Hunton Employment & Labor Perspectives

A California appellate court recently invalidated an arbitration agreement that an employee had voluntarily entered into on the basis that it contained an unenforceable waiver of the employee’s claims under the California Private Attorneys General Act (“PAGA”) and, under the parties’ agreement, that provision could not be severed.

A California appellate court recently invalidated an arbitration agreement that an employee had voluntarily entered into on the basis that it contained an unenforceable waiver of the employee’s claims under the California Private Attorneys General Act (“PAGA”) and, under the parties’ agreement, that provision could not be severed.

In Securitas Security Services USA, Inc. v. Superior Court of San Diego County, 234 Cal. App. 4th 1109 (2015), Denise Edwards received an arbitration agreement from her employer,  Securitas Security Services USA, Inc. (“Securitas”), requiring her to arbitrate various disputes, including those regarding the employment relationship or federal or state wage and hour law.  The agreement provided in Paragraph 4:

[T]here will be no right or authority for any dispute to be brought, heard or arbitrated as a class, collective or representative action (‘Class Action Waiver’).  Notwithstanding any other clause in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute is to be arbitrated is brought as a class, collective or representative action. . . .

Paragraph 10 provided:

In the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable.  If the Class Action Waiver is deemed to be unenforceable, [Securitas] and [Edwards] agree that this Agreement is otherwise silent as to any party’s ability to bring a class, collective or representative action in arbitration.

The Agreement gave employees 30 days to opt out of it.  Edwards did not exercise that right.

Edwards brought suit in Superior Court alleging various wage and hour claims against Securitas including class allegations and a representative claim for civil penalties under PAGA.

In response to Edwards’ claims, Securitas moved to compel arbitration taking into consideration the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), which found waivers of PAGA claims entered into before a dispute contrary to California public policy.  Securitas argued that the Federal Arbitration Act mandated that the agreement be enforced, that Edwards arbitrate her individual claims, and that any class or PAGA allegations be dismissed and/or severed or stayed.  Securitas also argued that the Supreme Court’s decision in Iskanian to invalidate predispute waivers of PAGA claims in arbitration agreements did not apply because unlike in Iskanian, Edwards’ decision to enter into the agreement to arbitrate her individual PAGA claim was voluntary—Edwards chose not to opt out of the agreement.  Further, Securitas argued that assuming the PAGA waiver was unenforceable, the agreement allowed the improper language to be severed and stayed while Edwards’ individual claims were arbitrated.  According to Securitas, read as a whole, the agreement “made clear that the parties did not agree to arbitrate a PAGA claim, and it was this concept that could not be severed.”

Edwards argued that the agreement’s PAGA waiver was in fact unenforceable under Iskanian, given that that decision “held prospective, predispute PAGA waivers unenforceable.”  Edwards then argued that the correct forum for all of her claims was the superior court, given that the waiver could not be severed under the terms of the Agreement, making the entirety of the Agreement illegal and unenforceable.

The trial court granted Securitas’ motion in full, sending all of Edwards’ claims, including her representative claims under PAGA, to be resolved by an arbitrator.  The trial court found that Edwards’ representative PAGA claim could not be waived.  The trial court therefore found that Paragraph 10, the severability clause, applied and “ordered the parties to proceed with arbitration as to Edwards’ entire complaint . . . observing that Edwards had elected to resolve her PAGA claims in arbitration along with her class claims.”

Securitas filed a petition for a peremptory writ of mandate, prohibition or review seeking a stay, requiring the trial court to set aside its order permitting arbitration of Edwards’ class and representative claims, and requiring the trial court to enforce the Class Action Waiver or sever and stay those claims pending the arbitration of Edwards’ individual allegations.

On appeal, the Court of Appeals held that Iskanian rendered the parties’ PAGA waiver unenforceable, regardless of whether Edwards had the ability to opt out.  Unlike the trial court, however, the Court of Appeals found that under Paragraph 4, the Class Action Waiver could not be severed from the Agreement: “paragraph No. 4 unambiguously reflects the parties’ intent that where a dispute is subject to the arbitration agreement” and is alleged as a representative claim, “the provision waiving such claims, even if later determined to be illegal or unenforceable, cannot be severed from the remainder of the agreement.  This is so ‘[n]otwithstanding any other clause in the agreement,’ including the severance clause of paragraph No. 10.”  The Court of Appeals vacated the trial court’s order and directed it to enter a new order denying the motion to compel arbitration, meaning all of Edwards’ claims, including the class action and representative PAGA claims, would be heard in superior court.

While Securitas stands for the proposition that a predispute PAGA waiver will likely be found invalid in California state courts regardless of whether the agreement is voluntary or coerced, it is also a cautionary tale about the drafting of arbitration agreements in general.  Employers should review their arbitration agreements, in light of Iskanian, taking into account the use of severability and nonseverability clauses.