Mandatory Arbitration Barred in Wage Class Action

A California appeals court handed an important victory to employees using class actions to fight wage and hour disputes.  The Sixth District Court of Appeals in San Jose limited use of mandatory arbitration terms in wage and hour disputes Tuesday, allowing class actions when workers act to advance claims in the public interest.

The panel said the Federal Arbitration Act cannot be used to trump the workers’ state law rights under the state Labor Code’s Private Attorneys General Act of 2004, which allows workers to sue as a proxy for the state.

“The PAGA claim is necessarily a representative action intended to advance a predominately public purpose,” wrote Justice Eugene Premo.

The appeals court allowed workers of a tire and auto repair company to pursue wage violation claims in a class action despite mandatory arbitration terms in their employment contract.

The ruling is significant because outlines the limits of the U.S. Supreme Court’s landmark 2011 decision that allowed contracts that ban consumer class actions, AT&T v. Concepcion.

Premo wrote that while the Concepcion decision does not intrude on the protections of the PAGA of an employees right to sue in class actions to enforce wage and hour rights.

Workers at Wheel Works, a Morgan Tire & Auto Co., sued saying they were not paid for all the hours they worked, did not get meal and issued paychecks late and delayed final checks to discharged workers.

The sued for damages and civil penalties under the state’s Unfair Competition Law and with a claim under the PAGA that they were suing on behalf of themselves and all other injured employees.

Wheel Works argued that workers signed a dispute resolution plan when they were hired, agreeing to submit disputes to mediation and arbitration.

At the time of the lawsuit in 2010, California made class action waivers in consumer and employment class actions unenforceable.  The U.S. Supreme Court’s Concepcion decision changed that for consumers.  The Sixth District’s decision Tuesday makes clear that Concepcion does not upend California’s ban on class action waivers in employment disputes in a PAGA claim.

“When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right,” Premo wrote.

He was joined by Justices Conrad Rushing and Franklin Elia.


Case:  Brown v. Sup. Ct. of Santa Clara, (Morgan Tire & Auto), No. H037271