One of the great tussles between California and the Federal government is arbitration of employee wage and hour violation claims. Where there is a mandatory arbitration agreement between the employer and employee, the United States Supreme Court recently ruled that the Federal Arbitration Act requires the employee to arbitrate his or her individual claims, and in some cases, class action claims, against the employer. To add a complication to this already complicated field, under the Private Attorneys General Act (PAGA), California permits aggrieved employees to bring an action against the employer on behalf of all affected employees for violation of California wage orders and recover the penalties and enforce the remedies against the employer that the Department of Labor Standards Enforcement (DLSE) could have recovered if it had brought the action against the employer. In wage and hour cases, this ordinarily includes recovery of some, if not all, of the same damages for the employee who arbitrated his or her individual claims. A PAGA action is not subject to arbitration and California law precludes application of arbitration agreements to PAGA claims.

The United States Supreme Court had opined, in dicta, that a California employee subject to a mandatory arbitration agreement of his or her employer-related disputes, would lose standing to maintain a PAGA action. The Supreme Court reasoned, once the employee’s individual claims were arbitrated the employee would lack standing to bring a PAGA action since the employee would no longer be an aggrieved party.

On July 21, 2022, in Howitson v. Evans Hotels, the California Fourth Appellate District, indirectly took issue with the dicta of the United States Supreme Court.

Howitson (1) involved the legal issues of whether an employee who settles individual claims against the employer for alleged Labor Code violations is subsequently barred by claim preclusion from bringing a PAGA enforcement action against the employer for the same Labor Code violations when, prior to settlement, the employee could have added the PAGA claims to the existing action; and (2) required the application of claim preclusion principles.

The Howitson Court held that the individual action and the PAGA action involved different claims for different harms and, because the State of California (since a PAGA action is a representative action), against whom the defense was raised, was neither a party in the prior action nor in privy with the employee, the requirements for claim preclusion were not met. Therefore, although the aggrieved employee had concluded arbitration of the employee’s individual action against the employer, the employee thereafter was not precluded from maintaining a PAGA action against the employer that could involve some, if not all, of the same damages that the employee obtained in the arbitration of the employee’s individual claims.

To assure you as an employer are not subjected to these double dips by aggrieved employees, contact your employment or business attorney and have your arbitration agreements reviewed and revised to protect against this type of double whammy!

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.