A recent Ninth Circuit case holds that only individual PAGA claims can be subject to arbitration.  

In the case, Diaz v. Macy’s West Stores, Diaz sued her former employer under PAGA alleging violations of California’s labor code on behalf of herself and other employees. A final ruling in the district court compelling arbitration of all Diaz’ claims was appealed to the Ninth Circuit by Macy’s. In reaching its decision, the Ninth Circuit looked to the parties’ arbitration agreement to determine whether the parties consented to arbitrate just Diaz’ individual PAGA claims or both the individual and non-individual PAGA claims.  

Giving the words of the arbitration agreement “their ordinary and popular sense” rather than their strict legal meaning, the Court found that at the time of contracting, the parties consented only to arbitration of individual claims relating to Diaz’s own employment. This meant that, in opposition to the district court’s reasoning, the Court chose not to broaden the arbitration agreement’s language precluding “consolidate[d] claims of different Associates” and “class or collective action[s]” to include the PAGA-related claims. In the Court’s own words, “it does no violence to the agreement to read non-individual PAGA claims as an instance of a class or collective action.” In the Court’s opinion, the agreement’s language was strongly indicative of an intent to exclude any amalgamation of employees’ claims—including non-individual PAGA claims—from arbitration. 

What Does it All Mean? 

A key lesson from the Diaz decision is that it clarifies and distinguishes arbitration agreements that pre-date some of the more recent PAGA cases (i.e., Viking River and Adolph); many of which fail to even mention PAGA waivers. In such instances, the Diaz court directs a plain reading of the agreement and consideration of the parties’ intentions. It also instructs that courts should not only compel individual PAGA claims to arbitration and direct non-individual PAGA claims to the court but should do so even where an agreement makes no mention of PAGA claims.  

Much has changed on the PAGA landscape. Employers currently utilizing arbitration agreements should consult legal counsel in connection with reviewing any representative action waiver and severability provisions.