Skip to main content

Herrera v. Doctors Medical Center of Modesto (CA5 F080963 8/5/21) Arbitration/PAGA Representative Actions 

Defendant Doctors Medical Center of Modesto, Inc., appeals from an order denying its petition to compel arbitration of Labor Code claims pursued by former employees.  The former employees contend their lawsuit is limited to recovering civil penalties under the Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.) and their arbitration agreements cannot be enforced to compel arbitration of the PAGA representative claims.

We again interpret the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) to mean “that PAGA representative claims for civil penalties are not subject to arbitration” under a predispute arbitration agreement.  (Esparza v KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1234 (Esparza).)  The PAGA claims alleged in the former employees’ complaint are owned by the state and are being pursued by the former employees as the state’s agent or proxy.  (ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 185 (ZB, N.A.).)  The arbitration agreements in question are not enforceable as to the PAGA claims because the state was not a party to, and did not ratify, any of those agreements.  Also, after the former employees became representatives of the state, they did not agree to arbitrate the PAGA claims.  Consequently, under the rule of California law recognized in Esparza and many other decisions of the Court of Appeal, the PAGA claims cannot be forced into arbitration based on agreements made by the former employees before they became authorized representatives of the state.  The trial court correctly applied this rule of law.

Defendant’s argument that arbitration is compelled by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) and federal preemption fails for similar reasons.  In Iskanian, our Supreme Court addressed the scope of the FAA and concluded that “a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.”  (Iskanian, supra, 59 Cal.4th at p. 386.)  Based on this precedent, we conclude the FAA does not reach the PAGA claims alleged in this case and, therefore, federal law does not preempt the rule of California law stating PAGA claims are subject to arbitration only if the state, or the state’s authorized representative, consents to arbitration.

We therefore affirm the order denying the petition to compel arbitration.