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California court strikes back against Concepcion

July 13, 2011

The guerrilla war against the US Supreme Court’s AT&T Mobility v. Concepcion decision continues.  (Backstory — click here to see my writeup on Concepcion and here for the initial legislative and regulatory pushback.)

The latest blow comes from the California court of appeal.  In Brown v. Ralphs Grocery Company, plaintiff filed a wage and hour class action against Ralphs, seeking on behalf of herself and others penalties under California’s Private Attorneys General Act (PAGA), in addition to the usual catalog of unpaid overtime, meal breaks and rest breaks.  PAGA allows a single plaintiff to recover penalties of $250 per paycheck, per affected employee — essentially a class penalty action — for violations of the state’s Labor Code.  (Although 75% of penalties recovered go to the state.)

Ralphs moved to compel arbitration of the case pursuant to its mandatory employment arbitration agreement.  The arbitration agreement contained a class action waiver that stated as follows:

[T]here is no right or authority for any Covered Disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, of other Ralphs [Grocery Company] employees (or any of them), or of other persons alleged to be similarly situated. . . .  [T]here are no judge or jury trials and there are no class actions or Representative Actions permitted under this Arbitration Policy.

The trial court denied the motion, holding (under the applicable pre-Concepcion case law) that the class action waiver in the arbitration agreement rendered the entire agreement unfair and unenforceable.

Ralphs appealed, and while the appeal was pending the US Supreme Court decided Concepcion.  The court of appeal reversed, but probably not in the way Ralphs and other employers had hoped.  First, the court held that there was no need for it to address whether Concepcion applied to the class action waiver in the agreement at issue.  Why not?  Because plaintiff had failed to submit sufficient evidence to support her argument that the class action waiver should not be enforced.

(The court also gave employees an argument when that issue is ultimately properly teed up, adding in a citation that “the rule set forth in Gentry” (the case everyone thinks Concepcion overruled) “is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability.”  Care to guess the most popular employee argument on future Concepcion motions?)

The court did not duck the second question — whether the PAGA waiver had to be enforced under Concepcion.  The court held that it did not.  The court’s holding was based upon its determination that a PAGA representative action was more than just an agglomeration of several individual claims.  Instead, it was a mechanism for the state itself to enforce its labor law and deter wrongful conduct by employers. And, the court held, Concepcion did not address whether such a statutory mechanism was preempted by federal law favoring arbitration agreements between private parties.

So, the court said, the PAGA representative claim could proceed.  It left to the trial court whether it should proceed in arbitration or in court.  But either way, Ralphs is facing an aggregated claim for substantial penalties that it thought it had eliminated through its arbitration agreement, especially after the Concepcion decision.

Whether this ruling will stick if and when the case reaches the US Supreme Court is an open question.  One thing is clear, however.  As for the war over arbitration agreements and class waivers (or PAGA waivers) — Mr. Berra, if you please?

And it ain’t over.  Not by a long shot.

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