Contreras v. Superior Court of L. A. Cnty.

61 Cal.App.5th 461

275 Cal.Rptr.3d 741

Robina CONTRERAS et al., Petitioners,

v.The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Zum Services, Inc., Real Party in Interest.

B307025

Court of Appeal, Second District, Division 5, California.

Filed March 1, 2021

Lichten & Liss-Riordan, Shannon Liss-Riordan and Anne Kramer, for Petitioners.

No appearance for Respondent.

Littler Mendelson, K. Kayvan Iradjpanah and Ashley J. Brick, Los Angeles, for Real Party in Interest.

RUBIN, P. J.

INTRODUCTION

Petitioners Robina Contreras and Gabriel Ets-Hokin filed suit against Zum Services, Inc. (Zum) under the Private Attorneys General Act (PAGA). ( Lab. Code, § 2699 et seq. )¹

Petitioners alleged Zum misclassified them and others as independent contractors, thereby violating multiple provisions of the California Labor Code. Zum moved to compel arbitration based on agreements petitioners had signed at the beginning of their employment. The trial court granted the motion, ordering into arbitration "the issue of arbitrability" of petitioners’ suit – whether they are "aggrieved employees" entitled to raise PAGA claims. Petitioners now challenge the trial court's order, arguing that the delegation of that question to an arbitrator frustrates the purpose of PAGA and is therefore prohibited under California law. We agree and reverse the order compelling arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

1. Zum's Terms of Service Agreement

Zum is a transportation service, designed to allow customers to schedule rides for children using the Zum website or phone application. Upon logging in the first time, new Zum drivers are expected to sign the Zum Terms of Service Agreement (Agreement).

The Agreement contains what appears to be a mutual dispute resolution provision that requires drivers to resolve disputes through final and binding arbitration: "[Y]ou and Zum waive your rights to a jury trial and to have any dispute arising out of or related to these Terms or our Service resolved in court. Instead, all disputes arising out of or relating to these Terms or our Service will be resolved through confidential binding arbitration held in San Mateo County, California in accordance with the Streamlined Arbitration Rules and Procedures (‘Rules’) of the Judicial Arbitration and Mediation Services (‘JAMS’), which are available on the JAMS website and hereby incorporated by reference."² The Agreement also requires drivers to waive their right to bring a class action: "You and Zum agree that any dispute arising out of or related to these Terms or our Service is personal to you and Zum and that any dispute will be resolved solely through individual arbitration and will not be brought as a class arbitration, class action or any other type of representative proceeding."

The Agreement gives the arbitrator "exclusive authority to make all procedural and substantive decisions regarding any dispute and to grant any remedy that would otherwise be available in court; provided, however, that the arbitrator does not have the authority to conduct a class arbitration or a representative action, which is prohibited by these Terms." The JAMS Streamlined Arbitration Rules and Procedures, incorporated by reference, state in relevant part: "Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator." (Italics added.)

Contreras began driving for Zum in October 2018; Ets-Hokin started in June 2019. Both assented to the terms of the Agreement.

2. Petitioners’ Lawsuit Against Zum and the Motion to Compel Arbitration

On March 23, 2020, petitioners filed the operative first amended complaint against Zum, raising a single cause of action pursuant to PAGA.³ The complaint alleged that Zum had misclassified them as independent contractors and, as a result, Zum violated multiple provisions of the California Labor Code and other statutes and regulations protecting California employees. Specifically, petitioners claimed Zum willfully misclassified drivers as independent contractors in violation of section 226.8;⁴ failed to reimburse drivers for expenses incurred while working in violation of section 2802 and Wage Order No. 9; failed to ensure that drivers receive minimum wage for all hours worked in violation of sections 1194 and 1197; failed to pay drivers the appropriate overtime premium for all overtime hours worked in violation of sections 510, 554, 1194, and 1198; and required drivers to sign illegal contracts in violation of section 432.5.

On April 21, 2020, Zum filed its motion to compel arbitration, citing the Agreement's provisions waiving class actions and agreeing to submit claims to binding arbitration. Petitioners opposed the motion, arguing that PAGA claims cannot be compelled into individual arbitration. In reply, Zum again emphasized the terms of the Agreement and also raised the argument that the "threshold issue" of whether petitioners were employees and thus eligible to raise PAGA claims should be decided in arbitration.

3. Ruling on the Motion to Compel Arbitration

On July 22, 2020, the trial court granted Zum's motion. In its ruling, the court relied on California public policy that favors resolving conflicts through arbitration, and Code of Civil Procedure section 1281.2, which directs courts to order the parties to arbitrate a controversy if an agreement to arbitrate the controversy exists. The court relied on cases that support the general rule that arbitrators should decide the issue of arbitrability if there is an enforceable delegation clause in an agreement. ( Rent-A-Center, W., Inc. v. Jackson (2010) 561 U.S. 63, 68-69, 130 S.Ct. 2772, 177 L.Ed.2d 403 ; Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 239, 190 Cal.Rptr.3d 159.) The court found that the delegation clause here was enforceable, with "clear and unmistakable" terms.

Although the court acknowledged that Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 244 Cal.Rptr.3d 177 ( Correia ) held PAGA claims are not arbitrable unless the state consents ( Correia, at pp. 624-625, 244 Cal.Rptr.3d 177 ), it found Correia inapplicable. According to the court, "the PAGA statute and the case law expressly require the claims to be brought by aggrieved ‘employees,’ ... [and u]nlike cases cited [by petitioners where] claims were undisputedly brought by employees, the present case is on the very issue of whether [petitioners] should be classified as independent contractors or employees.’ " The court added that "[t]here is no California law yet regarding whether PAGA claims on [the] misclassification issue cannot be delegated," and found that the issue was properly delegated to an arbitrator.

4. Writ Proceedings

Petitioners filed a petition for writ of mandate in this court, challenging the trial court's order granting the motion to compel arbitration. Zum filed a preliminary opposition. On August 25, 2020, we issued an order to show cause before this court why the relief sought in the petition should not be granted. Zum filed a return and petitioners a reply.

DISCUSSION

1. Overview of the Parties’ Contentions

Petitioners’ writ petition is founded on a fairly straightforward argument: Our Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ) and several Courts of Appeal are uniform in holding that PAGA claims are not waivable and are not arbitrable. Under that case law and in light of the very nature of a PAGA claim, a court – not an arbitrator – must decide all aspects of the claim. The only exception is when the state, as real party in interest, has consented to arbitration. The state did not consent here.

Zum argues PAGA is subject to the Federal Arbitration Act (FAA) and Iskanian is no longer good law. But its more tailored assertion is: The trial court did not order the PAGA claim to arbitration. It only compelled a single antecedent fact or "gateway issue" to be arbitrated: whether petitioners are employees, which they must be to have standing under PAGA, or independent contractors, and thus ineligible to bring a PAGA claim. Zum contends that, by virtue of the delegation clause of the Agreement and its incorporation of JAMS rules, "jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement ... and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator." Iskanian and most other appellate opinions are beside the point.

We discuss first the standard of review. Next, we summarize how PAGA operates. Then we consider whether PAGA claims are subject to the FAA, whether they may be waived, and whether they may be arbitrated without the state's consent. We then apply these principles to Zum's argument that the gateway issue of whether petitioners are employees or independent contractors is subject to arbitration.

2. Standard of Review

Standards of review of orders on a motion to compel arbitration are not uniform. ( Avila v. Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 839-840, 230 Cal.Rptr.3d 42.) Generally, if the trial court's order rests on a factual determination, the appellate court adopts a substantial evidence standard. If the court's decision rests solely on an interpretation of law, then we employ the de novo standard of review. ( Ibid . )

Because the arbitrability of a portion of a PAGA claim presents a legal question that lies at the intersection of California labor and arbitration law, our review is de novo. (See Provost v. YourMechanic, Inc. (2020) 55 Cal.App.5th 982, 269 Cal.Rptr.3d 903, review den. Jan. 20, 2020, D076569 ( Provost ) ["Here, we apply a de novo standard of review because the denial of arbitration of the ‘individual’...