Class Actions Quarterly Update: Labor and Employment

Plaintiff filed a class action alleging that his employer, Inter-State Oil Co., violated a variety of wage and hour laws. The employer petitioned to compel arbitration of the individual claims and sought dismissal of the class claims entirely. Plaintiff argued that the agreement’s plain language gave him the right to pursue his class claims in arbitration. The trial court disagreed, holding that the language of the agreement indicated Plaintiff waived his right to class claims across the board and granting the employer’s petition to compel.

On appeal, the California Court of Appeal reversed in part, carefully considering the plain language of the agreement. It called out two particular sentences. The first stated that the parties agreed to mandatory arbitration for “all claims arising out of or related to [] employment that could be filed in a court of law.” That sentence listed a series of claims subject to arbitration, including class actions. Read in isolation, the Court held this sentence meant the parties agreed to arbitrate any of the listed claims — including class actions. The second sentence stated that the agreement served as a “waiver of all rights to a civil jury trial or participation in a civil class action lawsuit.” Although the employer argued this provision waived all class claims, the Court of Appeal interpreted “lawsuit” to mean a court action, not an arbitration. The employee waived only his right to bring class claims in Court but not to arbitrate them.

This was a case of imprecise drafting, and the decision should serve as a reminder to employers to carefully review their arbitration agreements to ensure that they are properly releasing the signatories’ rights to bring class claims in Court or in arbitration.

Plaintiff brought a state court action against his employer, Costco Wholesale Corp. (Costco), under the California Private Attorneys General Act (PAGA). Costco removed the case to the United States District Court for the Northern District of California based on diversity jurisdiction and the Class Action Fairness Act of 2005 (CAFA). Costco then moved for partial summary judgment arguing that Plaintiff lacked Article III standing to represent absent aggrieved employees and could not represent absent aggrieved employees under Rule 23 of the Federal Rules of Civil Procedure. The district court denied Costco’s motion, but certified an interlocutory appeal raising two questions: (1) whether, absent class certification, a PAGA plaintiff in federal court has Article III standing to represent absent aggrieved employees, and (2) whether a PAGA plaintiff in federal court can represent absent aggrieved employees without qualifying for class certification under Rule 23.

The Ninth Circuit Court of Appeals did not address either question, holding instead that the district court did not have jurisdiction over the case and remanded the action to state court. First, the Ninth Circuit held that the amount in controversy did not meet the statutory threshold at the time of removal because PAGA civil penalties cannot be aggregated for this purpose. Second, the Court determined that PAGA actions are not sufficiently similar to Rule 23 class actions to trigger CAFA jurisdiction. CAFA relaxed the diversity requirements for a putative “class action,” or any civil action filed under Rule 23 or a state statute or rule that closely resembles Rule 23. PAGA does not closely resemble Rule 23 because, unlike Rule 23, PAGA contains no numerosity, commonality, or typicality requirement, has no notice requirement for unnamed aggrieved employees, nor may such employees opt-out of a PAGA action. The Court also noted that while non-party aggrieved employees are bound by the judgment concerning the recovery of civil penalties, they retain all rights to pursue or recover other remedies available under state or federal law. For this reason, the PAGA claim was not, and could not have been, brought as a “class action” under CAFA.

This case further solidifies the fact that a PAGA action, while a representative action, is not a “class action” for purposes of federal law. Employers who prefer to litigate in federal court may not be able to do so unless the plaintiff makes actual class claims.

An employee resigned from his position with Veeco Instruments, Inc. (Veeco) and went to work for Aixtron, Inc. (Aixtron), a competitor. Veeco then initiated an arbitration proceeding against its former employee alleging breach of contract, breach of the duty of loyalty, and conversion, including alleged data theft. During the discovery phase of the action, the arbitrator granted Veeco’s application for a pre-hearing discovery subpoena for Aixtron’s business records, including a demand that any computers the employee used to be submitted for forensic examination by an agreed-upon third-party neutral expert. Over Aixtron’s objection, the arbitrator granted Veeco’s motion to compel. Aixtron petitioned the trial court seeking judicial review, and Veeco filed a separate petition to enforce the arbitrator’s discovery order. Veeco’s petition was granted, while Aixtron’s petition was denied. Aixtron appealed both orders.

The California Court of Appeal reversed. The Court of Appeal initially noted that it was unnecessary to resolve the parties’ dispute over whether the Federal Arbitration Act (“FAA”) or the California Arbitration Act (CAA) applied because neither statutory scheme gave the arbitrator the authority to issue a discovery subpoena under the circumstances of this case. The Court of Appeal agreed with federal precedent that the FAA did not grant arbitrators implicit powers to order document discovery from non-parties prior to a hearing. Similarly, the Court determined that the CAA likewise does not grant an arbitrator the authority to issue pre-hearing discovery subpoenas unless the parties have...