California’s Private Attorneys General Act (“PAGA”) authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for violations of the California Labor Code. Lawsuits brought under PAGA have resulted in employers paying millions of dollars in penalties that the state almost certainly would not have recovered otherwise. Though the California Supreme Court ruled years ago that arbitration agreements are not enforceable with respect to PAGA claims (see our blog post here), employers continue to attempt to find a loophole that would allow them to require employees to arbitrate PAGA claims. (See our blog post here for one example.) The most recent such effort, Bautista v. Fantasy Activewear, Inc., was recently shot down by the California Court of Appeals.
In Bautista, the plaintiffs each brought a class action with a number of wage and hour claims after having signed a settlement agreement years earlier that contained an arbitration clause. When the employer, Fantasy Activewear, moved to compel arbitration with respect to both class actions, the plaintiffs dropped their class action claims but each moved forward with a remaining claim under PAGA. The court then denied Fantasy Activewear’s petitions to compel arbitration, and Fantasy Activewear appealed.
The Court of Appeal upheld the trial court’s decision to deny Fantasy Activewear’s petitions to compel arbitration. Fantasy Activewear claimed that, based on the language in the arbitration clause, the Court of Appeal should find that an arbitrator, rather than a civil court judge, must decide whether the PAGA claims were subject to arbitration. The Court of Appeal determined that the question at issue was even more fundamental than whether the plaintiffs’ PAGA claims were subject to arbitration; rather, the “threshold” issue was whether there was even an agreement between the parties to arbitrate the PAGA claim.
The Court of Appeal followed the precedent discussed above and held that there was no such agreement. When an employee sues under PAGA, he or she “‘does so as the proxy or agent of the state’s labor law enforcement agencies.’” The plaintiffs were acting as agents of the State of California when they brought the PAGA claims, but they had signed the settlement agreement containing the arbitration clause four years earlier, before they became agents of the state. (Though there are limited circumstances under which a party to an agreement can bind a non-party, none apply to this situation.) The State of California never entered into any agreement with Fantasy Activewear, and therefore the plaintiffs’ PAGA claims are not governed by the arbitration clause in the settlement agreement the plaintiffs signed.
You can read the Court of Appeal’s complete opinion here.