Employers, plaintiffs, and courts continue to grapple with the difficult issue of the interplay between the California Private Attorneys General Act (“PAGA”) and arbitration agreements. We’ve addressed these issues several times on this blog, including a March 30, 2017 blog in which we discussed the case of Hernandez v. Ross Stores, Inc., No. E064026, 2016 WL7131651 (Cal. Ct. App. 4th Dist., Dec. 7, 2016). In that case, a California state court of appeals held that an employee “cannot be compelled to submit any portion of his representative PAGA claim to arbitration including whether he was an ‘aggrieved employee’.”

In Hernandez, the plaintiff had brought a single representative PAGA claim.  As demonstrated below, the result is different when PAGA is just one of several claims brought.

In Aviles v. Quik Pick Express, LCC, No. 15-56951 (9th Cir. Nov. 24, 2017) the Ninth Circuit panel vacated and remanded a district court order denying Quik Pick Express, LLC’s (Quik Pick) motion to compel arbitration.

The Quik Pick case was on one level a fairly routine wage and hour dispute.  Quik Pick is a California-based transportation firm providing trucking and shipping services the southwestern United States. Roberto Aviles, a driver, claimed that Quik Pick misclassified him as an independent contractor instead of an employee, causing him to suffer loss of wages and benefits.  Based on this foundation, Aviles alleged “a smorgasbord of claims ranging from a failure to keep accurate time records to infliction of emotion [sic] distress.”  He brought the claims “as an individual and putative class representative, as a private attorney general, and as all three, depending on the claim.”  (Slip Op. at 2).  But, Aviles’ contract compelled him to submit claims to individual arbitration and to waive representative claims.  California public policy, however, prohibits PAGA claims from being waived in an arbitration agreement.  The arbitration section of Aviles’ contract provided that if any portion was held to be unenforceable, that portion should “be severed and the remaining terms enforced.”

The District Court ultimately held that Aviles’ individual, non-representative, claims should not be submitted to arbitration and Quik Pick appealed.

The Ninth Circuit first considered whether the district should have ruled on arbitrability or whether the issue should have been submitted to the arbitrator under the applicable JAMS rules.  Rather than venture into that analytical quagmire, the panel assumed having the district court rule on arbitrability would not harm either party.

The appellate court noted that the California Court of Appeals confronted a similar situation in Franco v. Arakelian Enterprises, Inc., 234 Cal. App. 4th 947, 952-53, 965 (2015), and maintained the parties’ “contractual expectations as much as possible by simply restricting the arbitration provision from applying to PAGA claims.”  The appellate court in Franco ordered:

Because the issues subject to litigation under the PAGA might overlap those that are subject to arbitration of Franco’s individual claims, the trial court must order an appropriate stay of trial court proceedingsThe stay’s purpose is to preserve the status quo until the arbitration is resolved, preventing any continuing trial court proceedings from disrupting and rendering ineffective the arbitrator’s jurisdiction to decide the issues that are subject to arbitration.”  (Citations omitted.)  (Emphasis added).

The Ninth Circuit followed Franco’s lead.  Accordingly, the Ninth Circuit ordered the Aviles case remanded with the following directive:

(1)        Grant the motion to compel arbitration on an individual basis with regard to any claim Aviles “brings on his own behalf (regardless of whether he also putatively represents class members).”

(2)        Enforce the representative-action waiver except for PAGA claims.

(3)        Decline to permit Aviles “to represent any other individual, as a class representative or otherwise.”

(4)        Stay Aviles’ PAGA claims during the arbitration.

(5)        Finally, if the arbitration of Aviles’ individual claims determines he is an “aggrieved individual” pursuant to Cal. Lab. Code § 2699, he then can litigate his PAGA claims in court.

So, unlike some earlier decisions, the Ninth Circuit provided an analytical framework for resolving claims subject to individual arbitration and at the same time, a means to resolve a viable PAGA claim in Court. Given the continuing uncertainty in this area, having at least a framework may prove helpful in crafting a manageable case management plan in PAGA/arbitration disputes.

BOTTOM LINE:  The Aviles opinion provides a framework to resolve multifaceted claims, including individual and PAGA claims.  And, it makes arbitration a vehicle to resolve all individual claims, even where being an “aggrieved employee” is also a necessary prerequisite for a PAGA claim, ultimately to be resolved in court.