Zakaryan v. Men's Wearhouse, Inc.

• Decision Date: 28 March 2019
• Docket Number: B289192
• Court: California Court of Appeals Court of Appeals
• Parties: Arthur ZAKARYAN, Plaintiff and Respondent, v. The MEN'S WEARHOUSE, INC., et al., Defendants and Appellants.

33 Cal.App.5th 659

245 Cal.Rptr.3d 333

Arthur ZAKARYAN, Plaintiff and Respondent,

v.The MEN'S WEARHOUSE, INC., et al., Defendants and Appellants.

B289192

Court of Appeal, Second District, Division 2, California.

Filed March 28, 2019

Gartenberg Gelfand Hayton, Aaron C. Gundzik, Los Angeles, and Rebecca G. Gundzik for Plaintiff and Respondent.

Lebe Law, and Jonathan M. Lebe, Los Angeles, for Plaintiff and Respondent.

Carothers DiSante and Freudenberger, and Amy S. Williams, Irvine, for Defendants and Appellants.

Vorys, Sater, Seymour and Pease, Mark A. Knueve, and Cory D. Catignani for Defendants and Appellants.

HOFFSTADT, J.

The Labor Code Private Attorneys General Act of 2004 (PAGA) deputizes individual employees to step into the shoes of our state’s labor enforcement agency and sue their employers for underpaid wages and additional, statutorily prescribed amounts on behalf of themselves and their aggrieved coworkers. ( Lab. Code, § 2698 et seq. )¹ In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382-392, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ), our Supreme Court held that individual employees cannot contractually agree to arbitrate their potential PAGA claims, but may still contractually agree to arbitrate their "individual damages claims." If an employee brings a solitary PAGA claim, may a trial court split that claim—that is, may the court send the employee to arbitration (when he has agreed to it) to recover his underpaid wages but retain jurisdiction to award the additional, statutorily prescribed amounts? Our sister courts are divided on the issue: Esparza v. KS Indus., L.P. (2017) 13 Cal.App.5th 1228, 221 Cal.Rptr.3d 594 ( Esparza ) has sanctioned such an order, while Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, 227 Cal.Rptr.3d 613 ( Lawson ) has not. Although this issue is pending before our Supreme Court in Lawson ( Lawson , review granted Mar. 21, 2018, S246711), we analyze the issue differently than Esparza or Lawson but ultimately conclude that courts may not split a solitary PAGA claim and send it to two different fora. Accordingly, we affirm the trial court’s order denying the motion to compel arbitration in this case.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

Arthur Zakaryan (plaintiff) started working as a store manager for defendants, The Men’s Wearhouse and Tailored Brands, Inc. (collectively, The Men’s Wearhouse) in November 2002. As its homophonic name suggests, the Men’s Wearhouse sells men’s clothing and accoutrement. Due to work performance issues, The Men’s Wearhouse in early 2016 gave plaintiff the option of accepting a demotion out of management or resigning. Plaintiff opted to resign, and did so in February 2016.

By the time of his resignation, plaintiff had signed or by his conduct agreed to two different arbitration agreements with The Men’s Wearhouse—one in 2006 and a second in 2015. Under the terms of the 2006 agreement, plaintiff agreed to arbitrate "any and all claims, disputes and controversies ... includ[ing] ... any [c]laim arising from [his] employment ... or its termination," but that agreement expressly excluded "collective" or "representative action[s]." Under the terms of the 2015 agreement, plaintiff agreed to arbitrate "all claims or controversies ... whether or not arising out of [his] employment (or its termination)" and to "waive any right to bring" "any class, collective, or representative action," but that agreement expressly excluded any PAGA claims "otherwise covered by this Agreement."

II. Procedural Background

In January 2017, plaintiff sued The Men’s Wearhouse. "[O]n behalf of all aggrieved employees currently and formerly employed" as The "Men’s Wearhouse store managers," plaintiff alleged a "representative action" under PAGA on the ground that The Men’s Wearhouse had wrongly misclassified managers as exempt from California’s laws regarding overtime pay and meal and rest breaks. This underpayment also rendered the managers' wage statements inaccurate and entitled those who had quit or been fired to "waiting time penalties" under section 203. Plaintiff prayed for "unpaid and underpaid wages of all aggrieved employees," the additional penalties incorporated into PAGA from more specific Labor Code provisions, prejudgment interest, attorney fees and "further and other injunctive and equitable relief."

After Esparza was decided, The Men’s Wearhouse filed a motion to compel arbitration of the portion of plaintiff’s PAGA claim seeking reimbursement of underpaid wages. The motion to compel was filed nearly six months after The Men’s Wearhouse had answered plaintiff’s complaint without raising arbitration as a defense.

Following full briefing and a hearing, the trial court denied the motion to compel. The court found Lawson more persuasive than Esparza , and in so doing rejected the notion that plaintiff’s PAGA claim could be split in order to send the underpaid wages portion to arbitration.

The Men’s Wearhouse filed this timely appeal.

DISCUSSION

The Men’s Wearhouse challenges the trial court’s refusal to order arbitration of the portion of plaintiff’s PAGA claim that seeks to recover his underpaid wages. As noted above, the California courts currently disagree about a trial court’s authority to order a portion of a PAGA claim to arbitration: One case says this is permissible ( Esparza , supra , 13 Cal.App.5th at p. 1234, 221 Cal.Rptr.3d 594 ), while most others have said it is not ( Lawson , supra , 18 Cal.App.5th at p. 712, 227 Cal.Rptr.3d 613 ; Williams v. Superior Court (2015) 237 Cal.App.4th 642, 649, 188 Cal.Rptr.3d 83 ( Williams v. Superior Court ); Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 448, 215 Cal.Rptr.3d 344 ; Tanguilig v. Bloomingdale’s, Inc. (2016) 5 Cal.App.5th 665, 677-678, 210 Cal.Rptr.3d 352 ( Tanguilig ); Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408, 420-421, 207 Cal.Rptr.3d 605 ( Perez )).² Because the arbitrability of a portion of a PAGA claim presents a legal question that lies at the intersection of California labor law and arbitration law, our review is de novo. ( Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 864, 225 Cal.Rptr.3d 798 ( Julian ) [where denial of a motion to compel "relies on a determination of law," review is "de novo"].) We start with a brief overview of these two areas of law, then apply them to the question before us.

I. Pertinent Background Law

A. California labor law

1. Substantive protections

California labor law grants employees two protections relevant to this appeal.

The law prohibits employers from requiring their employees to work more than eight hours in a day, 40 hours in a week or six days in a row at their regular hourly rate of pay (the overtime rules). (§ 510, subd. (a).) These rules do not apply to (and therefore exempt) "executive, administrative, and professional employees." (§ 515, subd. (a).) If an employer does not comply with the overtime rules applicable to a non-exempt employee, that employee is entitled to premium pay of 1.5 times his regular hourly pay, and to twice his regular hourly pay if required to work more than 12 hours in a day or more than eight hours on the seventh day in a row. (§ 510, subd. (a).) What is more, the employer’s failure to compensate the employee at the statutory premium pay rate means that the employee’s pay checks are inaccurate and, if the employee quits or is fired, may mean that he was willfully not paid the full amount of his unpaid wages when he departed, each of which constitutes a separate Labor Code violation with its own additional penalty. (§§ 226, subds. (a)(1), (a)(2), (a)(5) & (a)(9), 203; see Maldonado v. Epsilon Plastics, Inc. (2018) 22 Cal.App.5th 1308, 1331-1332, 232 Cal.Rptr.3d 461 [willful failure to pay overtime premiums violates law requiring timely payment of full wages to departing employee].)

The law also requires that employers afford their employees meal and rest periods during any shift longer than five hours (for meal periods) and three and one-half hours (for rest periods) (the meal and rest period rules). (§§ 226.7, subd. (b), 512, subd. (a); Cal. Code Regs., tit. 8, § 11070, subds. (11)(A) & (12)(A) [mercantile industry].) These rules also do not apply to "executive, administrative, and professional employees." (§ 515, subd. (a); Cal. Code Regs., tit. 8, § 11070, subd. (1)(A).) If an employer does not comply with the meal and rest break rules applicable to non-exempt employees, an employee is entitled to an additional hour’s pay for each workday that a meal or rest period was not offered. (§ 226.7, subd. (c).)

2. Enforcement mechanisms

a. Pre-PAGA mechanisms

Traditionally, the Labor Code provides several mechanisms for three different actors to enforce the above described labor laws.

First, the aggrieved employee may seek judicial or administrative relief. In terms of judicial relief, the employee may "file[ ] an ordinary civil action against the employer" for (1) breach of contract ( Reynolds v. Bement (2005) 36 Cal.4th 1075, 1084, 32 Cal.Rptr.3d 483, 116 P.3d 1162 ( Reynolds ), abrogated on other grounds in Martinez v. Combs (2010) 49 Cal.4th 35, 109 Cal.Rptr.3d 514, 231 P.3d 259 ), (2) restitution under the Unfair Competition Law ( Bus. & Prof. Code, § 17200 et seq. ) ( Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177-178, 96 Cal.Rptr.2d 518, 999 P.2d 706 ), or (3) violation of the Labor Code provision at issue if (and only if) the Code authorizes individual employees to bring a claim based on that provision (§§ 1194, subd. (a) [authorizing civil suit to recover "unpaid balance" of overtime premium pay], 218 [authorizing civil suit to recover pay for missed meal and rest periods and waiting time penalty] ). No matter what the legal theory advanced, the employee’s recovery is limited to the damages owed, which includes the amounts of premium pay prescribed by statute but excludes any statutorily prescribed civil penalties over and above those amounts. ( ...