Employees Cannot Be Forced to Arbitrate Claims Dismissed from Court Filing

​Four workers who had signed arbitration agreements with their two former employers sued those employers, asserting individual claims under the California Labor Code as well as claims under California's Private Attorneys General Act (PAGA). The employees later dismissed the individual claims, leaving only the PAGA claims before the court. The employees could not be forced to arbitrate those dismissed individual claims, a California appellate court ruled, affirming a lower court's order denying the employers' motion to compel arbitration.

PAGA was enacted in 2003 to authorize private parties to sue under the California Labor Code for the civil penalties previously only recoverable by the state. An employee bringing a representative action under PAGA does so as an agent of the state's labor law enforcement agencies, not other employees.

The employers agreed that the employees' PAGA claims could not be forced into arbitration. They argued, however, that arbitration was still required to resolve the arbitrable individual claims the employees had raised in their original complaint.

The employers argued that the elimination of the claims for individual relief was only an indication that the workers were not actively seeking relief "at this time and in this forum" and that there remained a controversy between the employers and the employees, which the employees could resuscitate at some point in the future.

The appellate court refused to send the parties to arbitration, concluding that the employers were not using arbitration as a forum for neutral dispute resolution but as a shield against liability under PAGA.

Interpretation of Arbitration Statute

The statute at issue in this case, California Code of Civil Procedure Section 1281.2, provides that a party to an agreement to arbitrate a "controversy" may go to court to compel the other party to arbitrate the disputed issue or issues.

Section 1281.2 is part of the California Arbitration Act, which defines controversy as "any question arising between parties to an agreement whether the question is one of law or of fact or both."

The employers argued that the employees' dismissed claims were a controversy within the meaning of the statute, so the trial court had the authority to order arbitration of those claims.

The appeals court noted that its fundamental task in interpreting the statutory language at issue was to ascertain the legislature's intent and effectuate the law's purpose. It first must examine the statute's words, giving them a plain and commonsense meaning, the court said.

However, a court does not consider the statutory language in isolation, the court continued. Rather, it construes the words in question in context, keeping in mind the nature and obvious purpose of the statute.

The appeals court then noted that the statutory language at issue includes the requirement that the question be "between parties" to the arbitration agreement.

The use of the plural "parties" and requirement that the question be between them indicates a bilateral process typical of arbitration proceedings, the court said.

The employers' interpretation of "controversy" to include the employees' individual claims not asserted in the lawsuit "strips arbitration of its defining characteristic as a forum for bilateral dispute resolution," the court said. There is no question arising "between the parties," the court explained.

More importantly, arbitration's purpose, as a cheaper and more efficient alternative to civil actions, is not implicated because arbitration under the circumstances presented would not be an alternative to a civil action or an action in any other forum, the court added.

If the employers were interested in determining the validity of the employees' allegations of Labor Code violations in the absence of the employees seeking damages, they could conduct an internal investigation of those allegations. Instead, the court said, the employers sought arbitration of those allegations with the purpose of having the employees' PAGA action delayed. By this conduct, the employers are not using arbitration as a forum for neutral dispute resolution but as a shield against liability under PAGA. This is not arbitration's intended purpose, the court emphasized.

Leshane v. Tracy VW Inc., Calif. Ct. App., No. G059946 (April 29, 2022).
Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.