Employer accused of failure to timely pay wages upon termination

California Court of Appeal refuses to compel arbitration of employee's PAGA claims

Employer accused of failure to timely pay wages upon termination

An employer allegedly failed to comply with the requirement to pay wages within 72 hours from termination because it issued an electronic paycard with usage fees and access restrictions as final payment of wages to terminated or resigned employees.

The plaintiff in the case of Westmoreland v. Kindercare Education LLC said that she was a director for Kindercare Education LLC from April 2016 to January 2019. She signed an agreement requiring the arbitration of claims alleging the underpayment, overpayment, or mistimed payment of wages, expenses, loans, reimbursements, bonuses, commissions, advances, or any element of compensation.

The arbitration agreement excluded claims for discrimination, harassment, or retaliation and claims that could not be compelled to arbitration under the law. The agreement included a waiver requiring the arbitration of covered claims on an individual basis only and waiving the right to participate in or to receive relief from any class, collective, or representative claim.

A savings and conformity clause – also called the “poison pill provision” – provided that, if the waiver was deemed unenforceable, then the agreement would be invalid and a court would be the exclusive forum for any class, collective, or representative claim.

Read more: California court dismisses appeal challenging employer's payroll practices

In January 2019, Kindercare terminated the plaintiff. She filed a complaint partly under the Private Attorneys General Act of 2004 (PAGA). She alleged that Kindercare violated sections 201 to 203 – on an individual and representative basis – as well as sections 212 and 213 of California’s Labor Code.

Kindercare filed a motion to compel arbitration of the plaintiff’s individual non-PAGA claims and to put her PAGA claims on hold. In January 2020, the trial court granted this motion and decided that the PAGA waiver was unenforceable.

In January 2021, the California Court of Appeal found that, though the PAGA waiver was indeed unenforceable, it was not severable from the rest of the waiver and from the arbitration agreement. The entire agreement was unenforceable, the appellate court concluded. It cited the decision in Securitas Security Services USA, Inc. v. Superior Court (2015).

The California Supreme Court and the U.S. Supreme Court upheld the appellate court’s decision.

In July 2021, Kindercare filed a renewed motion to compel arbitration. The ruling in Western Bagel Co., Inc. v. Superior Court (2021) amounted to an intervening change in the law for the purposes of section 1008 of California’s Code of Civil Procedure, it argued. This new law required the plaintiff to arbitrate at least part of her case, it added.

The trial court disagreed and denied the renewed motion. Western Bagel did not overturn Securitas, the trial court said.

Arbitration not compelled

The trial court’s denial prompted Kindercare to appeal. While the appeal was pending, the U.S. Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana (2022).

The California Court of Appeal for the First District held that the renewed motion to compel arbitration should fail. The Western Bagel ruling was not considered new law under section 1008 such that it would justify a new decision, the appellate court said.

All the plaintiff’s claims should proceed via court litigation, the appellate court decided. Arbitration could not be compelled due to the agreement’s language and structure, the appellate court said. This ruling was consistent with the decisions in Western Bagel, Viking River, and Lamps Plus, Inc. v. Varela (2019), the appellate court added.

The arbitration agreement was invalid because of the clear poison pill provision, the appellate court concluded. In effect, this provision prevented sending the individual PAGA claims to arbitration while allowing court litigation for the representative PAGA claims, the appellate court explained.

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