Lawson v. ZB, N.A. ( 2017 )

Filed 12/21/17 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
KALETHIA LAWSON, D071279
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2016-00005578-
CU-OE-CTL)
ZB, N.A. et al.,
Defendants and Appellants.
ZB, N.A. et al., D071376
Petitioners,
v. ORDER MODIFYING OPINION
THE SUPERIOR COURT OF SAN DIEGO
COUNTY, CHANGE IN JUDGMENT
Respondent;
KALETHIA LAWSON,
Real Party in Interest.
THE COURT:
It is ordered that the opinion filed herein on December 19, 2017, be modified as
follows:
On page 24, the last sentence under the heading Disposition should be deleted and
a new sentence added so that the sentence now reads:
Each party to bear its own costs on appeal.
This modification changes the judgment. In all other respects the opinion remains the
same.
BENKE, Acting P. J.
Copies to: All parties
2
Filed 12/19/17 (unmodified version)
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
KALETHIA LAWSON, D071279
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2016-00005578-
CU-OE-CTL)
ZB, N.A. et al.,
Defendants and Appellants.
ZB, N.A. et al., D071376
Petitioners,
v.
THE SUPERIOR COURT OF SAN DIEGO
COUNTY,
Respondent;
KALETHIA LAWSON,
Real Party in Interest.
APPEAL from a judgment of the Superior Court of San Diego County, Joel M.
Pressman, Judge, and petition for writ of mandate. Appeal dismissed; petition granted.
Rutan & Tucker, James L. Morris and Brian C. Sinclair, for Defendants and
Appellants.
Lawyers for Justice, Edwin Aiwazian, Arby Aiwazian and Joanna Ghosh, for
Plaintiff and Respondent.
An order granting a motion to arbitrate is not appealable. Here, the trial court
granted appellant ZB, N.A.'s (ZB)1 motion to arbitrate respondent Kalethia Lawson's
wage and hour claim, which was brought under the provisions of the Private Attorneys
General Act (the PAGA), Labor Code2 section 2698 et seq. The fact Lawson's PAGA
claim, of necessity, included not only Labor Code violations committed with respect to
her employment, but violations with respect to other employees, and that the arbitration
ordered by the trial court included those violations, does not alter the fact the trial court
ordered that Lawson's claim be arbitrated. Hence, we have no appellate jurisdiction over
the trial court's order compelling arbitration.
1 All references to ZB include defendant and appellant Zions Bancorporation.
2 All further statutory references are to the Labor Code, unless otherwise indicated.
2
However, apparently recognizing the potential defect in its appeal, shortly after
ZB filed its notice of appeal, ZB filed a petition for a writ of mandate challenging the trial
court's order. We thereafter ordered that the appeal and petition be considered together
and issued an order to show cause. By separate order we have now consolidated the
appeal and the writ proceeding and reach the merits of ZB's contentions with respect to
the trial court's order in our disposition of ZB's petition for extraordinary relief.
In our disposition on the merits, we find the trial court erred in bifurcating the
underpaid wages portion of Lawson's PAGA claim and ordering arbitration of that
portion of the claim. Accordingly, we issue a writ directing the trial court to vacate its
order bifurcating and compelling arbitration of the underpaid wages portion of Lawson's
PAGA claim.
FACTUAL AND PROCEDURAL BACKGROUND
According to the allegations of her complaint Lawson began working for
California Bank & Trust (CBT) as an hourly employee in 2013. CBT is a wholly owned
subsidiary of ZB. In February 2016, Lawson filed a complaint against CBT and ZB, in
which she alleged that CBT and ZB violated a host of labor laws and regulations
including required: overtime compensation, meal and rest periods, minimum wages,
payment upon discharge or resignation, timely wage payments, accurate age statements,
payroll records, and reimbursement for work-related expenses. Lawson alleged she was
acting as a representative under PAGA and was entitled to recover from the defendant the
3
penalties imposed under section 558 subdivisions (a)(1) and (a)(2), including in particular
underpaid wages owed to her and other CBT employees.3
In response to Lawson's complaint, and relying on an arbitration provision in her
employment agreement, ZB filed a motion to compel Lawson to arbitrate the underpaid
wages she asserted she, as an individual, was owed. ZB noted that Lawson had waived
the right to bring either a class action or representative action against it. ZB argued that
3 Section 558 provides: "(a) Any employer or other person acting on behalf of an
employer who violates, or causes to be violated, a section of this chapter or any provision
regulating hours and days of work in any order of the Industrial Welfare Commission
shall be subject to a civil penalty as follows:
"(1) For any initial violation, fifty dollars ($50) for each underpaid employee for
each pay period for which the employee was underpaid in addition to an amount
sufficient to recover underpaid wages.
"(2) For each subsequent violation, one hundred dollars ($100) for each underpaid
employee for each pay period for which the employee was underpaid in addition to an
amount sufficient to recover underpaid wages.
"(3) Wages recovered pursuant to this section shall be paid to the affected
employee.
"(b) If upon inspection or investigation the Labor Commissioner determines that a
person had paid or caused to be paid a wage for overtime work in violation of any
provision of this chapter, any provision regulating hours and days of work in any order of
the Industrial Welfare Commission, or any applicable local overtime law, the Labor
Commissioner may issue a citation. The procedures for issuing, contesting, and enforcing
judgments for citations or civil penalties issued by the Labor Commissioner for a
violation of this chapter shall be the same as those set out in Section 1197.1.
"(c) In a jurisdiction where a local entity has the legal authority to issue a citation
against an employer for a violation of any applicable local overtime law, the Labor
Commissioner, pursuant to a request from the local entity, may issue a citation against an
employer for a violation of any applicable local overtime law if the local entity has not
cited the employer for the same violation. If the Labor Commissioner issues a citation,
the local entity shall not cite the employer for the same violation."
"(d) The civil penalties provided for in this section are in addition to any other
civil or criminal penalty provided by law.
"(e) This section does not change the applicability of local overtime wage laws to
any entity."
4
in light of that waiver, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59
Cal. 4th 348, 387–388 (Iskanian), our Supreme Court prevented her from asserting lost
wage claims on behalf of other CBT employees. ZB did not ask the trial court to order
arbitration of the specific $50 and $100 amounts set forth in section 558 subdivisions
(a)(1) and (a)(2), as part of the civil penalties the statute imposes for violations of the
Labor Code and orders of the Industrial Welfare Commission. The trial court granted
ZB's motion. The trial court bifurcated Lawson's underpaid wage claims from her claim
to the specific $50 and $100 amounts imposed by section 558. However, because
Lawson was acting as a PAGA representative, the trial court ordered that the underpaid
wage portion of her claim would be arbitrated as a representative claim. The trial court's
order states in pertinent part: "[T]he Court bifurcates this issue of unpaid wages and
premium wages per California Labor Code section 558 against Defendants and compels
that issue to arbitration. This is a representative action. PAGA, by its very nature, is a
representative statute. Therefore, the court sends the claim under Labor Code Section
558 to arbitration as a representative action."
ZB filed a timely notice of appeal, as well as a petition for a writ of mandate.
DISCUSSION
ZB's Appeal
I.
Code of Civil Procedure section 1294 provides in pertinent part: "An aggrieved
party may appeal from: (a) An order dismissing or denying a petition to compel
arbitration." (Italics added.) The right to appeal is solely statutory and no statute permits
5
an appeal from an order compelling arbitration. (Porter v. United Services Automobile
Assn. (2001) 90 Cal. App. 4th 838, 839–840 [appeal wholly statutory] (Porter); Abramson
v. Juniper Networks, Inc. (2004) 115 Cal. App. 4th 638, 648–649; Gordon v. G.R.O.U.P.,
Inc. (1996) 49 Cal. App. 4th 998, 1004, fn. 8. [no appeal from order granting
arbitration].)4
We of course agree that when an order delays or otherwise interferes with
arbitration, it is the functional equivalent of an order denying arbitration and appealable
under section 1294, subdivision (a). (See Sanders v. Kinko (2002) 99 Cal. App. 4th 1106,
1109-1110; Porter, supra, 90 Cal.App.4th at p. 840; Henry v. Alcove Investment, Inc.
(1991) 233 Cal. App. 3d 94, 99.) Here, admittedly, the scope of the arbitration ordered by
the trial court is broader than ZB requested and arguably frustrated the purposes of
arbitration. (See AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 346
(Concepcion).) Nonetheless, we are not willing to agree that an order, which on its face
compels arbitration, albeit an arbitration which is so broad that it may undermine the
benefits usually provided by arbitral forums, may be treated as an order which, as a
practical matter, denies arbitration.
4 The rationale for this disparate treatment of orders denying motions to compel and
orders granting such motions is fairly straightforward: the utility and efficiency of
arbitration would be entirely lost if a litigant attempting to enforce an arbitration
provision were required to litigate a claim on the merits in a judicial forum before
challenging an improper order denying a motion to compel; conversely if, in general,
orders compelling arbitration were appealable, the prompt resolution of claims by way of
arbitration would be substantially undermined. (Wheeler v. St. Joseph Hospital (1976) 63
Cal. App. 3d 345, 353 (Wheeler).)
6
Our unwillingness to find appellate jurisdiction here is, in some measure, informed
by ZB's petition for a writ of mandate by which it raises the same arguments on the
merits it asserts on appeal and our conclusion those issues are the appropriate subject of
writ review. "California courts had held that writ review of orders compelling arbitration
is proper in at least two circumstances: (1) if the matters ordered arbitrated fall clearly
outside the scope of the arbitration agreement or (2) if the arbitration would appear to be
unduly time consuming or expensive. [Citations.]" (Zembsch v. Superior Court (2006)
146 Cal. App. 4th 153, 160; see also Wheeler, supra, 63 Cal.App.3d at p. 353.) As we
discuss more fully below, in bringing her PAGA claim Lawson was acting on behalf of
the state and the state has not agreed to arbitrate its claim. Hence, it is clear Lawson's
claim is outside the scope of the arbitration agreement she signed and that writ relief is
appropriate. In considering whether extraordinary relief is appropriate, we must
recognize also the express public interest, which we discuss more fully below, embraced
in the PAGA and the consequent public interest in assuring that PAGA claims are
enforced under the circumstances contemplated by the Legislature. (See Babb v.
Superior Court (1971) 3 Cal. 3d 841, 851.)
II.
A. PAGA
The court summarized the Legislature's enactment of PAGA in Arias v. Superior
Court (2009) 46 Cal. 4th 969, 980–981 (Arias): "In September 2003, the Legislature
enacted the Labor Code Private Attorneys General Act of 2004 [citations]. The
Legislature declared that adequate financing of labor law enforcement was necessary to
7
achieve maximum compliance with state labor laws, that staffing levels for labor law
enforcement agencies had declined and were unlikely to keep pace with the future growth
of the labor market, and that it was therefore in the public interest to allow aggrieved
employees, acting as private attorneys general, to recover civil penalties for Labor Code
violations, with the understanding that labor law enforcement agencies were to retain
primacy over private enforcement efforts. (Stats. 2003, ch. 906, § 1.)
"Under this legislation, an 'aggrieved employee' may bring a civil action
personally and on behalf of other current or former employees to recover civil penalties
for Labor Code violations. (Lab. Code, § 2699, subd. (a).) Of the civil penalties
recovered, 75 percent goes to the Labor and Workforce Development Agency, leaving
the remaining 25 percent for the 'aggrieved employees.' (Lab. Code, § 2699, subd. (i).)
"Before bringing a civil action for statutory penalties, an employee must comply
with Labor Code section 2699.3. (Lab. Code, § 2699, subd. (a).) That statute requires the
employee to give written notice of the alleged Labor Code violation to both the employer
and the Labor and Workforce Development Agency, and the notice must describe facts
and theories supporting the violation. (Id., § 2699.3, subd. (a).) If the agency notifies the
employee and the employer that it does not intend to investigate . . . , or if the agency
fails to respond within 33 days, the employee may then bring a civil action against the
employer. (Id., § 2699.3, subd. (a)(2)(A).) If the agency decides to investigate, it then has
120 days to do so. If the agency decides not to issue a citation, or does not issue a citation
within 158 days after the postmark date of the employee's notice, the employee may
8
commence a civil action. (Id., § 2699.3, subd. (a)(2)(B).)" (Arias, supra, 46 Cal.4th at
pp. 980–981, fn. omitted.)
In Arias, the defendants argued that due process required that PAGA actions be
brought as class actions because otherwise a defendant would be subject to lawsuits by
multiple plaintiffs raising a common claim and none of them would be bound by a prior
PAGA judgment in the defendant's favor. (Arias, supra, 46 Cal.4th at p. 985.) The
Supreme Court rejected this due process argument and stated: "the judgment in [a PAGA
representative] action is binding not only on the named employee plaintiff but also on
government agencies and any aggrieved employee not a party to the proceeding." (Ibid.)
Significantly, in reaching this conclusion the court described the legal characteristics of a
PAGA representative action: "An employee plaintiff suing . . . under the [PAGA] does
so as the proxy or agent of the state's labor law enforcement agencies. . . . In a lawsuit
brought under the act, the employee plaintiff represents the same legal right and interest
as state labor law enforcement agencies—namely, recovery of civil penalties that
otherwise would have been assessed and collected by the Labor Workforce Development
Agency. [Citations.]. . . . Because collateral estoppel applies not only against a party to
the prior action in which the issue was determined, but also against those for whom the
party acted as an agent or proxy [citations], a judgment in an employee's action under the
act binds not only that employee but also the state labor law enforcement agencies.
"Because an aggrieved employee's action under the [PAGA] functions as a
substitute for an action brought by the government itself, a judgment in that action binds
all those, including nonparty aggrieved employees, who would be bound by a judgment
9
in an action brought by the government. The act authorizes a representative action only
for the purpose of seeking statutory penalties for Labor Code violations (Lab. Code,
§ 2699, subds. (a), (g)), and an action to recover civil penalties 'is fundamentally a law
enforcement action designed to protect the public and not to benefit private parties'
[Citation.] When a government agency is authorized to bring an action on behalf of an
individual or in the public interest, and a private person lacks an independent legal right
to bring the action, a person who is not a party but who is represented by the agency is
bound by the judgment as though the person were a party. (Rest.2d Judgments, § 41,
subd. (1)(d), com. d, p. 397.) Accordingly, with respect to the recovery of civil penalties,
nonparty employees as well as the government are bound by the judgment in an action
brought under the act, and therefore defendants' due process concerns are to that extent
unfounded." (Arias, supra, 46 Cal.4th at p. 986.)
B. Thurman
Following Arias, in Thurman v. Bayshore Transit Management (2012) 203
Cal. App. 4th 1112 (Thurman), we considered the impact of the PAGA on a claim, like
Lawson's, brought for alleged violations of section 558 subdivision (a). The defendant in
Thurman argued the underpaid wages portions of relief provided by section 558
subdivisions (a)(1) and (a)(2) were severable from the $50 and $100 amounts imposed
for each violation and those portions could not be collected in a PAGA action.
(Thurman, at pp. 1144–1145.) We rejected the defendants' contention: "In our view, the
language of section 558, subdivision (a) is more reasonably construed as providing a civil
penalty that consists of both the $50 or $100 penalty amount and any underpaid wages,
10
with the underpaid wages going entirely to the affected employee or employees as an
express exception to, the general rule that civil penalties recovered in a PAGA action are
distributed 75 percent to the Labor and Workforce Development Agency (LWDA) and 25
percent to the aggrieved employees (§ 2699, subd. (i).)" (Thurman, at p. 1145.) In doing
so we relied on Supreme Court, Court of Appeal and federal district court cases, which in
other contexts found that the underpaid wages provided for under section 558 are part of
the $50 and $100 penalties set forth in the statute. (Thurman, at pp. 1145–1147, citing
Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1087–1089 (Reynolds), Jones v. Gregory
(2006) 137 Cal. App. 4th 798, 809, fn. 11 (Jones), Bradstreet v. Wong (2008) 161
Cal. App. 4th 1440, 1451 (Bradstreet), and Yadira v. Fernandez (N.D. Cal., June 14, 2011,
No. C-08-05721 RMW) 2011 WL 2434043 (Yadira). We stated: "We agree with the
Yadira court that the entire remedy provided by section 558, including the recovery of
underpaid wages, is a civil penalty, as noted by the California Supreme Court in Reynolds
and by the Courts of Appeal in Jones and Bradstreet. Defendants characterize the
statement in Reynolds that section 558 provides a 'civil penalty, payable to the affected
employee, equal to the amount of any underpaid wages' as dictum based solely on the
text of section 558, without analysis. Even assuming that this is so, we conclude that it is
a correct construction of section 558, subdivision (a), and note that statements of the
California Supreme Court should be considered persuasive even if properly characterized
as dictum. [Citation.] The Reynolds court's reading of section 558 reflects that the plain
meaning of the statute is that the civil penalty it specifies consists of both an assessment
11
of $50 for initial violations or $100 for subsequent violations and an amount sufficient to
recover underpaid wages." (Thurman, at p. 1147.)
In directly rejecting the defendant's efforts to separate the assessments expressly
denominated in section 558 from the underpaid wages provided by the statute in PAGA
actions, we noted that in PAGA actions a plaintiff is acting on behalf of the state and that
in an action brought by the state there was no question the state could recover both the
denominated assessments and underpaid wages: "Because an aggrieved employee who
brings a PAGA action sues 'as the proxy or agent of the state's labor law enforcement
agencies' [citation], the logical extension of defendants' argument that wages cannot be
recovered as a civil penalty is that the LWDA could not seek underpaid wages on behalf
of employees under section 558. However, nothing in Arias suggests that the Legislature
did not intend that the LWDA be able to recover 'underpaid wages' on behalf of
employees under section 558 as part of a civil penalty for Labor Code and [Industrial
Welfare Commission] order violations that result in underpayment of wages. The
Legislature has authorized labor law enforcement agencies to prosecute actions for wages
on behalf of employees elsewhere in the Labor Code. For example, under section 1193.6,
the Department of Industrial Relations or DLSE may prosecute a civil action to recover
unpaid wages on behalf of employees, with or without their consent. We conclude that
the Legislature similarly authorized the LWDA to recover underpaid wages on behalf
employees in the form of a civil penalty under section 558. Accordingly, an aggrieved
employee acting as the LWDA's proxy or agent by bringing a PAGA action may likewise
12
recover underpaid wages as a civil penalty under section 558." (Thurman, supra, 203
Cal.App.4th at pp. 1147–1148.)
C. Concepcion
In Concepcion, supra, 563 U.S. 333, the court held that class actions were
inconsistent with the fundamental nature of arbitration and imposed practical burdens
which undermined the efficacy of arbitration. Hence, the court held class action waivers
in arbitration agreements were enforceable under the Federal Arbitration Act (FAA) (9
U.S.C. § 1 et seq.), and any contrary state statutes or rules of law which interfered with
the enforceability of those waivers were preempted by the FAA. (Concepcion, supra,
563 U.S. at pp. 351–352.) In concluding the arbitration of class claims is inconsistent
with the nature of arbitration, the court found the procedures required for class actions
deprived the parties of the informality which is the principal advantage of arbitration and
posed great risks to defendants in that in arbitration the defendants have limited or no
ability to challenge interim but nonetheless substantial errors in the class certification
process or rulings on the merit. (Concepcion, supra, 563 U.S. at pp. 349–350.)
"Arbitration is poorly suited to the higher stakes of class litigation. In litigation, a
defendant may appeal a certification decision on an interlocutory basis and, if
unsuccessful, may appeal from a final judgment as well. Questions of law are reviewed
de novo and questions of fact for clear error. In contrast, [the FAA] allows a court to
vacate an arbitral award only where the award 'was procured by corruption, fraud, or
undue means'; 'there was evident partiality or corruption in the arbitrators'; 'the arbitrators
were guilty of misconduct in refusing to postpone the hearing . . . or in refusing to hear
13
evidence pertinent and material to the controversy[,] or of any other misbehavior by
which the rights of any party have been prejudiced'; or if the 'arbitrators exceeded their
powers, or so imperfectly executed them that a mutual, final, and definite award . . . was
not made.' The AAA rules do authorize judicial review of certification decisions, but this
review is unlikely to have much effect given these limitations; review under [the FAA]
focuses on misconduct rather than mistake." (Ibid.)
D. Iskanian
Shortly after Concepcion was decided, in Iskanian, the court found that an
employee's prior agreement to waive the right to bring a " 'representative action' " does
not prevent an employee from bringing a PAGA action. (Iskanian, supra, 59 Cal.4th at
pp. 387–388.) The court found that an employee's right to bring a PAGA claim was not
waivable and that in preventing any waiver the PAGA did not conflict with and was not
preempted by the FAA. The court analogized a PAGA action to qui tam actions, in
which a private party brings an action on behalf of a governmental agency. "A PAGA
representative action is therefore a type of qui tam action. 'Traditionally, the requirements
for enforcement by a citizen in a qui tam action have been (1) that the statute exacts a
penalty; (2) that part of the penalty be paid to the informer; and (3) that, in some way, the
informer be authorized to bring suit to recover the penalty.' [Citation.] The PAGA
conforms to these traditional criteria, except that a portion of the penalty goes not only to
the citizen bringing the suit but to all employees affected by the Labor Code violation.
The government entity on whose behalf the plaintiff files suit is always the real party in
interest in the suit. [Citation.]" (Id. at p. 382.)
14
Given its fundamental nature as a means of enforcing claims which belong to the
the state, the court found that the right to bring a PAGA claim was not limited by the
FAA. "The FAA aims to promote arbitration of claims belonging to the private parties to
an arbitration agreement. It does not aim to promote arbitration of claims belonging to a
government agency, and that is no less true when such a claim is brought by a statutorily
designated proxy for the agency as when the claim is brought by the agency itself. The
fundamental character of the claim as a public enforcement action is the same in both
instances. We conclude that California's public policy prohibiting waiver of PAGA
claims, whose sole purpose is to vindicate the [Labor and Workforce Development]
Agency's interest in enforcing the Labor Code, does not interfere with the FAA's goal of
promoting arbitration as a forum for private dispute resolution." (Iskanian, supra, 59
Cal.4th at p. 388 [italics added].)
The court in Iskanian was very cognizant of the United States Supreme Court's
holding in Concepcion. Thus, the court in Iskanian took some pains to illustrate how a
PAGA claim did not interfere with arbitration and hence was not preempted by the FAA.
The court first set forth the critical distinction between civil penalties recoverable in a
PAGA action and victim specific relief recoverable by individual employees. "The civil
penalties recovered on behalf of the state under the PAGA are distinct from the statutory
damages to which employees may be entitled in their individual capacities. Case law has
clarified the distinction 'between a request for statutory penalties provided by the Labor
Code for employer wage-and-hour violations, which were recoverable directly by
employees well before the [PAGA] became part of the Labor Code, and a demand for
15
"civil penalties," previously enforceable only by the state's labor law enforcement
agencies. An example of the former is section 203, which obligates an employer that
willfully fails to pay wages due an employee who is discharged or quits to pay the
employee, in addition to the unpaid wages, a penalty equal to the employee's daily wages
for each day, not exceeding 30 days, that the wages are unpaid. [Citation.] Examples of
the latter are section 225.5, which provides, in addition to any other penalty that may be
assessed, an employer that unlawfully withholds wages in violation of certain specified
provisions of the Labor Code is subject to a civil penalty in an enforcement action
initiated by the Labor Commissioner in the sum of $100 per employee for the initial
violation and $200 per employee for subsequent or willful violations, and section 256,
which authorizes the Labor Commissioner to "impose a civil penalty in an amount not
exceeding 30 days [sic] pay as waiting time under the terms of Section 203." '
[Citations.]" (Iskanian, supra, 59 Cal.4th at p. 381.)
The court then, in a later portion of its opinion, stated: "Our opinion today would
not permit a state to circumvent the FAA by, for example, deputizing employee A to
bring a suit for the individual damages claims of employees B, C, and D. This pursuit of
victim-specific relief by a party to an arbitration agreement on behalf of other parties to
an arbitration agreement would be tantamount to a private class action, whatever the
designation given by the Legislature. Under Concepcion, such an action could not be
maintained in the face of a class waiver. Here, importantly, a PAGA litigant's status as
'the proxy or agent' of the state [citation] is not merely semantic; it reflects a PAGA
litigant's substantive role in enforcing our labor laws on behalf of state law enforcement
16
agencies. Our FAA holding applies specifically to a state law rule barring predispute
waiver of an employee's right to bring an action that can only be brought by the state or
its representatives, where any resulting judgment is binding on the state and any
monetary penalties largely go to state coffers." (Iskanian, supra, 59 Cal.4th at pp. 387–
388.)
Following Iskanian, the court in Williams v. Superior Court (Pinkerton) (2015)
237 Cal. App. 4th 642, 648–649 (Williams), rejected a defendant's attempt to compel
arbitration of an employee's individual claim: "[A] single representative PAGA claim
cannot be split into an arbitrable individual claim and a nonarbitrable representative
claim . . . a PAGA claim may not be brought solely on the employee's behalf, but must be
brought in a representative capacity. 'Because the PAGA claim is not an individual
claim, it was not within the scope of [the employer's] request that individual claims be
submitted to arbitration. . . . [Citation.] Here . . . petitioner 'does not bring the PAGA
claim as an individual claim, but "as the proxy or agent of the state's labor law
enforcement agencies." ' [Citations.]" (Id. at p. 649, citing Reyes v. Macy's, Inc. (2011)
202 Cal. App. 4th 1119, 1124 (Reyes) [italics added].)
Recently, the court in Lopez v. Friant (2017) 15 Cal.App.5th 773, 780 (Lopez)
consistent with the principles discussed in Iskanian, distinguished between the statutory
damages individual employees may directly recover from employers under section 226
subdivision (e) for failure to provide an accurate pay stub as required by section 226
subdivision (a), and the civil penalties the Labor Commissioner and PAGA plaintiffs may
separately recover for such conduct under section 226 subdivision (b). The court found
17
that the scienter required for recovery under section 226 subdivision (e) does not apply to
the separate relief provided to the Labor Commissioner under section 226 subdivision
(b); hence, the court held that scienter requirement has no application in a PAGA claim
for violation of section 226 subdivision (a). (Lopez, at pp. 781-785.)
E. Analysis
1. Section 558 Claims are PAGA Claims
Section 2699 subdivision (a) provides: "Notwithstanding any other provision of
law, any provision of this code that provides for a civil penalty to be assessed and
collected by the Labor and Workforce Development Agency or any of its departments,
divisions, commissions, boards, agencies, or employees, for a violation of this code, may,
as an alternative, be recovered through a civil action brought by an aggrieved employee
on behalf of himself or herself and other current or former employees pursuant to the
procedures specified in Section 2699.3."
Section 558, by its terms and as we interpreted it in Thurman, expressly provides
for civil penalties and hence claims under section 558, including claims for underpaid
wages, are cognizable under the PAGA. As our holding in Thurman makes clear, the $50
and $100 assessments as well as the compensation for underpaid wages provided for by
section 558 subdivisions (a) and (b) are, together, the civil penalties provided by the
statute.
In this regard, we respectfully part company with the views recently expressed by
our colleagues in the Fifth District in Esparza v. KS Industries (2027) 13 Cal.App.5th
1228 (Esparza). In Esparza, the plaintiff, like Lawson, alleged a PAGA claim against his
18
employer and sought civil penalties under section 558. Relying on Iskanian, the trial
court denied the employer's motion to arbitrate. On appeal, the Court of Appeal reversed
and remanded. Like the trial court here, the Court of Appeal found the underpaid wages
portion of a claim under section 558 is subject to arbitration. (Esparza, at p. 1246.) The
court stated: "Employee's attempt to recover unpaid wages under Labor Code section
558 is, for purposes of the Federal Arbitration Act, a private dispute arising out of his
employment contract with KS Industries. In statutory terms, the wage claim is covered by
'[a] written provision in . . . a contract . . . to settle by arbitration a controversy arising out
of such contract.' (9 U.S.C. § 2.) The dispute over wages is a private dispute because,
among other things, it could be pursued by Employee in his own right. We recognize that
private disputes can overlap with the claims that could be pursued by state labor law
enforcement agencies. When there is overlap, the claims retain their private nature and
continue to be covered by the Federal Arbitration Act. To hold otherwise would allow a
rule of state law to erode or restrict the scope of the Federal Arbitration Act—a result that
cannot withstand scrutiny under federal preemption doctrine. Therefore, we conclude
preventing arbitration of a claim for unpaid wages would interfere with the Federal
Arbitration Act's goal of promoting arbitration as a forum for private dispute resolution.
(See Iskanian, supra, 59 Cal.4th at p. 389.)." (Ibid. (italics added).) Because the record
was not clear that the plaintiff in Esparza was seeking underpaid wages under section
558, the court remanded so that the plaintiff could clarify the scope of his claims. If the
plaintiff was seeking unpaid wages, the court directed they be arbitrated; if, on remand,
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the plaintiff waived any claim to unpaid wages under section 558, the court ordered that
litigation of those limited claims proceed. (Esparza, at p. 1247.)
The court in Esparza also found that in light of Iskanian, our opinion in Thurman
was no longer an impediment to severance of underpaid wage claims brought under
section 558. (Esparza, supra, 13 Cal.App.4th at p. 1243.)
Our initial point of departure from Esparza is the opinion's apparent conclusion
that the plaintiff could pursue relief under section 558 in his own right. (Esparza, supra,
13 Cal.App.4th at p. 1246.) The court in Esparza cited no authority to support this
conclusion and the authority that has come to our attention has consistently found there is
no private right of action under section 558. (See Robles v. Agreserves, Inc., (2016 E.D.
Cal.) 158 F. Supp. 3d 952, 1066; Chang v. Biosuccess Biotech., Ltd. (2014 C.D. 2014) 76
F. Supp. 3d 1022, 1049.) Rather, an individual may recover under section 558, only when
the individual has satisfied the procedural requirements set forth in the PAGA and is
acting in the place of and for the LWDA. (Robles, at p. 1066; Chang, at p. 1049.) In this
regard section 558 is distinguishable from the wage penalties provided by section 203,
and discussed in Iskanian; section 203, subdivision (b) expressly provides that "suit may
be filed" for those penalties. In general, where, as under section 558, there is no express
right of private enforcement and instead a regulatory agency has expressly been given the
right to enforce the statute, no private right of action will be implied. (See Vicko Ins.
Services, Inc. v. Ohio Indem. Co. (1999) 70 Cal. App. 4th 55, 63–64.)
We also disagree with Esparza's treatment of our opinion in Thurman. While we
agree Thurman was decided before Iskanian, and that in Thurman we had no occasion to
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address the preemption issues discussed in Iskanian, those circumstances in no sense
undermine the continuing validity of our holding in Thurman, to wit: in enacting section
558, the Legislature intended the underpaid wages recoverable under the statute, as well
as the $50 and $100 assessments provided by the statute, be treated as civil penalties and
that as civil penalties, neither type of recovery is severable for purposes of applying the
PAGA. (See Thurman, supra, 203 Cal.App.4th at pp. 1147–1148.) In Thurman, in
interpreting the intent of our Legislature in enacting section 558, we plainly did not
purport to consider the separate question of whether FAA preemption, which was only
later set forth in Concepcion, barred enforcement of the statute under the qui tam
procedures set forth in the PAGA. That separate preemption question was however
answered in Iskanian in its discussion of the distinction between civil penalties, which
can be enforced even when an employee is subject to a class waiver agreement and
statutory damages, which are preempted by such an agreement. (See Iskanian, supra, 59
Cal.4th at p. 381.)
The court in Iskanian made it clear that the distinction between civil penalties and
victim specific statutory damages hinges in large measure on whether, prior to enactment
of the PAGA, they could only be recovered by way of regulatory enforcement or whether
they supported a private right of action. (See Iskanian, supra, 59 Cal.4th at p. 381.) As
we have seen, section 558 provides no private right of action and by its terms is only
enforceable by the LWDA. (See Robles v. Agreserves, Inc., supra, 158 F.Supp. 3d at
p. 1066; Chang v. Biosuccess Biotech., Ltd., supra, 76 F.Supp.3d at p. 1049.)
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We of course recognize that in finding no FAA preemption, the court in Iskanian
also relied on the fact the penalties it was considering were "largely" payable to the state.
(Iskanian, supra, 59 Cal.4th at pp. 887–888.) In Iskanian, 75 percent of the civil
penalties were payable to the LWDA and 25 percent were payable to employees. (Id. at
p. 380; § 2699, subd. (i).) Here, there is nothing in the record which suggests the
predominate amounts recovered under section 558 will be in the form of underpaid wages
payable to employees; indeed, we note that with respect to the meal break and rest break
violations alleged by Lawson, while section 558 provides either a $50 or $100 assessment
for each violation during a pay period, Lawson only alleges an underpaid wage loss of
one hour's wages for each violation. Thus, depending upon how many violations
occurred during a pay period and the effected employees' rate of pay, it is quite possible
that, at least as to the rest break and meal break allegations, the underpaid wage portion
of any recovery will fall within the 25 percent range implicitly approved by the court in
Iskanian.
In sum, because, prior to enactment of PAGA there was no private remedy under
section 558 and because there is no basis upon which to conclude that recovery under the
statute will largely go to individual employees, at this point, as in Iskanian, FAA
preemption does not apply.5
2. The Trial Court Erred
5 Our conclusion with respect to preemption is without prejudice to ZB's right to
show, on a fuller factual record, that preemption should apply here.
22
Because claims under section 558 are indivisible claims for civil penalties, the trial
court's order bifurcating Lawson's PAGA claim between the denominated assessments
and underpaid wages was erroneous, as was its further order directing that the underpaid
wages be arbitrated as a representative action. As we have discussed, the courts in
Iskanian, Williams and Reyes have held that an individual employee's prior arbitration
agreement is no impediment to the employee's right to bring a distinct civil enforcement
action under the PAGA, notwithstanding the fact that the employee may have waived his
or her right to bring class or representative claims against his or her employer. As those
cases make clear, in bringing a PAGA action an employee is not acting on his or her own
behalf, but on behalf of the state and the state is not bound by the employee's prior
agreement, including any waiver of his or right to bring a representative action.
PAGA claims are not only outside the scope of a plaintiff's prior arbitration
agreement under the terms of the statute itself and Iskanian, arbitration of such a
representative claim also appears to run afoul of the principles set forth in Concepcion.
In particular, arbitration of a PAGA claim, which as the trial court noted, is always a
representative claim, would deprive defendants of the ability to challenge rulings on the
merits and de novo, posing for defendants considerable and unexpected risks. (See
Concepcion, supra, 563 U.S. at pp. 350–352.)
Accordingly, we must direct that the trial court vacate its order and enter a new
order denying Z.B.'s motion to arbitrate. Contrary to ZB's contention we have no power
to direct that the trial court modify its order so that Lawson be compelled to arbitrate an
individual underpaid wage claim. As the cases emphasize, under the PAGA Lawson is
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acting as a representative of the state, which has not agreed to arbitrate its claim for civil
penalties. (Williams, supra, 237 Cal.App.4th at p. 649, citing Reyes, supra, 202
Cal.App.4th at p. 1124.)
DISPOSITION
The appeal is dismissed. Let a peremptory writ of mandate issue commanding the
trial court to vacate its order bifurcating Lawson's claims and ordering a portion of
those claims be arbitrated and enter a new order denying Z.B.'s motion to arbitrate.
Respondent to recover costs on appeal.
BENKE, Acting P. J.
WE CONCUR:
HUFFMAN, J.
HALLER, J.
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