Trial Court May Not Split PAGA Claim and Send Individual Wage Claims to Arbitration

Trial Court May Not Split PAGA Claim and Send Individual Wage Claims to Arbitration

On March 28, 2019, a court of appeal in Zakaryan v. The Men’s Warehouse, Inc. affirmed a trial court’s order denying the employer’s motion to compel arbitration of a lawsuit alleging a violation the Private Attorneys General Act of 2004 (PAGA). A former manager of The Men’s Wearhouse filed a lawsuit alleging that he and similarly situated employees had been misclassified as exempt from California’s laws regarding overtime pay, they missed meal and rest periods, and the managers’ wage statements were inaccurate. He sought unpaid wages, waiting time penalties, penalties under PAGA, prejudgment interest, and attorney fees.

The Zakaryan court acknowledged that California courts disagree over whether a trial court may send an employee to arbitration to recover his underpaid wages and retain jurisdiction to award additional statutorily prescribed amounts under PAGA. Even though the plaintiff had signed two agreements to arbitrate wage claims, the Zakaryan court held that a PAGA claim alleging a violation of Labor Code section 558 cannot be arbitrated because the State is the real party in interest, and it has not agreed to arbitration.

The U.S. Supreme Court and California courts have approached the question of whether the Federal Arbitration Act preempts state laws that infringe on the enforcement of agreements to arbitrate disputes differently. The issue of whether a representative action under PAGA seeking recovery of individualized lost wages as civil penalties under Labor Code section 558 falls within the preemptive scope of the FAA is pending before the California Supreme Court.