Provost v. Yourmechanic, Inc.

• Decision Date: 15 October 2020
• Docket Number: D076569
• Parties: Jonathan PROVOST, Plaintiff and Respondent, v. YOURMECHANIC, INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

55 Cal.App.5th 982

269 Cal.Rptr.3d 903

Jonathan PROVOST, Plaintiff and Respondent,

v.YOURMECHANIC, INC., Defendant and Appellant.

D076569

Court of Appeal, Fourth District, Division 1, California.

Filed October 15, 2020

Littler Mendelson and Andrew Spurchise, New York, NY; Littler Mendelson, Sophia Behnia and Perry Miska, San Francisco, for Defendant and Appellant.

Blumenthal Nordrehaug Bhowmik De Blouw, Norman B. Blumenthal, San Diego, and Kyle R. Nordrehaug, for Plaintiff and Respondent.

BENKE, Acting P. J. Defendant YourMechanic, Inc. (sometimes, YourMechanic or company) appeals the trial court order denying its motion to compel arbitration (sometimes, motion). YourMechanic sought to compel plaintiff Jonathan Provost to arbitrate whether he was an "aggrieved employee" within the meaning of the Labor Code¹ before he could proceed under the Private Attorneys General Act of 2004 (PAGA) (§ 2698 et seq.) with his single-count representative action alleging various Labor Code violations against company.

We independently conclude the court properly denied YourMechanic's motion. As we explain, requiring Provost to arbitrate whether he was an "aggrieved employee" with standing to bring a representative PAGA action would require splitting that single action into two components: an arbitrable "individual" claim (i.e., whether he was an independent contractor or employee under either the parties' written arbitration provision or section 226.8 (discussed post ), making it unlawful to willfully misclassify an individual as an independent contractor); and a nonarbitrable representative claim. Our conclusion is based on a series of cases holding a PAGA-only representative action is not an individual action at all, but instead is one that is indivisible and belongs solely to the state. Therefore, YourMechanic cannot require Provost to submit by contract any part of his representative PAGA action to arbitration. Affirmed.

BACKGROUND

The operative complaint, brought on behalf of Provost, other "aggrieved employees" of YourMechanic, and the people of this state, sought civil penalties under PAGA beginning June 30, 2016, until a date determined by the court (hereinafter, PAGA period). The complaint alleged YourMechanic during the PAGA period violated myriad sections of the Labor Code and applicable industrial wage orders, including failing to pay Provost and all others similarly situated wages in a timely manner, overtime, and for all other hours worked; and provide all minimum wages, accurate itemized wage statements, and required business expenses.

The complaint further alleged that YourMechanic "willful[ly] misclassified" (see § 226.8, subd. (a)(1)² ) Provost and other aggrieved employees as independent contractors, subjecting YourMechanic to a minimum "civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation." (See id. , subd. (b).) The complaint also provided Provost had notified the Labor and Workforce Development Agency (LWDA), which enforces California's labor laws, of his intent to seek PAGA penalties.³

YourMechanic moved to compel arbitration. The premise of YourMechanic's motion was that the complaint was subject to a four-page, multi-section binding arbitration provision (sometimes, arbitration provision) included in its 20-page, pre-printed form Technology Services Agreement (sometimes, TSA)⁴ executed by Provost when he clicked the "I accept" button at the end of this Agreement. LWDA was not a party to the TSA.

The arbitration provision in part provided: "Except as it otherwise provides, this Arbitration Provision also applies, without limitation, to all disputes between You [i.e., Provost] and the Company, as well as to all disputes between You and the Company's fiduciaries, administrators, affiliates, subsidiaries, parents, and all successors and assigns of any of them, including but not limited to any disputes arising out of or related to this Agreement and disputes arising out of or related to your relationship with the Company, including termination of the relationship."

The arbitration provision further provided that all disputes between Provost and YourMechanic, including those "relating to interpretation or application of this Arbitration Provision," were to be "resolved only by an arbitrator through final and binding arbitration on an individual basis only and not by way of court or jury trial, or by way of class, collective, or representative action" (emphasis omitted); that arbitration would be "governed by the Federal Arbitration Act" (FAA), while the interpretation of the TSA would be "governed by California law"; and that Provost could opt-out of arbitration within 30 days of executing the TSA, which he did not do.

The trial court in its August 9, 2019 minute order denied YourMechanic's motion. The court recognized that Provost's PAGA action alleged various Labor Code violations, including, as noted, a violation of section 226.8 for misclassification of an individual as an independent contractor.

The court next framed as follows YourMechanic's argument in support of the motion: "Only an employee is entitled to bring claims under PAGA. Thus, it is only after a determination by an arbitrator that Plaintiff is an employee, and not an independent contractor, that the Court may determine whether and to what extent Plaintiff suffered any Labor Code violations for which penalties may be recovered under PAGA. [Citation.]"

The court found YourMechanic's argument would contravene the law (discussed post ) by requiring the court to "split the PAGA into an individual claim," including on the section 226.8 alleged misclassification violation, and a representative claim. The court therefore denied the motion.

The parties subsequently entered into a stipulation to stay the case after YourMechanic appealed the court's August 9 order, which stipulation the court approved on September 3.

DISCUSSION

A. PAGA

The Labor Code authorizes LWDA to collect civil penalties from employers for specified labor law violations. ( Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 865, 225 Cal.Rptr.3d 798 ( Julian ).) The Legislature in 2003 enacted PAGA and it became effective on January 1, 2004. ( Arias v. Superior Court (2009) 46 Cal.4th 969, 980, 95 Cal.Rptr.3d 588, 209 P.3d 923.) The Legislature found and declared that (1) adequate financing of labor law enforcement was necessary to achieve maximum compliance with state labor laws; (2) in some situations the only meaningful deterrent to unlawful conduct was the vigorous assessment and collection of civil penalties; (3) staffing levels for labor law enforcement agencies had declined and were unlikely to keep pace with the future growth of the labor market; and (4) it was therefore in the public interest to allow aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, while also ensuring that labor law enforcement agencies' enforcement actions have primacy over private enforcement efforts. (Stats. 2003, ch. 906, § 1, eff. Jan. 1, 2004.)

The authorization to pursue PAGA civil penalties in a lawsuit is contained in section 2699, subdivision (a), which states in part: "any provision of this code that provides for a civil penalty to be assessed and collected by the [LWDA] ... for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3." (Italics added.) An "aggrieved employee" is defined as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." (§ 2699, subd. (c).)

PAGA therefore works by empowering aggrieved employees to act as LWDA's proxy or agent to bring representative actions to recover statutory civil penalties for their employers' violations. ( Julian, supra , 17 Cal.App.5th at p. 865, 225 Cal.Rptr.3d 798.) A PAGA action is " ‘a substitute for an action brought by the government itself’ " ( ibid. ), where the governmental entity "is always the real party in interest." ( Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ).) To obtain authority to prosecute and collect the penalties, PAGA requires aggrieved employees to give LWDA notice. (§ 2699.3, subd. (a)(1)(A).)

The Legislature provided two financial incentives for aggrieved employees to pursue the recovery of civil penalties under PAGA. First, when a civil penalty is recovered under PAGA, 75 percent goes to LWDA and the remaining 25 percent goes to the aggrieved employees. (§ 2699, subd. (i).) Second, any employee who prevails in an action is entitled to his or her reasonable attorney fees and costs. (Id. , subd. (g)(1).)

Penalties under PAGA are unique to that statute. "The civil penalties recovered on behalf of the state under the PAGA are distinct from the statutory damages to which employees may be entitled in their individual capacities." ( Iskanian, supra , 59 Cal.4th at p. 381, 173 Cal.Rptr.3d 289, 327 P.3d 129 ; see ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 197, 252 Cal.Rptr.3d 228, 448 P.3d 239 ( ZB, N.A. ) [§ 558 unpaid wage action for compensatory relief different from PAGA civil penalties].) Therefore, a suit to recover statutory civil penalties under PAGA is " ‘ "fundamentally a law enforcement action designed to protect the public and not to benefit private parties." ’ " ( Iskanian , at p. 387, 173 Cal.Rptr.3d 289, 327 P.3d 129.)

Additionally, PAGA "forecloses separate but similar actions by different employees against the same employer." ( Julian, supra , 17 Cal.App.5th at p. 866, 225 Cal.Rptr.3d 798.) " ‘Because an aggrieved employee's action under [PAGA] functions as a substitute for an action brought by the government itself, a judgment in that action binds...