As a backdrop, and as we previously explained [here and here], Courts are split on whether to stay or dismiss representative PAGA claims after individual PAGA claims are compelled to arbitration. However, assuming the Court stays the representative PAGA claims or even allows the representative PAGA claims to proceed simultaneous to the individual PAGA claims in arbitration—could issue preclusion strip the PAGA representative of standing?
In the past, California courts have held that settlement of an individual PAGA claim does not affect a plaintiff’s right to bring representative PAGA claims in court. The rationale is that a settlement is not an adjudication on the merits and cannot serve as grounds to preclude a claim because liability was not established or denied. For example, settlement of a plaintiff’s individual wage-and-hour claims does not determine whether the defendant-employer violated any wage-and-hour laws and, as a consequence, does not affect the plaintiff-representative’s ability to proceed with the representative PAGA claims in court—i.e., they don’t lose standing.
But wait – what if the representative plaintiff LOSES in arbitration? This is a new PAGA wrinkle that may eventually lead to relief for employers. In Rochoa v. U-Haul Co. of California, the court denied plaintiff’s request to amend their Labor Code § 1102.5 [retaliation] complaint to add a PAGA claim and, instead, compelled the matter to arbitration. The arbitrator found that plaintiff’s individual claim did not have merit, ruling for the defendant-employer on the retaliation claim. After arbitration closed, the plaintiff appealed the denial of the request for leave to amend the complaint to add the PAGA claim. The Court of Appeal ruled that the unsuccessful arbitration claim was similar enough to the claim in the PAGA complaint in court to be precluded (i.e., the claim met the five elements of issue preclusion) and that the trial court did not abuse its discretion in reaching its decision. The Court of Appeal stated that “[o]nce the Labor Code violations based on which a plaintiff seeks to qualify for PAGA standing have been finally adjudicated, the extent to which that adjudication prevents a plaintiff from qualifying for standing will depend on general principles of issue preclusion.” In so ruling, the Rochoa court departed from prior holdings allowing claims dismissed in arbitration to proceed as a PAGA claim in court. This creates another split in authority on PAGA, which lays the groundwork for the state’s high court to issue a final ruling.
Imagine a world where a PAGA representative loses in arbitration on a rest break claim, and then is precluded from bringing that claim in court? It could happen. That’s why employers should keep their eyes out for an appeal to the California Supreme Court, and keep their fingers crossed that one of the pending challenges to representative PAGA claims is successful. PAGA relief may be on the way.