Lewis v. Simplified Labor Staffing Solutions, Inc.

• Citation: 85 Cal.App.5th 983,302 Cal.Rptr.3d 190
• Decision Date: 05 December 2022
• Docket Number: B312871
• Parties: Sylvester LEWIS, Plaintiff and Respondent, v. SIMPLIFIED LABOR STAFFING SOLUTIONS, INC. et al., Defendants and Appellants.
• Court: California Court of Appeals

85 Cal.App.5th 983

302 Cal.Rptr.3d 190

Sylvester LEWIS, Plaintiff and Respondent,

v.SIMPLIFIED LABOR STAFFING SOLUTIONS, INC. et al., Defendants and Appellants.

B312871

Court of Appeal, Second District, Division 8, California.

Filed December 5, 2022

Hill Farrer & Burrill, E. Sean McLoughlin and Clayton J. Hix, Los Angeles, for Defendants and Appellants.

Mahoney Law Group, Kevin Mahoney, Long Beach, Berkeh Alemzadeh, Raleigh Dixon; Ferguson Case Orr Paterson and John A. Hribar, Ventura for Plaintiff and Respondent.

HARUTUNIAN, J.^*

INTRODUCTION

This is an appeal of an order denying the motion of defendant and appellant Simplified Labor Staffing Solutions, Inc. (Simplified)¹ to compel arbitration of plaintiff and respondent Sylvia Lewis's² claims brought under the California Private Attorneys General Act of 2004, Labor Code section 2698 et seq. (PAGA).³ Simplified's motion was based on Lewis's predispute agreement to arbitrate all claims arising from their employment relationship. The trial court understandably denied the motion based on a rule followed by numerous California Courts of Appeal that predispute agreements to arbitrate PAGA claims are unenforceable. We hold that this rule cannot survive the U.S. Supreme Court's recent decision in Viking River Cruises, Inc. v. Moriana (2022) ––– U.S.–––– [142 S.Ct. 1906, 213 L.Ed.2d 179] ( Viking River ). We further hold that the scope of the arbitration clause is to be determined by the arbitrator, in accordance with the arbitration agreement. Specifically, the parties’ dispute about whether non-individual PAGA claims are governed by the arbitration agreement, in the same way individual PAGA claims are, is an issue for the arbitrator to address. Accordingly, we reverse.

BACKGROUND⁴

Simplified is a multi-state temporary staffing services company. It supplies labor and staffing to clients in California and elsewhere in the United States. As a result, Simplified is engaged in and involved in interstate commerce within the meaning of the Federal Arbitration Act (FAA), 9 U.S.C. section 1 et seq.

Simplified hired Lewis in September 2019. On or about her hire date, Lewis signed an arbitration agreement and class action waiver. The agreement was made pursuant to the FAA and requires arbitration of all "claims that arise out of [her] employment relationship with [Simplified]," subject to limited exceptions not relevant here. The agreement also states that, if any provision "is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement." Once hired, Simplified staffed Lewis with clients for whom Lewis acted as a materials handler responsible for loading and unloading freight.

In 2020, Lewis filed a complaint against Simplified, as well as an affiliate of Simplified's and Simplified's clients with whom she was staffed. Lewis brought her claims pursuant to PAGA. Lewis alleged a number of Labor Code violations, including failures to pay wages, provide meal and rest periods, maintain accurate payroll records, and reimburse business expenses.

Simplified moved to compel arbitration. The trial court denied the motion on the grounds that predispute agreements to arbitrate PAGA claims are not enforceable. Following the approach of several California Courts of Appeal, the trial court reasoned that, because the State of California is the real plaintiff in interest in a PAGA action ( Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian )), it is the consent of the State, and not of the named employee plaintiff, that is required to compel arbitration. Under the unique structure of PAGA, the reasoning goes, an employee can speak for the State only after it has become "aggrieved" under the statute, which can occur only after the dispute has arisen.⁵ Following Iskanian , the trial court interpreted the FAA as inapplicable to disputes involving the State such that there could be no FAA preemption.

Simplified timely appealed. Its appeal is authorized by Code of Civil Procedure section 1294, subdivision (a).

While the appeal was pending, but after regular briefing was complete, the Supreme Court issued its decision in Viking River . In addition, before it filed its reply, Simplified settled PAGA claims brought against it in a separate action styled Shackelford v. Simplified Labor Staffing Solutions, Inc. (C.D.Cal. No. 2:20-cv-06846-AB-AFM) (the Shackelford Action). We requested, and the parties submitted, supplemental briefing on the impact of these events on the resolution of this appeal.

DISCUSSION

I. Standard of Review

Where, as here, there are no disputed factual issues, we review de novo the trial court's decision on a petition to compel arbitration. ( Alvarez v. Altamed Health Services Corp. (2021) 60 Cal.App.5th 572, 581, 274 Cal.Rptr.3d 802.) Preemption is a question of law subject to de novo review. ( Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308, 316, 230 Cal.Rptr.3d 258.)

II. PAGA

PAGA was enacted to remedy underenforcement of the Labor Code. ( Iskanian, supra , 59 Cal.4th at p. 379, 173 Cal.Rptr.3d 289, 327 P.3d 129.) The Legislature attributed this underenforcement to a lack of resources available to the government agencies responsible for enforcement. ( Ibid. ) Its solution was to outsource enforcement to private individuals affected by their employers’ violations.

To accomplish this, PAGA allows "aggrieved employees" to act as "private attorneys general," but only after giving the Labor and Workforce Development Agency (LWDA) the opportunity to prosecute the alleged violations itself. (§§ 2699, subd. (c), 2699.3, subd. (a).) An "aggrieved employee" is an employee against whom at least one alleged Labor Code violation was committed. (§ 2699, subd. (a).)

To give the LWDA the opportunity to prosecute alleged violations, the aggrieved employee must send notice to the LWDA and the employer specifying such violations. (§ 2699.3, subd. (a)(1).) The aggrieved employee is automatically deputized to proceed with its civil suit if (i) the LWDA does not respond (id., subd. (a)(2)(A)); (ii) the LWDA responds that it does not intend to investigate (ibid .); or (iii) the LWDA notifies the employee of its intent to investigate but does not issue a citation within 120 days after its decision to investigate (id. , subd. (a)(2)(B)). So deputized, the aggrieved employee wields the power of the state to seek civil penalties for employers’ Labor Code violations without any further involvement by the LWDA.

Notably, aggrieved employees are not limited to suing on violations committed against them. So long as they suffered some violation, they assume standing to recover for any violation committed by their employer. We refer to claims on account of violations suffered by the plaintiff employee as "individual claims" and those suffered only by the plaintiff's co-workers as "non-individual claims."

PAGA penalties are set at $100 for each aggrieved employee per pay period for the initial violation and $200 for each aggrieved employee per pay period for each subsequent violation. (§ 2699, subd. (f)(2).) Penalties recovered in a PAGA action are shared between the LWDA (75 percent) and aggrieved employees (25 percent). (§ 2699, subd. (i).) The successful PAGA plaintiff is also entitled to its attorney fees and costs. (§ 2699, subd. (g)(1).)

An aggrieved employee's right to recover for the universe of its employer's Labor Code violations substantially amplifies the risk employers face in a PAGA action. Predictably, then, employers have sought to limit their PAGA exposure by contract. The California Supreme Court addressed one approach to doing so in Iskanian, supra , 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129.

A. Iskanian

The Iskanian court considered (a) whether predispute PAGA waivers are permissible under state law; and, if not (b) whether the FAA preempts a state prohibition on PAGA waivers.

As to the first question, the court found that an employee cannot prospectively waive a PAGA claim. It reasoned that PAGA waivers would violate public policy and provide a mechanism for employers to exculpate themselves in contravention of Civil Code sections 1668 and 3515. ( Iskanian , supra , 59 Cal.4th at p. 383, 173 Cal.Rptr.3d 289, 327 P.3d 129.)

In concluding that the particular waiver at issue was unenforceable, the Iskanian court considered and rejected the employer's argument that it was not a true waiver because it preserved the employee's right to assert individual PAGA claims in arbitration and barred only non-individual claims. The court held that any waiver of non-individual claims (one of two classes of claims the Iskanian court referred to as "representative") is unenforceable because requiring separate actions to seek redress for the same violation would undermine PAGA's purposes of punishing and deterring Labor Code violations. ( Iskanian, supra , 59 Cal.4th at pp. 383–384, 173 Cal.Rptr.3d 289, 327 P.3d 129.) Appellate courts applying Iskanian interpreted this aspect of its analysis as prohibiting splitting PAGA claims into individual and non-individual components to permit arbitration of the individual claims. (See Kim v. Reins International California, Inc . (2020) 9 Cal.5th 73, 88, 259 Cal.Rptr.3d 769, 459 P.3d 1123 [citing cases].)

The Iskanian court next turned to the question of whether the FAA preempts its rule against PAGA waivers, and found no preemption. It determined that barring PAGA waivers posed no " ‘obstacle to the accomplishment of the FAA's objectives’ " because "the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state ...." ( Iskanian , supra , 59 Cal.4th at p. 384, 173 Cal.Rptr.3d 289, 327 P.3d 129.) It elaborated that "a PAGA claim lies outside of the FAA's coverage because it is not a dispute between an employer and...