Betancourt alleged the following in his April 2015 complaint: Betancourt was
employed by Prudential. Betancourt and other Prudential employees worked over eight
hours per day or more than 40 hours per week. Prudential failed to compensate
Betancourt and other employees for all the hours they worked, as well as for missed
breaks and meal periods. Prudential’s failure to pay Betancourt and other Prudential
employees for all the time worked was due to Prudential’s “uniform policy and
systematic scheme of wage abuse.”
Within the sole cause of action, for “Violation of California Labor Code [section]
2698, et seq.,” a section which concerns PAGA claims, Betancourt alleges a series of
1 All subsequent statutory references will be to the Labor Code unless otherwise indicated.
2 Prudential’s document is labeled as a “Petition to Compel Arbitration.” Because the document was filed within an existing action, rather than commencing an independent action, for the sake of clarity, we refer to it as a “motion to compel arbitration.” (Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 772.)
2
violations: (1) failure to pay overtime; (2) failure to provide meal periods; (3) failure to
provide rest periods; (4) failure to pay minimum wage; (5) failure to pay timely wages
upon termination; (6) failure to pay timely wages during employment; (7) failure to
complete accurate wage statements; (8) failure to keep complete and accurate payroll
records; and (9) failure to reimburse necessary business-related expenses and costs.
In the “Prayer for Relief” section of the complaint, Betancourt requests “civil
penalties pursuant to California Labor Code sections 2699(a), (f) and (g) plus
costs/expenses and attorneys’ fees for violation of California Labor Code sections 201
[wages due upon discharge or layoff], 202 [wages due upon resignation], 203 [wages
1194, 1197, 1197.1, 1198, 2800 and 2802,” as well as “such other and further relief as
the Court may deem equitable and appropriate.”
B. MOTION TO COMPEL ARBITRATION
Prudential filed a motion to compel arbitration. Prudential asserted Betancourt,
on January 30, 2006, signed an Agreement to Arbitrate (the Agreement), which
provided, “‘I understand that it is my obligation to make use of the Company’s Fair
Treatment Process (‘FTP’) and to submit to final and binding arbitration any and all
claims and disputes that are related in any way to my employment or the termination of
my employment with Prudential Overall Supply.” The Agreement further provides that
Betancourt agreed “‘to forego any right to bring claims on a representative or class
member basis.’”
3
Prudential argued that all of Betancourt’s claims related to employment and
therefore were subject to arbitration pursuant to the Agreement. Prudential also asserted
that Betancourt’s PAGA claim was not exempt from arbitration because it was not
really a PAGA action. Prudential asserted Betancourt’s action, in substance, was a
standard wage and hour case, and therefore was subject to arbitration. Prudential
further noted that Betancourt was seeking remedies that did not fall within a PAGA
cause of action, such as business expenses, unpaid wages, interest, attorney’s fees, and
costs.3 Prudential argued Betancourt was attempting to evade arbitration by labeling his
wage and hour claims as a PAGA case.
C. OPPOSITION
Betancourt opposed the motion to compel arbitration. First, Betancourt asserted
there was insufficient evidence of a valid agreement to arbitrate. Prudential submitted
the declaration of a custodian of records, which Betancourt argued was “woefully”
inadequate. Second, Betancourt contended his complaint only set forth a PAGA claim,
and the prayer for relief section of the complaint was not determinative of the type of
claim raised. Third, Betancourt asserted the waiver of Betancourt’s right to bring a
representative action/PAGA case was unenforceable because it would violate the State
of California’s substantive right to have its laws enforced.
3 PAGA “‘authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations [citation], and an action to recover civil penalties “is fundamentally a law enforcement action designed to protect the public and not to benefit private parties.”’” (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 381 (Iskanian).)
4
Fourth, Betancourt argued the Agreement was unconscionable because
(a) Betancourt had no opportunity to negotiate the Agreement; (b) Betancourt was not
given a copy of the Agreement, instead the Agreement was explained to him; (c) the
Agreement could be interpreted as causing Betancourt to waive his right to bring a
PAGA case—a right that cannot be waived; (d) the Agreement could cause Betancourt
to bear unreasonable costs; and (e) the Agreement is illusory and lacks mutuality.
D. HEARING
On August 6, 2015, the trial court held a hearing on Prudential’s motion. At the
beginning of the hearing, the trial court explained that a PAGA claim is not subject to
an agreement to arbitrate. (Iskanian, supra, 59 Cal.4th 348.) The trial court further
explained that, to the extent Betancourt’s requested remedies are inconsistent with a
PAGA case, the proper procedure would be for Prudential to file a motion to strike. The
trial court stated its tentative ruling was to deny Prudential’s motion pursuant to
Iskanian.
Prudential said Betancourt’s claims should be subject to arbitration, and therefore
it did not understand how it could bring a motion to strike. The trial court explained
that Prudential would be requesting a bifurcated trial on some of the Labor Code
violations. The trial court said, “My suggestion is do all your discovery, and then file a
motion to strike once you’ve established exactly what Labor Code violations []he’s
alleging.” The court stated that Prudential would need to separate the PAGA and non-
PAGA claims. The trial court concluded, “A motion to compel arbitration is not the
5
proper vehicle.” The trial court denied Prudential’s motion without prejudice to
Prudential filing a motion to strike.
DISCUSSION
Prudential contends the trial court erred by denying the motion to compel
arbitration because, under the Agreement, Betancourt’s claims are subject to arbitration.
Because the trial court’s denial of Prudential’s motion was based upon a decision
of law, we apply the de novo standard of review.4 (Carlson v. Home Team Pest
Defense, Inc. (2015) 239 Cal.App.4th 619, 630.)
“[T]o bring a motion to compel arbitration, a party must plead and prove:
‘(1) the parties’ written agreement to arbitrate a controversy . . . ; (2) a request or
demand by one party to the other party or parties for arbitration of such controversy
pursuant to and under the terms of their written arbitration agreement; and (3) the
refusal of the other party or parties to arbitrate such controversy pursuant to and under
the terms of their written arbitration agreement.’” (Sky Sports, Inc. v. Superior Court
(2011) 201 Cal.App.4th 1363, 1368, italics omitted.) A party who has not signed an
arbitration agreement cannot be compelled to arbitrate. Additionally, a party who has
not signed an arbitration agreement cannot be compelled to arbitrate merely because the
4 The trial court did not issue a statement of decision. However, the court relied upon Iskanian when giving its tentative reasons for denying the motion. We rely upon the Iskanian cite as an indication that the trial court’s ruling was based on a decision of law, as opposed to evidence. (See Border Business Park, Inc. v. City of San Diego (2006) 142 Cal.App.4th 1538, 1550 [“‘When the record clearly demonstrates what the trial court did, we will not presume it did something different’”].)
6
complaint defined the injured group as including employees who had signed arbitration
agreements. (Ibid.)
The PAGA was designed to address two problems. The first problem was that
alleged Labor Code violations often went unenforced because they were punishable as
criminal misdemeanors, and prosecutors rarely investigated or prosecuted the alleged
violations. The second problem was that when civil penalties could be assessed, there
were few government resources to pursue enforcement of the penalties. (Iskanian,
supra, 59 Cal.4th at p. 379.)
In response to these problems, the Legislature enacted the Labor Code Private
Attorneys General Act of 2004 (PAGA), which authorizes “aggrieved employees, acting
as private attorneys general, to recover civil penalties for Labor Code violations.”
(Iskanian, supra, 59 Cal.4th at p. 379.) “‘In a lawsuit brought under [the PAGA], the
employee plaintiff represents the same legal right and interest as state labor law
enforcement agencies—namely, recovery of civil penalties that otherwise would have
been assessed and collected by the Labor Workforce Development Agency.’” (Id. at p.
380.) “The civil penalties recovered on behalf of the state under the PAGA are distinct
from the statutory damages to which employees may be entitled in their individual
capacities.” (Id. at p. 381.) “A PAGA representative action is therefore a type of qui
tam action.” (Id. at p. 382.)
Betancourt has brought a PAGA case. Betancourt has alleged violations on a
representative basis, cited law pertaining to PAGA (§ 2698), and seeks civil penalties.
There has been no challenge to the pleadings, such that the nature of the case has been
7
clarified or changed. (See L.B. Laboratories v. Mitchell (1952) 39 Cal.2d 56, 60 [“He
made no effort by demurrer to have the complaint clarified”].) Therefore, the case
remains a PAGA matter.
The trial court correctly denied Prudential’s motion to compel arbitration because
a defendant cannot rely on a predispute waiver by a private employee to compel
arbitration in a PAGA case, which is brought on behalf of the state. (County of Solano
v. Lionsgate Corp. et al. (2010) 126 Cal.App.4th 741, 749, fn. 5; see also Iskanian,
supra, 59 Cal.4th at pp. 386-387.) This is currently a PAGA case, and Prudential is
relying on a 2006 predispute arbitration agreement by Betancourt to compel arbitration
in this 2015 case brought on behalf of the state. The state is not bound by Betancourt’s
predispute agreement to arbitrate.
For example, if the California Attorney General filed a lawsuit against Prudential
for alleged Labor Code violations, Prudential could not rely on its 2006 predispute
agreement with Betancourt to compel arbitration in the state’s 2015 case. In this PAGA
action, Betancourt is suing on behalf of the state. Prudential cannot rely on the
predispute agreement with Betancourt to compel arbitration. Therefore, while a PAGA
action might be subject to arbitration, relying on a predispute agreement with a private
party will not suffice to compel arbitration of a PAGA claim. Thus, the trial court did
not err by denying Prudential’s motion.
Prudential sets forth a variety of arguments on appeal. First, Prudential contends
the trial court erred because Betancourt’s complaint sets forth non-PAGA causes of
action, as demonstrated by Betancourt’s request for business expenses, unpaid wages,
8
interest, attorney’s fees, and costs. As the trial court explained, Prudential has missed a
procedural step. If Prudential believes Betancourt’s complaint sets forth non-PAGA
claims, then Prudential needs to challenge the pleadings. A motion to compel
arbitration is not the proper procedural vehicle for sorting through alleged defects in the
complaint. Prudential needs to challenge the defects it believes are in the complaint;
and then, if there are private, non-PAGA actions, seek arbitration on those matters. (See
Broughton v. Cigna Healthplans of California (1999) 21 Cal.4th 1066, 1088 [“when a
suit contains both arbitrable and inarbitrable claims, the arbitrable claims should be
severed from those that are inarbitrable and sent to arbitration”]; see also Groom v.
Health Net (2000) 82 Cal.App.4th 1189, 1198 [filing demurrers to a vague complaint
does not waive a right to arbitration].)
Prudential accuses Betancourt of attempting to make an “end run around
arbitration” by incorrectly labeling his claims as a PAGA matter. It appears to this court
that Prudential may be attempting to make an “end run” around a demurrer or motion to
strike, by trying to roll a challenge to the pleadings into a motion to compel arbitration.
As a result, we find Prudential’s argument to be unpersuasive. (See Hall v. Nomura
Securities International (1990) 219 Cal.App.3d 43, 47-48 [separate, but simultaneous,
filings of demurrer and motion to compel arbitration].)
As background for Prudential’s next arguments, we present information about
Iskanian. In Iskanian, the arbitration agreement at issue required a waiver of class
actions and representative actions. There was no dispute that a PAGA case was a
representative action. (Iskanian, supra, 59 Cal.4th at p. 378.) The Supreme Court
9
examined “whether an employee’s right to bring a PAGA action is waivable.” (Id. at p.
383.) The Supreme Court concluded “an employee’s right to bring a PAGA action is
unwaivable.” (Ibid.) The high court reasoned, “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. Because such an agreement has as its ‘object, . . . indirectly,
to exempt [the employer] from responsibility for [its] own . . . violation of law,’ it is
against public policy and may not be enforced. [Citation.]” (Ibid.) In sum, “an
employment agreement [that] compels the waiver of representative claims under the
PAGA . . . is contrary to public policy and unenforceable.” (Id. at p. 384.)
The high court also concluded the foregoing state law—that the right to bring
PAGA claims cannot be waived—is not preempted by the Federal Arbitration Act
(FAA). (Iskanian, supra, 59 Cal.4th at p. 384.) The high court explained, “Simply put,
a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an
employer and an employee arising out of their contractual relationship. It is a dispute
between an employer and the state, which alleges directly or through its agents—either
the Labor and Workforce Development Agency or aggrieved employees—that the
employer has violated the Labor Code.” (Id. at pp. 386-387.)
Second, Prudential asserts Iskanian did not hold PAGA claims are per se exempt
from arbitration; rather, Iskanian held predispute waivers of the right to bring a
representative action are unenforceable. Prudential contends it and Betancourt already
agreed to arbitrate the PAGA claim, and therefore, the agreement on the forum for the
PAGA claim is enforceable. Contrary to Prudential’s position, Iskanian provides,
10
“Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute
between an employer and an employee arising out of their contractual relationship. It is
a dispute between an employer and the state . . . .” (Iskanian, supra, 59 Cal.4th at p.
386.) Thus, the fact that Betancourt may have entered into a predispute agreement to
arbitrate does not bind the state to arbitration. As a result, we find Prudential’s
argument to be unpersuasive because it relies on a predispute agreement with
Betancourt.
Third, Prudential contends it and Betancourt agreed that an arbitrator would
decide the scope and application of the agreement to arbitrate, and therefore the
arbitrator should decide if the PAGA claims are arbitrable.5 A PAGA case is “a type of
qui tam action.” (Iskanian, supra, 59 Cal.4th at p. 382.) A PAGA case “is not a dispute
between an employer and an employee arising out of their contractual relationship. It is
a dispute between an employer and the state . . . .” (Id. at p. 386.) “[T]he State is the
real party in interest.” (Id. at p. 387.) The fact that Betancourt, in 2006, agreed to
arbitrate his private employment disputes with Prudential is not relevant. Betancourt’s
lawsuit is a PAGA claim, on behalf of the state. The state is not bound by Betancourt’s
predispute arbitration agreement. As a result, we find Prudential’s reliance on
Betancourt’s arbitration agreement to be unpersuasive.
Fourth, Prudential contends that the “representative claims” portion of the
Agreement could be severed, and then Betancourt could be compelled to arbitrate his
5 Betancourt contends Prudential forfeited this argument by failing to raise it in the trial court. We choose to address the issue because it is easily resolved.
11
claims. As explained ante, Betancourt has brought a PAGA action. PAGA actions are
brought on behalf of the state. Changing the terms of Betancourt’s private employment
agreement will not change the PAGA analysis because the state is not bound by
Betancourt’s predispute agreement. Accordingly, we find Prudential’s argument to be
unpersuasive.
Fifth, Prudential contends that if Iskanian is interpreted as prohibiting arbitration
of all PAGA claims, then that state law prohibiting arbitration is preempted by the
Federal Arbitration Act (FAA). We have not interpreted Iskanian as prohibiting
arbitration of all PAGA claims. Hypothetically, a PAGA plaintiff might consent to
arbitration after the filing of a complaint. We provide no advice on whether such a
procedure would be proper. Our reading of Iskanian is limited to a defendant’s reliance
on a predispute arbitration agreement to compel arbitration when an employee becomes
a type of qui tam plaintiff in a PAGA action. The problem, as noted earlier, concerns
using a predispute contract between private parties to bind the state. Due to the limited
nature of the instant case, we have no impetus for making a sweeping interpretation of
Iskanian that would apply to all cases, i.e., a blanket prohibition against arbitration in
PAGA cases. Therefore, we need not reach the preemption issue.
Sixth, Prudential, citing federal cases, asserts California law permits arbitration
of PAGA claims. One case Prudential relies upon is Sakkab v. Luxottica Retail North
America, Inc. (2015 9th Cir.) 803 F.3d 425. Sakkab provides, “The California Supreme
Court’s decision in Iskanian expresses no preference regarding whether individual
12
PAGA claims are litigated or arbitrated. It provides only that representative PAGA
claims may not be waived outright.” (Sakkab, at p. 434.)
The issue in the instant case is not an all-or-nothing question of whether PAGA
cases can be arbitrated. The issue is whether Prudential can rely upon a predispute
arbitration agreement with Betancourt to compel arbitration in a PAGA case. In
Iskanian, our Supreme Court explained, “Simply put, a PAGA claim lies outside the
FAA’s coverage because it is not a dispute between an employer and an employee
arising out of their contractual relationship. It is a dispute between an employer and the
state, which alleges directly or through its agents—either the Labor and Workforce
Development Agency or aggrieved employees—that the employer has violated the
Labor Code.” (Iskanian, supra, 59 Cal.4th at pp. 386-387.) Betancourt is not suing in
his private capacity. Betancourt is suing on behalf of the state. “[T]he state is the real
party in interest.” (Id. at p. 387.) The state is not bound by Betancourt’s predispute
agreement to arbitrate. (See Mikes v. Strauss (1995 S.D.N.Y.) 889 F.Supp. 746, 755
[government was not a party to the predispute arbitration agreement signed by an
employee who became a qui tam plaintiff].)
As explained ante, if the California Attorney General filed a lawsuit against
Prudential for alleged Labor Code violations, Prudential could not rely on its predispute
agreement with Betancourt to compel arbitration. In this PAGA action, Betancourt is
suing on behalf of the state. Prudential cannot rely on the predispute agreement with
Betancourt to compel arbitration. Therefore, while a PAGA action might be subject to
13
arbitration, relying on a predispute agreement with a private party will not suffice to
compel arbitration of a PAGA claim.
DISPOSITION
The judgment is affirmed. Respondent is awarded his costs on appeal.
CERTIFIED FOR PUBLICATION
MILLER J.
We concur:
RAMIREZ P. J.
McKINSTER J.
14
AI Brief
AI-generated · verify before citing
Holding. The court held that an employer cannot compel arbitration of a PAGA claim based on a predispute arbitration agreement signed by an employee, because the state is the real party in interest in a PAGA action and is not bound by the employee's private agreement.
Issues
Whether a trial court errs in denying a motion to compel arbitration of a PAGA claim based on a predispute arbitration agreement between an employer and an employee.
Whether a PAGA claim is subject to arbitration when the underlying arbitration agreement was signed by a private employee before the PAGA action was filed.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“The state is not bound by Betancourt’s predispute agreement to arbitrate.”
“Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.”
“relying on a predispute agreement with a private party will not suffice to compel arbitration of a PAGA claim.”