensome opt-out provisions rendered the class action waivers non-mandatory, and thus lawful. Mohamed, slip op. at 18 n.6. The plaintiffs point out that this conclusion conflicts with the Seventh Circuit’s ruling in Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016), where the court held that an employee cannot prospectively waive the right to engage in protected concerted action under the NLRA, notwithstanding an opt-out provision. Finally, the drivers argue that the panel’s determination that a cost-sharing provision that would require drivers to pay substantial fees was negated by Uber’s mid-litigation offer to pay such costs, runs contrary to Sixth Circuit precedent which held such a provision unenforceable if it “deter[s] potential litigants, regardless of whether . . . the employer agrees to pay a particular litigant’s share of the fees and costs to avoid such a holding.” Petition for Rehearing, at 12-15 (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 676-77 (6th Cir. 2003) (en banc)).

It remains to be seen whether the Ninth Circuit will accept this petition for rehearing en banc.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC

Last month, in Hopkins v. BCI Coca-Cola Bottling Co. of Los Angeles, the Ninth Circuit Court of Appeals maintained its position, finding that California’s public policy prohibiting waiver of Private Attorneys General Act (“PAGA”) claims was not preempted by the Federal Arbitration Act (“FAA”). See Hopkins, No. 13-56126 (9th Cir. Feb. 19, 2016) (slip op. available here). In Hopkins, the panel reversed and remanded the district court’s order dismissing the plaintiff’s PAGA claim and granting the defendant’s motion to compel arbitration, finding that an employee’s right to bring a PAGA action cannot be waived. See id. at 1-2.

In Hopkins, as in Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015) before it, the Ninth Circuit followed the California Supreme Court’s landmark decision, Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014). In Iskanian, the California Supreme Court found that the state’s public policy prohibiting waiver of PAGA claims was not preempted by the FAA, establishing the unenforceability of PAGA waivers in arbitration agreements. See Iskanian, 59 Cal. 4th at 388-89. A few months ago, the Ninth Circuit set forth its view in Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015), upholding Iskanian and finding that a contractual waiver of the right to bring a representative PAGA action is unenforceable. Id. at 431.

First, the Hopkins panel held that the Iskanian rule applied to the arbitration agreement and thus, Hopkins’ waiver of his right to bring a PAGA action is unenforceable. The appeals court rejected the defendant’s contention that the FAA preempts the Iskanian rule and requires enforcement of the PAGA waiver, an argument the court held was “foreclosed in light of [the] decision in Sakkab.” Slip op. at 2. After severing the clause containing the representative claims waiver from the arbitration agreement, the court stated it was unclear whether the plaintiff had argued the arbitration agreement itself was unconscionable and whether the parties had agreed to litigate or arbitrate remaining claims. Accordingly, case was remanded to determine in what venue Hopkins’ representative PAGA claims should be resolved.

Hopkins illustrates the Ninth Circuit’s continued fidelity to Iskanian. Indeed, just recently the Ninth Circuit also denied Luxottica’s petition seeking rehearing en banc in Sakkab, a decision that seems less likely to be reviewed by the United States Supreme Court, now that the Court’s composition has changed. As employers continue to use arbitration agreements with representative action waivers to avoid having to face class or representative actions, Hopkins clears the way for employees’ PAGA claims to be heard in some forum.

Authored by: 
Ruhandy Glezakos, Associate
CAPSTONE LAW APC

On September 28, 2015, the Ninth Circuit Court of Appeals weighed in on a very contentious issue—the enforceability of waivers of claims brought pursuant to the Private Attorneys General Act (“PAGA”)—an issue that had divided the district courts for the last several years. See Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015) (slip op. available here). The majority, agreeing with the California Supreme Court’s decision in the landmark Iskanian case (Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014)), found that an employee cannot waive the right to bring a representative PAGA action, and that any agreement seeking to waive such rights prospectively is unenforceable, a holding that is now becoming known as the “Iskanian Rule.” As a result, the lower court’s holding that the Iskanian rule is preempted by the Federal Arbitration Act (“FAA”) was reversed in part, and the case was remanded for the district court to decide in which forum (court or arbitration) the plaintiff’s representative PAGA claims would be resolved.

The plaintiff, a former employee of LensCrafters, had filed an employment class action lawsuit against Luxottica, alleging that the defendant misclassified the plaintiff and other employees as supervisors, in order to improperly exempt them from overtime wages and meal and rest break requirements. The defendant sought to compel arbitration pursuant to an alternative dispute resolution (ADR) agreement contained in its “Retail Associate Guide.” The plaintiff argued that the portion of the ADR agreement prohibiting him from bringing PAGA claims on behalf of other employees was unenforceable under California law; thus, even if his claims were compelled to arbitration, he could not be denied a forum for his PAGA claims. The district court rejected the plaintiff’s argument and granted the defendant’s motion to compel arbitration only of the plaintiff’s individual claims, concluding that the FAA preempted the state law Iskanian rule. The plaintiff in Sakkab appealed.

Judge Milan Smith authored the majority opinion, arguing that Iskanian is not preempted by the FAA because it has nothing directly to do with arbitration. The thrust of the majority’s position was that PAGA actions are not necessarily “procedurally” complex, and that only state law rules that would require complex procedures in arbitration, resulting in “procedural morass,” run afoul of Concepcion’s rule against states interfering with “fundamental attributes of arbitration.” Slip op. at 19, 25-27. The majority bolstered its conclusion by adopting the preemption framework set out by the Iskanian court, which rested on the notion that PAGA claims are unique in that they are brought on behalf of the state to enforce the law, unlike private actions for damages which involve only private rights. As such, the United States Supreme Court’s FAA preemption case law, which mandates preemption of state law rules that implicate private rights, does not extend to a state law rule that disallows employers from enforcing waivers of PAGA claims. The dissent, however, reiterating the holding in AT&T Mobility v. Concepcion, 563 U.S. 333 (2007), would find that the FAA generally preempts any law that creates a special rule disfavoring arbitration or conflicts with the FAA’s objectives, and views no distinction between bans on PAGA claims and bans on class action waivers for the purpose of FAA preemption.

This ruling is particularly significant since it is the first endorsement of Iskanian, a state case, by a federal appellate court, and California federal courts will now be required to follow this rule. The defendant Luxottica has filed a petition seeking rehearing en banc, the plaintiff-appellant’s response to which is due by January 15, 2016.

Authored by: 
Robin Hall, Associate
CAPSTONE LAW APC