PAGA Action Seeking Only Civil Penalties Will Not Be Compelled to Arbitration

PAGA Action Seeking Only Civil Penalties Will Not Be Compelled to Arbitration

On June 19, 2020, the Court of Appeal for the First Appellate District in Olabi v. Neutron Holdings, Inc. affirmed a trial court’s order denying an employer’s petition to compel arbitration of a lawsuit alleging that the plaintiff and other workers had been misclassified as independent contractors in violation of the Unfair Competition Law and the Private Attorney Generals Act (PAGA). Prior to the hearing on the defendant’s motion, the plaintiff dismissed his unfair competition claim with prejudice, and at the hearing, he disavowed any claim for victim-specific relief under PAGA.

The Olabi court noted that the arbitration agreement at issue contained a provision that it “shall not apply to a representative PAGA action,” and in its opinion, reaffirmed the rule that “when the parties have a preexisting arbitration agreement, California law blocks an employer from enforcing the agreement with respect to representative PAGA claims for civil penalties; however, the agreement may be enforceable with respect to other claims, including claims for victim-specific relief (like unpaid wages).”