California: Arbitration May be Enforced For Certain Wage and Hour Claims

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August 3 and 21, 2017

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Two recent state Court of Appeal cases permit arbitration of certain wage and hour claims, including representative actions under the Private Attorney Generals Act (“PAGA”) and an administrative wage claim filed before the Department of Labor Standards Enforcement (“DLSE”), under certain circumstances.

PAGA Claims

In Esparza v. K.S. Industries, LP, a California Court of Appeal stated that an employer could seek arbitration of a representative action under PAGA, where the action sought resolution for an unpaid wage claim under California Labor Code. This case is significant because, historically, the California Supreme Court has stated that PAGA claims are not subject to arbitration.

Here, the plaintiff filed a single cause of action under PAGA, and alleged that the employer violated numerous Labor Codes on behalf of several other employees. The court stated that PAGA claims are exempt from arbitration agreements only when the claim seeks civil penalties. Because the plaintiff in Esparza sought unpaid wages under Labor Code 558, which would be directly payable to the affected individuals and not the state of California, those claims would not be subject to PAGA’s arbitration exemption, unless the employee was willing to waive the right to recover unpaid wages.

DLSE Claims

In Oto, LLC v. Kho, a California Court of Appeal affirmed that an employer could compel arbitration of an administrative wage claim filed before the DLSE, so long as arbitration offered an “affordable and accessible” alternative to resolving the wage claim. Although this had previously been true for litigated matters, Oto extends the test to administrative wage claims.

In Oto, the parties were scheduled to attend a hearing before the DLSE.  Prior to the hearing, an employer representative filed a petition to compel arbitration of the wage claim and asked the DLSE to cancel the hearing.  The hearing was held without the employer present, resulting in an award in favor of the claimant. The Court of Appeal agreed with the employer, stating that the company’s arbitration agreement was enforceable and that the petition to arbitrate should have been granted.

Action Items

  1. Review arbitration agreements with legal counsel for changes consistent with these rulings.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2017 ManagEase, Incorporated.

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