In a recent published decision, the California Court of Appeal delivered a blow to plaintiffs seeking to avoid arbitration of claims under the Private Attorneys General Act (PAGA) by concluding that all PAGA actions, however framed, necessarily include individual and representative claims. Leeper v. Shipt, Inc., 107 Cal. App. 5th 1001 (2024). Accordingly, a plaintiff cannot evade enforcement of an agreement that requires arbitration of individual PAGA claims by framing his or her claim as exclusively representative.

Arbitration agreements and PAGA claims

For more than a decade, California litigants, with some jurisprudential assistance from state courts, have devised strategies to avoid enforcement of arbitration agreements designed to thwart high-cost representative actions under PAGA. In 2014, the California Supreme Court aided that effort by holding that an arbitration agreement that requires a signatory to waive his or right to bring a PAGA action violates public policy. Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (2014). Appellate courts applying Iskanian concluded that the decision “prohibit[s] splitting of PAGA claims into individual and nonindividual components to permit arbitration of the individual claims.” Nickson v. Shemran, Inc., 90 Cal. App. 5th 121, 128 (2023).

This rule stood until the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022). In Viking River, the Court did not disturb Iskanian’s “prohibition on wholesale waivers of PAGA claims” but concluded that the Federal Arbitration Act (FAA) preempted the “rule that PAGA actions cannot be divided into individual and non-individual claims[.]” Viking River Cruises, Inc., 596 U.S. at 662. Consequently, after Viking River, an employer could compel a plaintiff to arbitrate individual PAGA claims.

Viking River interfered with plaintiffs’ ability to promptly pursue a representative PAGA action in at least two ways. First, once an employer compels arbitration of an individual PAGA claim (which Viking River allows), the representative PAGA action is normally stayed pending resolution of the arbitral proceedings. See Code of Civ. Proc. § 1281.4. Second, a merits determination in an individual PAGA arbitration can undermine or even have preclusive effect in a subsequent representative action.

The Court of Appeal concludes that all PAGA actions include individual and representative claims

To avoid compelled arbitration after Viking River, some plaintiffs sought to bring PAGA claims in a solely representative capacity. However, in a published decision, the California Court of Appeal delivered what appears to be a death knell to this strategy.

In Leeper v. Shipt, Inc., the trial court denied a motion to compel arbitration of an individual PAGA claim because the plaintiff “did not allege any individual claims subject to arbitration[.]” Id. at 1005. The Court of Appeal reversed, concluding “any PAGA action necessarily includes both an individual PAGA claim and a representative PAGA claim.” Id. at 1009 (emphasis added). The court recognized that its decision would likely result in the very outcome PAGA plaintiffs seek to avoid – individual PAGA claims would “be separately compelled to arbitration,” which could “trigger a stay of the … representative PAGA claim,” and the arbitration decision could undermine the subsequent pursuit of any representative PAGA claims. Id. at 1010.

Employers have faced substantial setbacks in their efforts to use arbitration agreements to preclude costly PAGA claims. Fortunately, the Court of Appeal’s decision in Leeper undermines at least one tactic plaintiffs and their attorneys have used to avoid the arbitral forum in PAGA actions and to seek costly settlements. Employers that utilize arbitration agreements should review them to ensure they are drafted in a way that permits them to take full advantage of the decision in Leeper.