Success in Arbitration Can Bar Later PAGA Representative Claims

A California Court of Appeal decision handed employers a solid win by reinforcing the principle that employees may not be able to pursue California Labor Code Private Attorneys General Act (PAGA) penalty claims in court if an employer has already prevailed in arbitration. The decision in Rodriguez v. Lawrence Equipment Inc. said that an arbitrator’s finding in favor of an employer can serve to bar relitigation of the same wage and hour claims in a post-arbitration PAGA representative action. Below are key considerations from the decision and three proactive steps employers should consider taking in light of this positive decision.

Issue Preclusion Can Foreclose an Employee’s PAGA Standing  

The plaintiff alleged his employer committed wage and hour labor code violations and filed a class action lawsuit to recover both his own damages and PAGA penalties on behalf of California’s Labor and Workforce Development Agency.

The trial court ordered the plaintiff to arbitrate his individual wage and hour claims because he had previously executed an arbitration agreement with his employer. It stayed his claim pending the outcome of the arbitration.

Following a two-day arbitration, the arbitrator issued a ruling in favor of the employer, ruling that the plaintiff had not experienced any labor code violations.

The plaintiff then attempted to relitigate his PAGA claims in court. However, the trial court found that he lacked standing to assert a PAGA claim given the arbitrator’s findings because having an actionable injury—having suffered a wage and hour violation—is a prerequisite to assert a PAGA claim.

The plaintiff appealed this decision, but the Court of Appeal affirmed the trial court’s decision. It agreed that the arbitrator’s decision deprived the plaintiff of standing to seek PAGA penalties.  

The Court of Appeal explained that “issue preclusion” will prevent relitigation of previously decided issues if there is a final adjudication of an identical issue that was actually litigated and necessarily decided in the first suit. The Court of Appeal found that each element of issue preclusion was satisfied by the arbitrator’s order. Thus, it ruled that the plaintiff was barred from relitigating these exact labor code violations and issues under a PAGA claim.

Positive Takeaways from This Ruling

This decision solidifies how fruitful it can be for employers to arbitrate individual wage and hour claims—provided the employer has implemented compliant wage and hour practices. In this case, the employer was able to avoid litigating the PAGA representative claim because it successfully defended itself in arbitration. While arbitration can be costly, its benefit can substantially outweigh its cost.

3 Proactive Measures Employers Can Take

To reduce or eliminate PAGA exposure, employers should:

• Review their policies and handbooks regularly to maintain compliance. This can make a substantial difference in the arbitration of an individual’s wage and hour claims and increase the employer’s chances of success. A new law in California encourages employers to conduct PAGA audits. 
• Consider implementing arbitration agreements to minimize class action and PAGA exposure. 
• Seek counsel to evaluate whether to demand arbitration if an employee initiates wage and hour litigation.

Aaron Cargain is an attorney with Fisher Phillips in San Francisco. Melissa Huether is an attorney with Fisher Phillips in Los Angeles. © 2024 Fisher Phillips. All rights reserved. Reposted with permission.