California Appeals Court Rules PAGA Waiver Was Unconscionable

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Dec 19, 2022

Juan Navas, Martha Herrera Lopez, and Benjamin Hernandez Ramos filed a class action lawsuit against Fresh Venture Foods (FVF) alleging, among other things, that the company did not pay them minimum and overtime wages. They also alleged a cause of action under the Private Attorneys General Act (PAGA) for civil penalties for themselves and other current and former employees for Labor Code violations.

FVF moved to compel arbitration of the Plaintiffs’ claims. FVF alleged that Navas, Lopez, and Ramos signed arbitration agreements and agreed to arbitrate their individual claims against FVF, and therefore gave up the right to represent others in class or representative class actions. Navas, Lopez, and Ramos, however, claimed they did not recognize the arbitration agreement or their signatures on them. They also alleged the agreement was unconscionable.

The trial court found that FVF did not establish that Lopez and Ramos entered into arbitration agreements. Ramos and Lopez testified in their depositions that they did not recall seeing or signing the document, and did not recognize the signatures on the agreement as theirs. Additionally, the trial court held the arbitration agreement signed by Navas was procedurally and substantively unconscionable. FVF appealed.

The Court of Appeal rejected FVF’s arguments that Ramos and Lopez were evasive and not credible. The Court of Appeal explained that witness credibility is decided exclusively by the trial court and that as an appellate court, it does not determine evidentiary conflicts.

The Court of Appeal then turned to Navas’s claim that the arbitration agreement was unconscionable.

Navas argued that the agreement was unconscionable because it required employees to waive their right to bring a PAGA suit in court. The Court of Appeal explained that under the recent U.S. Supreme Court ruling in Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906, employers in PAGA cases may now enforce arbitration agreements for individual PAGA claims. Previously, state case law held that employers cannot force employees to waive their right to bring PAGA claims in both 1) individual PAGA actions where the employee seeks damages for violations committed against the individual employee, and 2) “representative” actions where an employee seeks damages because of the employer’s PAGA violations committed against a group of employees.

Here, Navas’s arbitration agreement provides that “Fresh Venture Foods reserves the right” to enforce “the Waiver of Individuals to Self-Representation in Trials (Private Attorney General Waiver).” The Court of Appeal held that this provision of the arbitration agreement did not even give Navas the choice to arbitrate an individual PAGA claim because it failed to explain to Navas, a Spanish-speaking employee, what is an individual PAGA claim before obtaining his consent to waive the right to file an individual PAGA claim in court. Therefore, the provision was invalid.

The Court of Appeal also held that the arbitration agreement terms are primarily one-sided in favor of FVF. The agreement provided it “will be valid for all legal claims between [FVF] and [the employee].” But it then specifically describes the type of “Covered Claims” that fall within arbitration. They include disputes involving: wrongful termination; state and federal wage and hour laws; breaks and rest periods; training; discrimination; harassment; and “claims arising under state and federal statutes and/or common law relating to these or similar matters.” The agreement also provides, “There will be no right or authority under this Agreement for any dispute to be brought, heard, or arbitrated as a class or collective action.” The Court of Appeal reasoned that these are the only types of claims employees can bring against employers. Arbitration agreements that primarily require arbitration of the type of claims only employees bring against employers are substantively unconscionable as being “one-sided and harsh.”

The agreement also provided that employees can utilize the internal complaint procedures of FVF. However, the agreement did not describe the procedures in the arbitration agreement, and therefore employees did not know what they were agreeing to. The Court of Appeal held that the agreement “funnels employee claims into both arbitration and FVF’s own complaint system without requiring FVF to follow any defined procedure.”

The Court of Appeal held that given the number of unconscionable provisions in the arbitration agreement, the trial court reasonably determined that severance of those provisions was not an acceptable option. The Court of Appeal upheld the trial court’s determination that the entire agreement was unconscionable.

Navas v. Fresh Venture Foods, LLC (Cal. Ct. App. Nov. 21, 2022) 2022 WL 17087898.

Note: This case is an example of how California courts will apply the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, which LCW previously reported on in the August 2022 Private Education Matters.

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