Private Attorney General Act and Arbitration

The Private Attorney General Act, or PAGA, allows an aggrieved employee to act as if they are the state in an attempt to make claims for recovery of civil penalties for Labor Code violations. Claims under this Act essentially substitute the plaintiff for a state labor law enforcement agency and give the plaintiff similar rights to recover civil penalties that would normally be assessed by the Labor Workforce Development Agency (LWDA). This act gives employees the ability to bring claims and gain damages that prior to the enactment of this Act would have been solely brought the LWDA.

Arbitration, on the other hand, is a common means of avoiding court. Generally, arbitration is agreed upon as an element of an employment contract and requires both parties to consent to waive their rights to bring any claims in a traditional sense and instead bring their claims before a private arbitrator. An arbitration hearing provides an opportunity for both sides of any litigation to be heard by neutral third party. The resulting decision would be binding.

Betancourt v. Prudential Overall Supply presented a problem linking these two topics. Whether or not a PAGA claim falls within the category of claims that are bound under the arbitration agreements?

Generally, claims between an employer and employee, who have an arbitration agreement are bound by this agreement under the Federal Arbitration Act. Yet the state court in Betancourt believed that PAGA claims are not bound by an arbitration agreement. This is due to the position that the plaintiff is assuming these claims.

As mentioned above, PAGA claims treat the plaintiff as if the governmental entity that is enforcing the claim. The court stated” this relationship is not a dispute between an employee and an employer…. It is a dispute between an employer and the state.” As a result, the court felt that this claim was not bound by the FAA due to the nature of the claims and the lack of employee/employer relationship.

Here the court was clear that it was not that the FAA did not preempt state law, but rather that the plaintiff stood in the shoes of the state, which was not a party to the pre-dispute arbitration clause.

While the above ruling is relevant in the state court, Federal courts still hold the FAA as binding for a case of this nature. (AT&T Mobility LLC. V. Concepcion) Due to this discrepancy, it is important to consult legal counsel before engaging in arbitration agreements. Furthermore, legal counsel should be sought when issues such as the one above, are brought forward in order to determine the jurisdiction of the case and the resulting ruling law.