Employee's Waiver of PAGA Claims Was Illegal, Rendering Entire Arbitration Agreement Unenforceable

Denise Edwards worked at Securitas, a company which provides specialized security services throughout the country. In 2011 she signed an acknowledgement of the company's arbitration policy. Paragraph 4 of the policy included a waiver of class action or representative claims. The clause stated it was not severable from the rest of the agreement, notwithstanding any other language in the agreement. Paragraph 10 contained a severability clause, which stated that if any portion is unenforceable, the rest of the agreement is still enforceable.

In 2013 Edwards sued Securitas for failure to provide meal and rest breaks and failure to itemize those breaks on wage statements. The claim sought restitution and injunctive relief, damages, and a representative claim for civil penalties under PAGA (Private Attorney General Act). Securitas moved to compel arbitration, arguing that she agreed to arbitrate her individual claims, and that her PAGA claims were waived under the terms of the policy. Edwards argued that under Iskanian, the waiver of the PAGA claim was unenforceable, and since that clause could not be severed under the terms of the agreement, all of her claims could proceed to court.

The court granted Securitas's motion to compel arbitration, but held that because the PAGA claim was not waivable, the severability clause applied and ordered all claims to arbitration, including her PAGA claim. Securitas appealed for an immediate stay.

The appeals court goes into great detail explaining the Iskanian case from 2014, in which the California Supreme Court ruled that an employee could not prospectively waive his or her right to bring a representative claim under the PAGA because such a claim was not a private dispute between an employee and employer, but rather a substitute for government action. The court also said the Federal Arbitration Act (FAA) did not preempt in that case because the FAA only sought to ensure the resolution of private disputes. According to Iskanian, the only time a PAGA waiver was enforceable was if the employee made the waiver after the dispute arrived, in choosing to pursue arbitration.

As a result of Iskanian, the court here found that Edwards' PAGA waiver was not enforceable. This waiver, however, was part of the same sentence that waived her right to bring any class action, but that waiver is enforceable. The court needed to decide whether the trial court was correct in severing the class action waiver and enforcing the remainder of the agreement.

As a matter of contract interpretation, the appeals court held that paragraph 4 of the arbitration agreement was clear in stating, immediately after the sentence including the class action waiver, that "the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action." Given this language, the trial court erred in severing the class action waiver and enforcing it. The parties had clear intent to make the dispute resolution provision all-or-nothing. The severability clause did not apply to paragraph 4, rendering the entire agreement unenforceable. The court ordered the trial court to vacate its decision and deny Securitas' motion to compel arbitration.

Note:

A good severability clause is important in any type of agreement, such as an arbitration agreement or separation agreement. That way, if any individual clause is found to be unenforceable, it can be severed and the remainder of the agreement upheld. Here, Securitas made the mistake of adding language that included class actions in the PAGA waiver and stating that that clause was not severable for the remainder of the agreement. If that clause is unenforceable, then the result is the entire agreement being unenforceable. If the court could have severed that clause, the remainder of Edwards' individual claims could have been arbitrated.

Securitas Security Services USA, Inc. v. Superior Court of San Diego County, --Cal.Rptr.3d--, 2015 WL 848954