February 26, 2024

January 2024 Case Summaries

Suarez v. Superior Court, 99 Cal. App. 5th 32 (2024)

Summary:  An employer waives its right to arbitration if it fails to pay its share of the arbitration filing fee within 30 days of the payment’s due date.

Facts:  After Plaintiff Onecimo Sierra Suarez sued his former employer, Defendant Rudolph & Sletten Inc., for alleged wage-and-hour violations, Defendant successfully moved to stay the court action and proceed to arbitration as provided in Plaintiff’s employment agreement. After Defendant waited more than 30 days to pay its share of the arbitrator’s initial filing fee, which was due upon receipt, Plaintiff unsuccessfully moved to vacate the arbitration stay. Plaintiff then sought writ relief, arguing that Defendant waived its right to arbitration pursuant to California Code of Civil Procedure section 1281.97.

Court’s Decision:  The California Court of Appeal granted the writ petition, directing the trial court to enter a new order granting Plaintiff’s motion to vacate. In opposing the petition, Defendant argued that the grace period for payment of arbitration filing fees of “30 days after the due date” contained in section 1281.97 was extended by an additional two days for electronic service under Code of Civil Procedure section 1010.6 and further because the deadline fell on holidays. Specifically, the due date landed on Jan. 1, 2023. Given that Jan. 1 and 2 were holidays, and adding two court days for service, Defendant argued the grace period was extended to Jan. 5 and its payment on Jan. 4 was timely. Without deciding whether holidays could extend the deadline to pay arbitration fees, the court held that section 1010.6 did not apply here because the statute only applies to service of documents in an action filed with the court. Thus, section 1010.6 did not apply to the e-mail transmission of a JAMS fee invoice, which is not in court and is not “served,” but merely “provided’ to the parties under section 1281.97. The court further held that the employer’s obligation to pay arbitration filing fees on time is not contingent on the employee paying his share of the fees. Lastly, the court held that the Federal Arbitration Act (“FAA”) does not preempt section 1281.97, because it does not prohibit or discourage the formation of arbitration agreements.  

Practical Implications:  This case is yet another reminder to employers of the importance of paying arbitration fees on time. So far, the court of appeal has not been particularly receptive to creative arguments aimed at getting around the strict payment deadline.

DeMarinis v. Heritage Bank of Commerce, 98 Cal. App. 5th 776 (2023)

Summary:  Arbitration agreements that waive all representative claims are construed to include individual PAGA claims and are therefore unenforceable.

Facts:  Plaintiffs Nicole DeMarinis and Kelly Patire brought a class and representative California Labor Code Private Attorneys General Act (“PAGA”) action against Defendant Heritage Bank of Commerce. Defendant moved to compel arbitration of Plaintiffs’ individual PAGA claims based on a representative action waiver in the parties’ arbitration agreements. The trial court denied the motion because the representative action waiver provision improperly waived the right of employees to bring an action in court as an agent of the California Labor and Workforce Development Agency (“LWDA”) under PAGA, and the nonseverability clause contained a “poison pill” provision that precluded severance of any portion of the waiver provision.  Defendant appealed.

Court’s Decision:  The California Court of Appeal affirmed. To reach its conclusion, the court first noted that the language of the representative action waiver provision purported to waive the parties’ rights to bring claims “in any purported class or representative proceeding.” (Emphasis added.) The waiver provision further stated, “There shall be no right or authority for any dispute to be brought, heard, or arbitrated on a class, collective, or representative basis and the Arbitrator may not consolidate or join the claims of other persons or Parties who may be similarly situated.” (Emphasis added.) The court of appeal held that this provision was unenforceable under Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014),and Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022), both of which prohibit an employer from imposing a waiver of an employee’s right to bring a “representative” PAGA claim in any forum, either in its individual or nonindividual sense. The court reasoned that every PAGA claim, whether individual or nonindividual, is “representative” in the sense that it is brought on behalf of the LWDA. The arbitration agreement waiving representative claims was therefore an unenforceable wholesale waiver of Plaintiffs’ rights to bring “representative” PAGA actions. Furthermore, because the arbitration agreement contained a nonseverability clause with a “poison pill” prohibiting severance of any portion of the representative waiver, the unenforceability of the waiver provision rendered the entire agreement null and void. 

Practical Implications:  Since Viking River, many employers have attempted to compel arbitration of “individual” PAGA claims. But as we have noted since Viking River was decided, a key element of the Supreme Court’s holding was the severability clause. Employers who wish to compel arbitration of individual PAGA claims should review their arbitration agreements to ensure that they contain an appropriate severability clause.

Estrada v. Royalty Carpet Mills, Inc., 15 Cal. 5th 582 (2024)

Summary:  Courts do not have the inherent authority to strike a PAGA claim on manageability grounds.

Facts:  Former employees filed a lawsuit against Defendant Royalty Carpet Mills, including one class claim and one claim seeking penalties pursuant to the California Labor Code Private Attorneys General Act (“PAGA”) for various alleged meal- and rest-period violations. The trial court certified a subclass of employees and held a bench trial to determine whether class members were provided lawful meal periods, but subsequently decertified the subclass because there were “too many individualized issues to support class treatment.” The court simultaneously dismissed the representative PAGA claim as being “unmanageable.” Plaintiffs appealed, and the California Court of Appeal reversed, adding to the split of appellate authority as to whether trial courts have authority to strike a PAGA claim on manageability grounds.  Defendant petitioned for review.

Court’s Decision:  The California Supreme Court granted Defendant’s petition for review and affirmed. The court held that trial courts do not have inherent authority to strike a PAGA claim on manageability grounds. The court clarified that courts lack the inherently broad power to strike any claim on the grounds of judicial economy; rather, they have narrow inherent authority to dismiss claims in limited circumstances that were not present in this case (e.g., failure to prosecute, sham litigation, egregious misconduct). Turning to PAGA claims in particular, the court held that class action claim requirements should not be imposed on PAGA claims because PAGA and class claims differ in structure, purpose, doctrinal basis, and available relief. While the court’s opinion precluded striking PAGA claims for lack of manageability outright, the court made clear that trial courts “shall endeavor to efficiently manage PAGA cases,” as they do with any complex case.

Practical Implications:  This decision is disappointing for employers facing unwieldy PAGA claims. Going forward, employers and their counsel will want to take seriously the California Supreme Court’s suggestion that trial courts can invoke creative complex case management techniques to manage PAGA trials, and actively propose such techniques to the court.