Case Number: 19STCV32534 Hearing Date: February 13, 2020 Dept: 31

PETITION TO COMPEL ARBITRATION IS GRANTED, IN PART.

Background

Plaintiff Jesus Salguero (“Plaintiff”) filed this action against Defendant (“Deliv, Inc.”) on September 12, 2019. Filed on November 25, 2019, the operative First Amended Complaint (“FAC”) alleges causes of action for:

Violation of California Labor Code §§ 1194, 1197, and 1197.1 (Unpaid Minimum Wages);

Violation of California Labor Code § 1198 (Unpaid Overtime);

Violation of California Labor Code § 226.7 (Unpaid Meal Period Premiums);

Violation of California Labor Code § 226.7 (Unpaid Rest Period Premiums);

Violation of California Labor Code §§ 201 and 202 (Final Wages Not Timely Paid);

Violation of California Labor Code § 226(a) (Non-Compliant Wage Statements);

Violation of California Labor Code § 2802 (Unreimbursed Business Expenses);

Violation of California Business & Professions Code §§ 17200, et seq; and

Violation of California Labor Code §§ 2698 et seq. (Private Attorney General Act of 2004).

This action arises from Plaintiff’s allegations that Defendant “willfully misclassified its drivers as independent contractors to minimize costs and unduly maximize profits at the expense of their primary workforce.” (FAC ¶ 12.)

Defendant seeks an order compelling arbitration of all of Plaintiff’s claims and staying the action pending the outcome of arbitration.

Legal Standard

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, the party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by CCP Section 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.

CCP Section 1281.2 states that:

The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.

The party petitioning to compel arbitration under written arbitration agreement bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, and the party opposing petition must meet the same evidentiary burden to prove any facts necessary to its defense. The trial court acts as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence. (CCP, § 1281.2; Provencio v. WMA Securities, Inc., 125 Cal.App.4th 1028, 1031.)

Discussion

Existence of an Arbitration Agreement

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code of Civ. Proc. § 1281.2.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.)

Once petitioners allege that an arbitration agreement exists, the burden shifts to respondents to prove the falsity of the purported agreement, and no evidence or authentication is required to find the arbitration agreement exists. (See Condee v. Longwood Mgt. Corp. (2001) 88 Cal.App.4th 215, 219.) However, if the existence of the agreement is challenged, “petitioner bears the burden of proving [the arbitration agreement’s] existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413. See also Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058-1060.)

“With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, 105 Cal.Rptr.2d 597 (Condee ); see also Cal. Rules of Court, rule 3.1330 [“A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference”].) Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges. [Citation]” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendant submits a copy of the Independent Contractor Agreement (“ICA”) entered into between Plaintiff and Defendant. (McIlvain Decl. Exh. 1.) Under the “Arbitration Agreement” header, the ICA provides, in relevant part, that

[b]oth the Company and Contractor agree that any claim, dispute, and/or controversy that either Contractor may have against the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) or the Company may have against Contractor, arising from, related to, or having any relationship or connection whatsoever with Contractor’s contract relationship with the Company, including the classification of Contractor as an independent contractor shall be submitted to and determined exclusively by binding arbitration.

. . .

To the extent permitted by applicable law, Contractor agrees not to bring a representative action under the PAGA (PAGA Waiver).

. . .

Although a Contractor will not be retaliated against, disciplined or threatened with discipline as a result of exercising Contractor’s rights under Section 7 of the National Labor Relations Act by the filing of or participation in a class, collective or representative action in any forum, the Company may lawfully seek enforcement of this Agreement and the Class Action Waiver under the Federal Arbitration Act and seek dismissal of such class, collective or representative actions or claims. Notwithstanding any other clause contained in this Agreement, any claim that all or part of the Class Action Waiver or PAGA Waiver is unenforceable, unconscionable, void or voidable may be determined only by a court of competent jurisdiction and not by an arbitrator. (Id. ¶ M.)

Submitted with the ICA is a register reflecting that Plaintiff electronically signed the ICA on December 5, 2017. (Id. HelloSign “Audit Trail.”) Thus, Defendant has carried its burden of demonstrating the existence of an agreement between the parties containing an arbitration clause for claims arising from the parties’ relationship.

Waiver of PAGA Claims

Plaintiff brings this action “on behalf of himself, all other members of the putative class, and in his representative capacity under the Private Attorney General Act (“PAGA”) . . .” (FAC 1:1-2.) Defendant contends that the parties agreed to waive all class claims, including any PAGA standing.

PAGA is codified at Labor Code sections 2698 to 2699.5 and it authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. The Legislature’s purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the Agency. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 383 to 384. An agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code. (Id.) Since such an agreement has as its object, indirectly, to exempt the employer from responsibility for the employer’s own violation of law, it is against public policy and may not be enforced. (Id.) Accordingly, if “an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.” (Id.) Further, a predispute agreement to arbitrate is ineffective to compel arbitration of a PAGA claim because the employee who signed the agreement was not then authorized to waive the state’s right to a judicial forum. (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 871.)

Defendant contends that “the FAA preempts Iskanian and mandates enforcement of the PAGA waiver.” (Petition 17:24.) Defendant argues that although Iskanian “invalidated PAGA waivers based on California’s public policy of enforcing the state’s labor laws under the PAGA,” “the United States Court’s Epic Systems decision constitutes intervening authority and governs the present dispute.” (Id. 18:3-4.) Defendant argues that under Epic Systems, the Supreme Court invalidated a rule barring class and collective action waivers because it “ran afoul of the FAA because it was not a defense that ‘would render any contract unenforceable.’” (Petition 18:15-16.)

However, in Epic Systems, the Court held that the employees’ argument that the NLRA rendered the class or collective action waivers illegal, thus forming grounds to “refuse to enforce arbitration agreements,” “is where the employees’ argument stumbles. They don’t suggest that their arbitration agreements were extracted, say, by an act of fraud or duress or in some other unconscionable way that would render any contract unenforceable. Instead, they object to their agreements precisely because they require individualized arbitration proceedings instead of class or collective ones. And by attacking (only) the individualized nature of the arbitration proceedings, the employees’ argument seeks to interfere with one of arbitration’s fundamental attributes.” (Epic Sys. Corp. v. Lewis (2018) 138 S. Ct. 1612, 1622.) It is not apparent that Epic Systems directly addressed the issue of a PAGA claim waiver within the context of an arbitration agreement.

More on point is Correia v. NB Baker Electric, Inc., where the California Court of Appeal addressed class and collective action waivers under the FAA and Iskanian. ((2019) 32 Cal.App.5th 602.) The Correia court held that

Iskanian held a waiver of an employee’s right to bring a representative action in any forum violated public policy and that this rule was not preempted by the FAA. (Iskanian, supra, 59 Cal.4th at pp. 378-389, 173 Cal.Rptr.3d 289, 327 P.3d 129.) It did not address the question whether an employee’s predispute agreement to arbitrate PAGA actions is enforceable by requiring arbitration of the claim. It noted only that the parties’ particular arbitration agreement appeared to “read as requiring arbitration of individual claims but not of representative PAGA claims,” and therefore the plaintiff “must proceed with bilateral arbitration on his individual damages claims, and [the employer] must answer the representative PAGA claims in some forum.”

(Correia v. NB Baker Elec., Inc. (2019) 32 Cal. App. 5th 602, 621.)

Here, two issues must be addressed. First, whether Plaintiff waived his PAGA claim by entering into the Arbitration Agreement. Second, whether the PAGA claims, if brought, can be subject to arbitration or severed from Plaintiff’s individual claims.

As to the first issue, it is apparent from Iskanian – confirmed by Correia – that in California, a contractual waiver of a PAGA claim is contrary to public policy, and is not a matter preempted by the FAA. “Although the Epic court reaffirmed the broad preemptive scope of the Federal Arbitration Act (FAA), Epic did not address the specific issues before the Iskanian court involving a claim for civil penalties brought on behalf of the government and the enforceability of an agreement barring a PAGA representative action in any forum.” (Correia, supra at 609.)

However, Defendant argues that Plaintiff does not have standing to raise such argument because “an individual must be both ‘aggrieved’ and be an ‘employee’ to serve as a PAGA representative.” (Reply 4:1-2.) According to Defendant, Plaintiff is an independent contractor, not an employee, and as such does not have the requisite standing to assert his PAGA claims. In opposition, Plaintiff argues that the Court of Appeal in Perez v. U-Haul Co. of California has addressed this issue holding that “California law prohibits the enforcement of an employment agreement provision that requires an employee to individually arbitrate whether he or she qualifies as an ‘aggrieved employee’ under the PAGA, and then (if successful) to litigate the remainder of the ‘representative action in the superior court.’” (Perez v. U-Haul Co. of California (2016) 3 Cal. App. 5th 408, 421.) Therefore, Plaintiff contends that he cannot be compelled to arbitrate whether he is an “employee” prior to bringing his PAGA claim in the present venue.

Defendant argues that the Perez holding does not resolve the issue as it concedes that the Perez plaintiff was an employee, but rather disputed whether the individual arbitration of whether the plaintiff was “aggrieved” was improper prior to the plaintiff bringing his PAGA claim in court. However, the authority is not so narrow. “[C]ase law suggests that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim.” (Williams v. Superior Court (2015) 237 Cal. App. 4th 642, 649.) In Williams, as in other authority cited by both Plaintiff and Defendant, the Court of Appeal held that the “petitioner cannot be compelled to submit any portion of his representative PAGA claim to arbitration, including whether he was an “aggrieved employee.” (Williams v. Superior Court (2015) 237 Cal. App. 4th 642, 649.)

At dispute in this action is Plaintiff’s status as in independent contractor or employee. Plaintiff alleges that “DELIV has willfully misclassified its drivers as independent contractors,” and Defendant argues that “Delivery Specialists are independent businesspersons . . .” (Petition 9:16; FAC ¶ 12.) However, as stated above, the matter of whether Plaintiff is an “aggrieved employee” cannot be subject to arbitration, and a PAGA claim cannot be contractually waived.

Based on the foregoing, Defendant’s argument that Plaintiff agreed to waive his PAGA claims is unavailing.

Severability of PAGA Waiver Clause

The ICA provides that

[h]owever, there 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 contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action.

(ICA ¶ M. § 4.)

Plaintiff argues that this provision for non-severability renders the entire agreement unenforceable. Plaintiff cites to Securitas Security Services USA, Inc. v. Superior Court, where the Court of Appeal considered language identical to that in the ICA, and held

paragraph No. 4 unambiguously reflects the parties’ intent that where a dispute is subject to the arbitration agreement (i.e., “to be arbitrated”) and is “brought as a class, collective or representative claim” as would be Edwards’s claims including her PAGA 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.

(Securitas Sec. Servs. USA, Inc. v. Superior Court (2015) 234 Cal. App. 4th 1109, 1126.)

In its reply papers, Defendant argues that the ICA contains conditional language which means that “any waiver of a PAGA representative claim is expressly conditional upon the permissibility of such a waiver under applicable law.” (Reply 5:14-15.) If the PAGA waiver is impermissible, then the PAGA claim would be excluded from the term “representative action” as used in paragraph M.(4) of the ICA. The Court is not convinced by this argument. The relevant conditional language reads as follows: “[t]o the extent permitted by applicable law, Contractor agrees not to bring a representative action under the PAGA (PAGA Waiver).” (ICA ¶ M, § 1.)

As the extent permitted by law to waive a PAGA claim is nil, there can be no agreement to “not bring a representative action under the PAGA.” (Id.)

However, § 4 of the ICA provides that “[n]otwithstanding any other clause contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action” (emphasis added). (Id. ¶ M § 4.) Such language mirrors the relevant language in Securitas Sec. Servs. USA, Inc., where the Court of Appeal held that “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.” (Securitas Sec. Servs. USA, Inc., supra at 1126.) However, the court noted that “paragraph No. 4 unambiguously reflects the parties’ intent that where a dispute is subject to the arbitration agreement (i.e., “to be arbitrated”) and is ‘brought as a class, collective or representative claim’ as would be Edwards’s claims including her PAGA claim, the provision waiving such claims, even if later determined to be illegal or unenforceable, cannot be severed from the remainder of the agreement.” (Id.)

Here, Plaintiff brings representative PAGA claims, but also “brings this action on his own behalf . . .” (FAC ¶ 13.) Whereas in Williams v. Superior Court, “petitioner’s complaint asserted only a single representative cause of action under PAGA,” and the court held that “a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim,” Plaintiff has asserted claims on his own behalf, and has made no showing here that the PAGA waiver clause cannot be severed where the dispute to be arbitrated is brought individually. (Williams, supra at 649.)

Aside from arguing that the unenforceability of the PAGA waiver invalidates the entirety of the arbitration agreement, Plaintiff makes no argument in opposition to its enforcement such as unconscionability or waiver of the right to arbitrate.

Based on the foregoing, Defendant’s Petition to Compel Arbitration is GRANTED, in part. Plaintiff’s individual claims shall be subject to arbitration. Plaintiff’s PAGA claims shall not be subject to arbitration, and those claims shall be stayed pending resolution of arbitration of Plaintiff’s individual claims.

The Court expects the parties to schedule and complete the arbitration in an expeditious manner. The Court sets a Status Conference on the status of arbitration on April 16, 2020, at 8:30 a.m., at which time the parties are to report on the status of their efforts.

Moving party to give notice.