California Court of Appeal Supports Employers’ Fight Against “Headless” PAGA Actions

Topics: Arbitration Agreements, PAGA

In 2022, the U.S. Supreme Court published its decision in Viking River Cruises v. Moriana (Viking River), which was hailed as a “Big Win for California Employers.” The decision allowed for partial enforcement of arbitration agreements in actions brought under California’s Private Attorneys General Act (PAGA). The celebration of the “Big Win” was short-lived as the fight over the enforceability of arbitration agreements in PAGA actions continued immediately after Viking River was decided.

Recently, PAGA plaintiffs began implementing a new anti-arbitration strategy wherein they attempted to bring a representative PAGA action that purportedly excluded the arbitrable portions of a PAGA action. Specifically, the PAGA plaintiffs assert that their representative PAGA action is solely based on alleged Labor Code violations against other, non-party employees. The PAGA plaintiff asserts that their PAGA action includes no arbitrable individual claim and that they seek no individual relief. Given the purported absence of claims by the plaintiff, these actions have been referred to as “headless” PAGA actions. And plaintiffs argue that these “headless” PAGA actions are immune from arbitration. 

Unfortunately, some trial courts have allowed PAGA plaintiffs to avoid arbitration and maintain “headless” PAGA actions in court. And the trend is gaining momentum. Bloomberg Law recently published an article about this anti-arbitration litigation tactic, titled "California Workers Try to Avoid Arbitration With 'Headless PAGA," [subscription required] explaining that over one-third of the PAGA actions filed in Los Angeles County over the past six months have been “headless” PAGA actions.

Plaintiffs purporting to have a “headless” PAGA action rely heavily on the Second District Court of Appeal decision in Balderas v. Fresh Start Harvesting, Inc. (Balderas). In Balderas, the plaintiff’s complaint asserted that she “is not suing in her individual capacity; she is proceeding herein solely under the PAGA, on behalf of the State of California for all aggrieved employees, including herself and other aggrieved employees.” The appellate court held “that an employee who does not bring an individual claim against her employer may nevertheless bring a PAGA action for herself and other employees of the company.”

If the Balderas decision stopped there, it would have been rather ordinary. One would reasonably construe the holding as a recitation of the long-held rule that an aggrieved employee has standing to maintain a PAGA cause of action even if they have no valid individual Labor Code cause of action. 

However, in dicta, Balderas states that the legislature extended “broad standing to aggrieved employees who do not depend on the viability or strength of a plaintiff's individual PAGA claim. The inability for an employee to pursue an individual PAGA claim does not prevent that employee from filing a representative PAGA action.” The “headless” PAGA actions arose from these statements, which support the proposition that a plaintiff can maintain a representative PAGA action (i.e., a cause of action for civil penalties under PAGA) without asserting an arbitrable individual PAGA claim. 

Fortunately, though, the same Court of Appeal that decided Balderas recently published a decision with a holding that is entirely inconsistent with the dicta in Balderas. 

In Rodriguez v. Lawrence Equipment, Inc. (Rodriguez), the Second District Court of Appeal held that an arbitrator’s final adjudication of non-PAGA Labor Code claims has a preclusive effect on a related PAGA action. The plaintiff in the case, Rodriguez, unsuccessfully arbitrated his individual Labor Code causes of action, failing to establish that he suffered any Labor Code violations. After arbitration, Rodriguez sought to prosecute his representative PAGA action in court but the trial court dismissed Rodriguez’s PAGA action for lack of standing. The appellate court affirmed, concluding that “Rodriguez is precluded from relitigating the Labor Code violations in an attempt to establish he is an aggrieved employee,” and he “thus lacks standing to pursue the PAGA cause of action.”

The holding in Rodriguez is entirely inconsistent with the Balderas dicta that supports “headless” PAGA claims. Under Rodriguez, “the inability for an employee to pursue an individual PAGA claim” does eliminate that employee’s standing to maintain a PAGA action. Under Rodriguez, standing under PAGA does “depend on the viability or strength of a plaintiff's individual PAGA claim.” 

Rodriguez will not stop PAGA plaintiffs from relying on Balderas to justify their “headless” PAGA actions. But their reliance is on shaky ground. The Rodriguez decision should help employers fight back against “headless” PAGA actions and successfully enforce their arbitration agreements under Viking River. It is also important that employers distinguish Balderas to ensure its holding is appropriately limited. Employers should also ensure that they use “PAGA claim” and “PAGA action” precisely and consistent with Viking River. And, further, they should be vigilant of how PAGA plaintiffs rely on pre-Viking River PAGA decisions to support their arguments to oppose arbitration pursuant to Viking River. Some of the focal points are set forth below.

• Balderas merely determined whether allegations were sufficient to overcome a motion to strike a complaint, and Balderas’ complaint alleged that she sought to recover civil penalties under PAGA “for all aggrieved employees, including herself and other aggrieved employees.” Balderas’ PAGA action was not purely representative, limited to “non-individual PAGA claims” brought solely on behalf of other aggrieved employees, and excluding claims on behalf of Balderas herself.
   
• Viking River “use[d] ‘individual PAGA claim’ to refer to claims based on [Labor C]ode violations suffered by the plaintiff.” In Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, the California Supreme Court “use[d] the terms ‘individual’ and ‘non-individual’ claims in accordance with the high court's usage in Viking River.” Under both decisions, “individual PAGA claims” are subject to arbitration. A plaintiff’s claim that they are an “aggrieved employee” under PAGA is a claim that the plaintiff suffered Labor Code violations. Thus, all PAGA plaintiffs claiming to have standing as an “aggrieved employee” are asserting an “individual PAGA claim” that is arbitrable under Viking River.
   
• Before Viking River was decided, the California Supreme Court decided Kim v. Reins Int'l California, Inc. (2022) 9 Cal.5th 73, explaining that “[t]here is no individual component to a PAGA action” and thus California courts routinely “reject[] efforts to split PAGA claims into individual and representative components” through an arbitration agreement, or otherwise. Viking River held that “the FAA preempts the [California] rule [that] precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” No legal authority suggests that a PAGA plaintiff who agreed to arbitrate their individual PAGA claims may avoid such arbitration by filing a “headless” PAGA action. Absent the agreement to arbitrate under the FAA, PAGA actions may not be split in that manner. 
   
• PAGA plaintiffs cannot avoid arbitration by declining to seek any civil penalty for themselves because PAGA authorizes “a civil penalty to … be recovered through a civil action brought by an aggrieved employee on behalf of the employee and other current or former employees,” and PAGA requires that the court distribute the civil penalty “to the aggrieved employees.” PAGA plaintiffs have no say in the matter. Moreover, California law requires arbitration of “any question arising between parties to an agreement whether the question is one of law or of fact or both.” A PAGA plaintiff’s claim that they are an aggrieved employee is a question of fact which, under Viking River and Adolph, must be bifurcated and compelled to arbitration. That is so even if the PAGA plaintiff could feasibly disclaim any individual relief.

The fate of “headless” PAGA actions will likely be determined next year, as it is expected that California appellate courts will begin to decide PAGA cases that are currently on appeal following the denial of motions to compel arbitration of “individual PAGA claims.” 

For example, Garcia v. Omni Hotels Management Corporation (Garcia), Case No. D084151, arose from a trial court’s order denying an employer’s motion to compel arbitration in a PAGA action because, the trial court found, “there is nothing to order to arbitration if Plaintiff is not seeking any [civil penalties] based on violations that occurred as to them.” That appeal is fully briefed before the Fourth District Court of Appeal.