Nonseverable Arbitration Clause Waiving Right to Bring PAGA Claim is Unenforceable
California courts continue to wrestle with the enforceability of class action and representative action waivers that employees consent to when they enter into arbitration agreements. In a decision rendered just two days ago on January 7, 2015, the California Court of Appeals in Montano v. The Wet Seal Retail Inc. ruled that an employee’s waiver of his or her right to bring a representative action under the Private Attorney General Act (“PAGA” or California’s “Sue Your Boss” law) is unenforceable.
For those unfamiliar with PAGA, the law allows an employee to bring a civil action individually and on behalf of other current and former employees to recover civil penalties for Labor Code violations (much like a class action). Under PAGA, the employee who brings the lawsuit is essentially acting as an agent of California’s labor law enforcement agencies for the recovery of civil penalties.
In 2014, the California Supreme Court issued a key ruling in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, in which the Court decided that an employee cannot be made to waive their right to bring a PAGA claim.
The plaintiff, Elizabeth Montano, filed a wage and hour class action lawsuit against teen apparel retailer Wet Seal alleging that her employer withheld wages and denied her meal and rest breaks. Among her claims, Ms. Montano brought a PAGA claim, which Wet Seal argued she could not bring because the arbitration agreement she signed upon being hired contained a waiver to bring a PAGA claim. Wet Seal requested the Court to compel Ms. Montano to submit her claim to arbitration instead of allow her to file a representative action.
The Court of Appeal applied the Iskanian court decision and decided that although Ms. Montano could generally waive her right to bring a class action lawsuit, she could not waive her right to bring a PAGA claim. Further, because the arbitration agreement Ms. Montano signed contained a nonseverability provision, the entire arbitration agreement was deemed void and unenforceable.
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