A California Court of Appeal has ruled that the U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion does not apply to actions brought under California’s Private Attorney General Act of 2004 (PAGA).

 In Brown v. Ralphs Grocery Co., issued July 12, 2011, the 5th District appeals court upheld the trial court determination that a class action waiver in an arbitration agreement between the plaintiff and Ralphs did not waive the plaintiff’s right to bring an action under PAGA. This was the first California appellate interpretation of AT&T Mobility.

PAGA permits a private individual to recover civil penalties for California Labor Code violations on behalf of current and former employees as a “private attorney general.” Relying on a previous California appellate decision, the Brown court noted that PAGA “is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct,” and that the law “attempted to remedy the understaffing of California’s labor law enforcement agencies by granting employees the authority to bring civil actions against their employers for Labor Code violations.”

Brown held that AT&T Mobility was distinguishable because it concerned preemption of unconscionability determinations for class action waivers in consumer cases—and did not address Federal Arbitration Act preemption of contractual arbitration efforts to waive private attorney general actions to enforce penalties for Labor Code violations that might otherwise be sought by California enforcement agencies.

 “The purpose of the PAGA is not to recover damages or restitution, but to create a means of ‘deputizing’ citizens as private attorneys general to enforce the Labor Code,” the decision states.

Brown recognized, as noted in the dissenting opinion, that the Supreme Court has previously held in several decisions that the FAA preempts certain California statutory dispute resolution mechanisms. However, the Court of Appeal held that such authority did not address a statute such as PAGA, a mechanism by which the State can enforce its labor laws through employees acting as a proxy or an agent of California labor law enforcement agencies.

The Court of Appeal in Brown remanded the case to the trial court to determine if the attempt to waive PAGA claims in the underlying arbitration agreement invalidated the entire agreement.

The Brown case presents a dilemma for employers with arbitration agreements. Although the dissenting opinion argues strongly that the AT&T Mobility decision does apply to preclude California from invalidating a waiver of PAGA claims in a contractual arbitration agreement, the Brown opinion is currently the state of the law in California. Thus, any attempt to draft, redraft, or modify an arbitration agreement to require waiver of PAGA claims risks potential invalidation of the entire arbitration agreement.

Employers should consult with labor and employment counsel as to the implications of Brown for any existing or contemplated arbitration agreements with employees. If you have questions about how Brown might affect your operations, contact Lawrence J. Gartner, 424.204.4334 or gartnerl@ballardspahr.com.


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