Judge Bruce G. Iwasaki, Case Number: 23STCV08293, Date: 2023-08-03 Tentative Ruling

Tentative Ruling: The Motion to Compel Arbitration is granted in part and denied in part; the matter is stayed as to the representative claims.

In this employment action filed o/n April 14, 2023, Plaintiff Monet Sterling (Plaintiff or Sterling) filed a single PAGA cause of action complaint against her employer, Defendant Dothan Security, Inc. (Defendant or DSI). The Complaint seeks relief for Plaintiff both individually and as a representative of other employees. It alleges that Plaintiff brings this action “on behalf of herself and other current and former employees subject to violations of the Labor Code.” The Complaint pleads, for example, that “Plaintiff and other current and former …non-exempt employees worked more minutes per shift than Defendants credited them with having worked,” and “Defendants failed to pay Plaintiff and other current and former aggrieved . . .non-exempt employees overtime wages for all overtime hours worked . . . .”

On June 29, 2023, Defendant DSI filed a motion to compel arbitration of this matter, dismiss Plaintiff’s representative claims, and stay the matter pending resolution.

In opposition, Plaintiff Sterling contends that the motion should be denied in its entirety. Plaintiff argues that the arbitration agreement at issue here contains a “carve-out” provision that expressly exempts from arbitration the entire PAGA claim. She maintains that the arbitration agreement, which states “representative claims [under PAGA] are not covered by this Agreement and must be brought in a court of competent jurisdiction” includes Plaintiff’s individual Labor Code claims, as well. In the alternative, if the Court orders the individual claims to arbitration, Plaintiff argues that the representative claims should not be dismissed.

Plaintiff’s request for judicial notice of Exhibit 1 is denied; while the Court may take judicial of court records, the filings in this an unrelated court proceeding is not relevant to the proceedings here.

Under Code of Civil Procedure section 1281.2, a court may order arbitration of a controversy if it finds that the parties have agreed to arbitrate that dispute. Because the obligation to arbitrate arises from contract, the court may compel arbitration only if the dispute in question is one in which the parties have agreed to arbitrate. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 352.) Since arbitration is a favored method of dispute resolution, arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. (Id. at p. 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

In moving for arbitration, Defendant requests a court order compelling the parties to arbitrate this matter in accordance with the subject arbitration agreement, to dismiss Plaintiff’s non-individual, representative claims against Defendant, and to stay the state court action pending resolution of the arbitration. (Mot., 16:15-17.)

In Reply, Defendant explains that it is only seeking to compel to arbitration of the claims related to Plaintiff’s individual employment with Defendant (rather than those claims related to any person who is not Plaintiff), understanding Plaintiff would continue to represent herself and the State of California with respect to her individual claim under the PAGA. (Reply, 7:19-22.) This is confusing. If the only claims ordered to arbitration were Plaintiff’s individual Labor Code claims, her PAGA-based representative claims would remain in this Court.

In ruling on a petition to compel arbitration, a court must determine two threshold matters: first, whether a valid agreement to arbitrate exists; and second, whether that agreement encompasses the dispute at issue. (See Code Civ. Proc. § 1281.2.)

In moving to compel arbitration, Defendant submits evidence of the existence of a binding arbitration agreement between the parties. Specifically, Defendant submits evidence that Plaintiff began her employment with Defendant on October 12, 2021; on that same day, Plaintiff signed an Arbitration Agreement. (Horner Decl., ¶ 4; Sorrells Decl., ¶ 5, Ex. A.)

Plaintiff does not dispute the existence of this Arbitration Agreement. (Opp. 1:11-12.) Plaintiff also does not argue the Arbitration Agreement is unenforceable through any unconscionability. (Opp. 1:11-12.)

Rather, the issue on this motion is whether Plaintiff’s single PAGA claim is arbitrable under the law. Relevant to resolving this issue are the specific terms of the Arbitration Agreement.

In Section 1 of the Arbitration Agreement, “Employee and the Company hereby agree that . . . all disputes between the Company and Employee will be resolved through final and binding arbitration, and not by way of court or jury.” (Sorrells Decl., ¶ 5, Ex. A.) Further, the Arbitration Agreement is governed by the Federal Arbitration Act (FAA). (Sorrells Decl., ¶ 5, Ex. A.)

Under Section 2 of the Arbitration Agreement, Plaintiff and Defendant agreed to arbitrate “all claims, controversies, or other disputes arising out of [Plaintiff’s] employment or its termination (collectively, the “Claims”) that either party may have against the other, including [DSI’s] parent, subsidiaries, or affiliate.” (Sorrells Decl., ¶ 5, Ex. A.) The “Claims,” as defined by the Arbitration Agreement, include those “arising out of any city, county, state or federal statute, regulation or law relating to the payment of wages, off the clock work, overtime pay, compensation, commissions, bonuses, meal periods, rest periods, vacation pay, sick pay, leave rights, uniform maintenance, uniform allowance, training, expense reimbursement, and tools of the trade,” as well as “Claims that either the Company or Employee violated any statute, regulation, rule, or common law arising out of the employment relationship.” (Sorrells Decl., ¶ 5, Ex. A.)

The Arbitration Agreement covers the employment-related allegations asserted by Plaintiff. Plaintiff chose only to allege the Labor Code violations on behalf of herself and current and former aggrieved employees under a single PAGA cause of action. It appears that by alleging a single PAGA claim without alleging separate causes of action for separate violations of specific Labor Code provisions, Plaintiff is attempting to circumvent the arbitration agreement. But even without separately labeled causes of action for Labor Code violations, the Complaint pleads within the PAGA cause of action Plaintiff’s own Labor Code claims. Plaintiff must have her own Labor Code violation claims or she would lack standing to bring these claims on the behalf of others under PAGA. (Adolph v. Uber Technologies, Inc. (Cal., July 17, 2023, No. S274671) 2023 WL 4553702, at *6 [“[A] worker becomes an “aggrieved employee” with standing to litigate claims on behalf of fellow employees upon sustaining a Labor Code violation committed by his or her employer.”].) Thus, notwithstanding Plaintiff’s artful pleading, her complaint is composed of her individual Labor Code claims and representative PAGA claims. Labeling them as only a single purported cause of action does not change this fact.

Importantly to the motion to compel arbitration, Section 4 of the Arbitration Agreement contains the following language:

“All remedies allowed by law will be available under this Agreement. However, all claims brought under this binding arbitration agreement shall be brought in the individual capacity of the Employee or the Company. No dispute may be brought, heard, or arbitrated as a class, collective, or representative action. Employee hereby waives any right to participate, in any manner, in a class, collective, or representative action. To the extent federal law prohibits waiver of representative claims under California’s Private Attorneys General Act of 2004, California Labor Code §§2698, et seq., such representative claims are not covered by this Agreement and must be brought in a court of competent jurisdiction.. . ..” (Sorrells Decl., ¶ 5, Ex. A.)

Similarly, Section 6 of the Arbitration Agreement continues a substantially similar provision:

“If any provision of this Agreement shall be found by any court, arbitrator, or administrative body of competent jurisdiction to be invalid or unenforceable, the invalidity or unenforceability of such provision shall not affect the other provisions of this Agreement and all provisions not affected by such invalidity or unenforceability shall remain in full force and effect.” (Sorrells Decl., ¶ 5, Ex. A.)

Based on the foregoing sections of the Arbitration Agreement, Defendant argues that Plaintiff’s individual PAGA claims must be compelled to arbitration. Further, Defendant contends that Plaintiff waived her right to bring any claims on a representative basis, and there is no agreement to arbitrate on a representative basis; thus, Defendant, citing the recent Supreme Court case in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. –––– [142 S.Ct. 1906], argues that the Court must dismiss Plaintiff’s representative claims.

In Opposition, Plaintiff argues that the Court must deny the motion because, unlike the language in the arbitration provision Viking River, the Arbitration Agreement here states that if a waiver of representative claims is not permitted by law, than the PAGA claims “must be brought in a court of competent jurisdiction.. . ..” (Sorrells Decl., ¶ 5, Ex. A.) Thus, Plaintiff argues that the Arbitration Provision expressly provides that the entire PAGA claim—both the individual and non-individual PAGA claim—cannot proceed to arbitration.

The question before this Court on this motion is what portion of the claim may be compelled to arbitration, what must be stayed for civil proceedings, and what—if anything—must be dismissed.

As a preliminary matter, the Court agrees with Plaintiff that the pre-dispute waiver of an individual’s right to bring PAGA claims is unenforceable under California law. (Galarsa v. Dolgen California, LLC (2023) 88 Cal.App.5th 639, 649-650.) That is, Viking River did not disturb the ruling in Iskanian that held a pre-dispute categorical waiver of the right to bring PAGA claims was unenforceable; specifically, Viking River found that the FAA did not preempt this state law prohibiting PAGA waivers. (Viking River, supra, 142 S.Ct. at 1922–1923, 1924–1925].) As such, this waiver provision is unenforceable and the Court cannot dismiss the non-individual PAGA claim based on the waiver provision in the Arbitration Agreement.

After determining that the pre-dispute PAGA waiver was unenforceable, the Court will now address the arbitrability of both the individual PAGA claims and the non-individual/representative PAGA claims.

First, the Court finds the non-individual PAGA claim must proceed in civil court. Specifically, the Arbitration Agreement holds that “[t]o the extent federal law prohibits enforcement of the Class Action Waiver with respect to representative claims under California’s Private Attorneys General Act of 2004, California Labor Code §§ 2698, et seq., such representative claims are not covered by this Agreement and must be brought in a court of competent jurisdiction.” (Sorrells Decl., ¶ 5, Ex. A.)

The parties disagree on the impact the interpretation of this provision has on Plaintiff Sterling’s individual claims. Defendant argues that this provision merely means that, to the extent the waiver is not enforceable, the portion of the claims that may be arbitrated under this agreement (individual claims) must be arbitrated while the remaining portion of the claim (representative PAGA claims) must be dismissed on stayed in court. In contrast, Plaintiff argues that this provision must be interpreted to carve out the entire PAGA claim—both individual and representative claims.

In Viking River, the United States Supreme Court's concluded that, under the FAA, the employer was entitled to enforce the arbitration agreement “insofar as it mandated arbitration of [the plaintiff’s] individual PAGA claim.” (Viking River, supra, 142 S.Ct. at p. 1925.) The United States Supreme Court in stated that “the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration.’ Based on this clause, Viking was entitled to enforce the agreement insofar as it mandated arbitration of the plaintiff’s individual PAGA claim. The United States Supreme Court noted that the lower courts had refused to require arbitration of that claim “based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so [the employer] is entitled to compel arbitration of [the plaintiff’s] individual claim.” (Ibid.)

Here, in what appears to be the crux of Plaintiff’s opposition argument, Plaintiff insists that the arbitration provision in Viking Rivers is distinguishable because the Arbitration Agreement in this case does not contain a severability provision with language that that provides any surviving portion of the waiver or any portion of the PAGA claims must proceed in arbitration. Specifically, in Viking Rivers the arbitration agreement stated:

“In any case in which (1) the dispute is filed as a … representative or private attorney general action and (2) a civil court of competent jurisdiction finds all or part of the Class Action Waiver unenforceable, the class, collective, representative and/or private attorney general action must be litigated in a civil court of competent jurisdiction, but the portion of the Class Action Waiver that is enforceable shall be enforced in arbitration.” (Pl.’s RJN Ex. 1.)[1]

Plaintiff further contends that the Arbitration Agreement here contains a carve out of the entire PAGA claim similar to the carve out in Duran v. EmployBridge Holding Company (2023) 92 Cal.App.5th 59—thereby taking the entire PAGA claim (both the individual and representative claims) out of arbitration.[2] Plaintiff’s argument is unpersuasive.

Admittedly, the Arbitration Agreement here only states that the portion of the waiver found unenforceable shall be litigated in a civil court, but (unlike as in Viking Rivers) does not affirmatively state the remaining claims must be arbitrated. Nonetheless, the Arbitration Agreement here makes clear that Plaintiff’s individual claims were subject to arbitration. (See Sorrells Decl., ¶ 5, Ex. A [“All remedies allowed by law will be available under this Agreement. However, all claims brought under this binding arbitration agreement shall be brought in the individual capacity of the Employee or the Company.”].) That is, the intent of the Arbitration Agreement was to arbitrate all “individual claims.” Based on the Arbitration Agreement’s repeated use of the terms “individual claims” in contrast with phrases like, “representative claims under PAGA”, the Court finds the scope of the Arbitration Agreement was intended to include the individual PAGA claims and the carve-out only intends to exclude the “representative claims under PAGA.”

Further, for similar reasons, the Court finds the facts in Duran are distinguishable. In Duran v. EmployBridge Holding Company (2023) 92 Cal.App.5th 59, the court relied on the following facts to find a carve out:

“The carve-out provision that was the basis for the trial court's decision to deny arbitration states: “Claims for unemployment compensation, claims under the National Labor Relations Act, claims under PAGA, claims for workers' compensation benefits, and any claim that is non-arbitrable under applicable state or federal law are not arbitrable under this Agreement.”³ (Italics added.) This is the agreement's only reference to PAGA.” (Id. at 63.)

Unlike in Duran, the Arbitration Agreement does not contain only a single “PAGA” reference excluding it from arbitration. Rather, the parties expressly agreed that the non-individual or so-called “representative” PAGA claims would not be arbitrated if this provision was found unenforceable and severed—as this Court expressed its intention to do so here. Thus, there is only a clear “carve out” for representative (non-individual) PAGA claims, which cannot be compelled to arbitration. (Duran v. EmployBridge Holding Company (2023) 92 Cal.App.5th 59, 66 [the contract contained a clear “carve out” for “claims under PAGA” and “the policy favoring arbitration does not override an agreement's clear language and create an ambiguity where none exists”].)

In fact, the arbitration provision in Adolph v. Uber Technologies, Inc. (Cal., July 17, 2023, No. S274671) 2023 WL 4553702 is more similar to the Arbitration Agreement here, than the carve-out found in Duran. In Adolf, the arbitration agreement stated: “To the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under the [PAGA] in any court or in arbitration. This waiver shall be referred to as the ‘PAGA Waiver.’ ”

The agreement discussed in Adolph also included a severability clause with the following language:

“If the PAGA Waiver is found to be unenforceable or unlawful for any reason, (1) the unenforceable provision shall be severed from this Arbitration Provision; (2) severance of the unenforceable provision shall have no impact whatsoever on the Arbitration Provision or the Parties’ attempts to arbitrate any remaining claims on an individual basis pursuant to the Arbitration Provision; and (3) any representative actions brought under the PAGA must be litigated in a civil court of competent jurisdiction ....”

Based on this arbitration agreement language, our Supreme Court found that arbitration provision required the plaintiff to arbitrate, on an individual basis only, almost all work-related claims he might have against his employer. (Adolph v. Uber Technologies, Inc. (Cal., July 17, 2023, No. S274671) 2023 WL 4553702, at *2.)

As a result of the foregoing legal authority and the language in the Arbitration Agreement, the Court will compel the parties to arbitrate Plaintiff’s individual PAGA claims.

Adolph also stated that “[w]hen a case includes arbitrable and nonarbitrable issues, the issues may be adjudicated in different forums while remaining part of the same action.” (Id., at *9 [citing Code of Civil Procedure section 1281.4].)

Further, to the extent Defendant is taking the position that the remaining representative PAGA claims in court must be dismissed based the standing issue discussed in Viking Rivers, the court in Adolph has also recently held that a plaintiff has standing on the non-individual PAGA claims even where the individual PAGA claim proceed in arbitration. (Adolph v. Uber Technologies, Inc. (Cal., July 17, 2023, No. S274671) 2023 WL 4553702, *10 [distinguishing its holding from Viking River’s analysis on standing] [“An employee who has met these requirements upon bringing a PAGA action does not lose standing to litigate non-individual claims by virtue of being compelled to arbitrate individual claims.”].)

Defendant has demonstrated the existence of valid arbitration agreement and that Plaintiff’s individual Labor Code claims fall within the scope of this Arbitration Agreement.

Accordingly, the motion to compel arbitration is granted in part as to Plaintiff’s individual claims; the Court declines to dismiss, but stays the remaining representative PAGA claims pending the outcome of arbitration.

[1] As noted above, the Court declined to take judicial notice of this court record.

[2] Again, to clarify, “[i]n PAGA parlance, Labor Code violations suffered by the plaintiff are “individual claims.” [Citation.] The statute, however, allows an aggrieved employee to join claims for offenses committed against fellow employees. These are called “non-individual” claims. [Citation.]” (Nickson v. Shemran, Inc. (2023) 90 Cal.App.5th 121, 127.) Although this Court notes—as discussed above—that the distinction between “individual claims” under PAGA and “representative claims” under PAGA are somewhat of a legal fiction.

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