California Supreme Court Denies Review Of Decision Holding PAGA Waivers Are Unenforceable

The California Labor Code Private Attorneys General Act of 2004 ("PAGA") permits an "aggrieved" current or former employee to seek on behalf of all other "aggrieved" current and former employees very sizable penalties for violations of many provisions of the California Labor Code and for violations of Industrial Welfare Commission Wage Orders. PAGA provides for penalties of $100 per employee per pay period for each initial violation and of $200 per employee per pay period for each subsequent violation. A successful PAGA plaintiff is entitled also to an award of his or her attorney's fees and costs, which can also be sizeable. Plaintiffs bringing class action wage and hour lawsuits now routinely include allegations that their claims fall under PAGA.

When the Supreme Court of the United States issued its landmark decision in AT&T Mobility v. Concepcion we previously discussed here holding that the Federal Arbitration Act preempts contrary state law barring arbitration agreements requiring claimants to pursue their claims individually through arbitration and not by way of a class action lawsuit, many practitioners were optimistic that arbitration agreements could be used to require current or former employees to bring claims for PAGA penalties on an individual basis and not on behalf of other allegedly "aggrieved" current and former employees. 

However, as we previously reported here, the California Court of Appeal held in Brown v. Ralph's Grocery Company that a provision of that arbitration agreement barring employees from pursuing representative actions under PAGA is unenforceable because, according to that court, the decision of  Supreme Court of the United States in AT&T Mobility v. Concepcion does not apply to representative actions brought under PAGA. Further, the Court of Appeal remanded the case back to the trial court for a determination of whether the arbitration agreement is enforceable except for the PAGA waiver or is unenforceable in its entirety because of the PAGA waiver.  

Yesterday, the California Supreme Court denied review of the Court of Appeal's decision in Brown v. Ralph's Grocery Company that PAGA waivers are not enforceable. We think this is a significant setback for California employers because, to date, the only reported decision by a California appellate court regarding the enforceability of a PAGA waiver is the Brown v. Ralph's Grocery Company decision holding that PAGA waivers are not enforceable.  

Federal courts are currently split as to whether PAGA waivers are enforceable. For example, a number of United States District Courts have concluded PAGA waivers are enforceable. On June 16, 2011, in Quevedo v. Macy's, Inc., the United States District Court for the Western Division of the Central District of California concluded that PAGA waivers are enforceable. On August 18, 2011, in Nelson v. AT&T Mobility LLC., the United States District Court for the Northern District of California agreed with the conclusion of the court in Quevedo v. Macy's. On September 19, 2011, in Grabowski v. C.H. Robinson Company.the United States District Court for the Southern District of California likewise held PAGA waivers are enforceable. However, more recently, on October 5, 2011, in in Urbino v. Orkin Services of California, Inc., the United States District Court for the Southern Division of the Central District of California denied the employer's petition to compel the plaintiff former employee to arbitrate his claims, including his claims for penalties under PAGA on the ground the PAGA waiver contained in an arbitration agreement the former employee signed at the outset of his employment is unconscionable because it is contrary to California public policy and rendered the arbitration agreement unenforceable. The court explained its view that the right to bring a representative action on behalf some or all of an employer's allegedly "aggrieved" employees cannot be waived by an employee as part of an arbitration agreement or otherwise. The court concluded, also, that "the waiver in [arbitration] Agreement . . . taints the entirety of the Agreement with illegality" and renders the Agreement unenforceable in its entirety.

In light of the somewhat uncertain state of the law created by the split of authority on this issue, we think employers that have in place or are considering implementing arbitration agreements containing PAGA waivers should promptly consult competent employment law counsel.

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