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Z.B. N.A. v. Superior Court (Kalethia Lawson)

Supreme Court of California

September 12, 2019

ZB, N.A., and ZIONS BANCORPORATION, Petitioners,
v.
SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; KALETHIA LAWSON, Real Party in Interest.

          Superior Court San Diego County 37-2016-00005578-CU-OE-CTL Joel M. Pressman Judge

         Fourth Appellate District, Division One D071279 and D071376

          Rutan & Tucker, James L. Morris, Brian C. Sinclair and Gerard M. Mooney for Petitioners.

          Greines, Martin, Stein & Richland, Robert A. Olson and Cynthia E. Tobisman for California New Car Dealers Association as Amicus Curiae on behalf of Petitioners.

          O'Melveny & Myers, Apalla U. Chopra, Andrew Lichtenstein, Adam J. Karr, Ryan W. Rutledge and Kelly Wood for the Employers Group and California Employment Law Council as Amici Curiae on behalf of Petitioners.

          Altshuler Berzon, Michael Rubin, Kristin M. García; Lawyers for Justice, Edwin Aiwazian, Arby Aiwazian and Joanna Ghosh for Real Party in Interest.

          Bryan Schwartz Law, Bryan J. Schwartz, Logan T. Talbot, Eduard R. Meleshinsky, DeCarol A. Davis for California Employment Lawyers Association as Amicus Curiae on behalf of Real Party in Interest.

         No appearance for Respondent Superior Court.

          OPINION

          CUÉLLAR, J.

         Under the Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.), [1] an employee may seek civil penalties for Labor Code violations committed against her and other aggrieved employees by bringing -- on behalf of the state -- a representative action against her employer. (§ 2699, subd. (a).) In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian), we held that a court may not enforce an employee's alleged predispute waiver of the right to bring a PAGA claim in any forum. We also found that where such a waiver appears in an employee's arbitration agreement, the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) does not preempt this state law rule.

         This case concerns a PAGA action seeking civil penalties under Labor Code section 558. Brought by real party in interest Kalethia Lawson, the action named as defendants Lawson's employer, ZB, N.A. - with whom she agreed to arbitrate all employment claims and forego class arbitration - and its parent company, Zions Bancorporation (collectively, ZB). Before the enactment of the PAGA, section 558 gave the Labor Commissioner authority to issue overtime violation citations for “a civil penalty as follows: [¶] (1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages. [¶] (2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.” (Id., subd. (a), italics added.) We granted review to decide whether Iskanian controls, and the FAA has no preemptive force, where an aggrieved employee seeks the “amount sufficient to recover underpaid wages” in a PAGA action.

         But to resolve this case we must answer a more fundamental question: whether a plaintiff may seek that amount in a PAGA action at all. The Court of Appeal thought so. It concluded section 558's civil penalty encompassed the amount for unpaid wages, and Lawson's claim for unpaid wages could not be compelled to arbitration under Iskanian. It accordingly ordered the trial court below to deny ZB's motion to arbitrate that portion of her claim.

         What we conclude is that the civil penalties a plaintiff may seek under section 558 through the PAGA do not include the “amount sufficient to recover underpaid wages.” Although section 558 authorizes the Labor Commissioner to recover such an amount, this amount -- understood in context -- is not a civil penalty that a private citizen has authority to collect through the PAGA. ZB's motion concerned solely that impermissible request for relief. Because the amount for unpaid wages is not recoverable under the PAGA, and section 558 does not otherwise permit a private right of action, the trial court should have denied the motion. We affirm the Court of Appeal's decision on that ground. On remand, the trial court may consider striking the unpaid wages allegations from Lawson's complaint, permitting her to amend the complaint, and other measures.

         I.

         According to her complaint, Lawson began working for California Bank & Trust (CB&T) in 2013 as an hourly employee. CB&T is now a division of petitioner ZB, N.A. ZB's motion to compel arbitration explained that the employee handbook in effect at the time of Lawson's hiring included a section entitled “Mandatory Binding Arbitration Policy and Agreement.” A “statement of compliance” distributed with the employee handbook required the employee, by signing, to affirm that she had read that section of the handbook. The statement read: “I understand that by accepting or continuing employment with the Company I agree to use binding arbitration to resolve certain legal claims or controversies with the Company, Zions or Zions Entities, including federal Title VII and state civil rights claims, pursuant to the mandatory binding arbitration policy.”

         Lawson electronically acknowledged receipt of the employee handbook and statement of compliance, as well as an updated employee handbook and statement of compliance a year later. Lawson does not contest here that she is bound to arbitration pursuant to the terms of the relevant employee handbook section. The section mandated binding arbitration to resolve “[a]ny legal controversy or claim arising out of [Lawson's] employment.” It also contained a “class action” waiver that said: “[C]laims by different claimants against the Company, Zions and Zions Entities or by the Company against different employees, former employees or applicants, may not be combined in a single arbitration. Unless specific state law states otherwise, no arbitration can be brought as a class action (in which a claimant seeks to represent the legal interests of or obtain relief for a larger group)....”

         In February 2016, Lawson sued ZB, N.A., named as CB&T in the complaint, and its parent company, petitioner Zions Bancorporation, for alleged Labor Code violations harming her and other employees. Lawson's complaint contains a single cause of action brought under the PAGA. She alleges ZB failed to provide overtime and minimum wages, meal and rest periods, timely wage payments, complete and accurate wage statements, complete and accurate payroll records, and reimbursement of business-related expenses. As relevant here, Lawson's complaint seeks “civil penalties against [ZB], including unpaid wages and premium wages per California Labor Code section 558.”[2] (See §§ 558, 2699, subd. (a).)

         In August 2016, ZB moved the trial court to compel Lawson to individually arbitrate “her claim for victim-specific relief under Labor Code § 558” and stay the civil action. ZB maintained that Lawson's employment agreement required her to arbitrate all employment claims on an individual basis. While recognizing the unenforceability of that agreement with respect to “traditional PAGA penalties” under Iskanian, ZB contended the “unpaid wages” Lawson sought, which section 558, subdivision (a)(3) requires be paid to “the affected employee[s], ” were something different: “victim-specific relief” that ZB could require Lawson to arbitrate individually under the FAA and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333. In effect, ZB's contention was that the “victim-specific relief” that Lawson sought under section 558 was not part of “a standard PAGA action” but remained a “claim... subject to individual arbitration, ” although the civil penalties available under section 558 were not arbitrable. The trial court generally agreed, bifurcating Lawson's action and granting ZB's motion to compel arbitration of the “unpaid wages” issue.

         But ZB got more than it bargained for in the process. In the trial court's view, the “unpaid wages” relief sought in Lawson's PAGA claim nevertheless required “representative” adjudication since the “PAGA, by its very nature, is a representative statute.” It therefore ordered the issue to arbitration “as a representative action” for the unpaid wages of all aggrieved ZB employees. ZB responded by filing both an appeal and petition for writ of mandate with the Court of Appeal. After consolidating the two, the appellate court dismissed the appeal, holding that Code of Civil Procedure section 1294 only gave it appellate jurisdiction over an order dismissing, not granting, a motion to compel arbitration. ZB does not request our review of that matter.

         On the other hand, ZB persuaded the Court of Appeal to issue the writ of mandate, but the court did so on a different ground from the one ZB asserted. The appellate court concluded that Lawson's request for unpaid wages under section 558 in fact could not be arbitrated at all. Relying on Thurman v. Bayshore Transit Management (2012) 203 Cal.App.4th 1112 (Thurman), the Court of Appeal interpreted section 558 to expressly include “underpaid wages” within the scope of its “civil penalty” provision. In the appellate court's view, an employee could pursue the entire, indivisible civil penalty through the PAGA, and under Iskanian, her employer could not compel that representative PAGA claim to arbitration. Our opinion in Iskanian, it surmised, “made it clear that the distinction between civil penalties and victim specific statutory damages hinges in large measure on whether, prior to enactment of the PAGA, they could only be recovered by way of regulatory enforcement or whether they supported a private right of action.” (Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, 724.) Disagreeing with Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228 (Esparza), the Court of Appeal concluded section 558 previously lacked a private right of action. So, a PAGA claim for the unpaid wages included in section 558's civil penalty came within Iskanian's prohibition on predispute waivers of such claims. The court then issued a writ of mandate commanding the trial court to vacate its previous order and enter a new order denying ZB's motion to arbitrate.

         We granted ZB's petition for review to resolve the split of authority over whether an employer may compel arbitration of an employee's PAGA ...


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