The California Court of Appeal has weighed in on a complex battle over arbitration agreements and employee rights under the Private Attorneys General Act (PAGA), concluding that a former Marshalls employee did not agree to arbitrate the “individual component” of his wage-and-hour claims. The ruling hinges on a close reading of the contract language signed years before recent U.S. Supreme Court rulings reshaped the legal landscape for PAGA litigation.
The case involves Robert LaCour, a former Loss Specialist for Marshalls of California, LLC, and related entities (collectively, Marshalls). After his termination, LaCour filed a single-count complaint under PAGA, seeking civil penalties for various alleged violations of the Labor Code on behalf of himself and other aggrieved employees, as well as the State of California.
Marshalls promptly moved to compel arbitration, arguing that LaCour’s employment arbitration agreement required him to arbitrate any “individual” PAGA claims, even if the broader, “representative” claims had to proceed in court. This argument relied heavily on the U.S. Supreme Court’s 2022 decision in *Viking River Cruises, Inc. v. Moriana*.
The Contractual Crossroads: PAGA Waivers and Severability
The core of the dispute centered on a 2014 arbitration agreement LaCour signed. Paragraph 5 of that agreement contained a broad waiver, stating that the parties would bring any dispute to arbitration on an “individual basis only and not on a class, collective, or private attorney general representative action basis.” Crucially, subparagraph (c) explicitly waived the right to bring a “private attorney general representative action” in any forum, but included a severability clause: if that PAGA waiver was found invalid, the representative claim “must be litigated in a civil court of competent jurisdiction.”
Adding a twist was a concluding proviso to the entire paragraph, which stated the PAGA waiver would be severable “in any case in which the dispute is filed as an individual action and severance is necessary to ensure that the individual action proceeds in arbitration.”
Marshalls argued that this proviso mirrored the situation in *Viking River*, where the Supreme Court permitted the arbitration of the “individual PAGA claim” while the rest of the representative action went to court.
LaCour countered by focusing on the severability clause in 5(c), viewing it as a clear indication that if the PAGA waiver failed—as it must under established California public policy prior to *Viking River*—the entire PAGA action belonged in court. He likened this to a “poison pill” clause seen in other cases, meaning the parties never intended to split the claim.
The Court’s Focus: Intent in 2014
The Court of Appeal ultimately sided with LaCour. The court emphasized that determining the validity of the motion to compel arbitration rests on the fundamental goal of contract interpretation: giving effect to the mutual intention of the parties at the time of formation—March 2014.
The appellate court noted that in 2014, California law, particularly following the landmark *Iskanian* decision, held that wholesale waivers of PAGA claims were unenforceable as against public policy, and courts generally rejected the idea of splitting PAGA actions into separate arbitral and judicial components.
“The parties would have had to be clairvoyant to anticipate that, eight years later, the high court would introduce new terminology into the PAGA lexicon as a matter of federal law,” the opinion stated.
Marshalls’ interpretation—that the contract anticipated the *Viking River* split between “individual” and “non-individual” claims—would have required the contract language to be far more specific, using terms like “non-individual PAGA claim” or explicitly mentioning the bifurcation of claims into different forums. Since the contract was drafted when California law rejected such splitting, the court found it highly unlikely the parties intended to agree to it.
The court concluded that the language, when read as a whole, did not clearly show LaCour and Marshalls agreed to arbitrate individual PAGA claims separately from representative ones.
The Shifting PAGA Landscape
The opinion provided an extensive overview of the evolving legal framework surrounding PAGA, which empowers employees to sue as agents of the state for civil penalties.
Before *Viking River*, California courts, following *Iskanian*, largely held that PAGA actions were unitary, representing the state’s interest, and could not be waived wholesale in arbitration. *Viking River* partially undercut *Iskanian*, holding that the Federal Arbitration Act (FAA) preempted the prohibition on splitting PAGA claims. The Supreme Court created a distinction between an “individual PAGA claim” (violations suffered by the plaintiff) and “non-individual claims” (violations suffered by others), mandating arbitration for the former if the contract allowed it.
However, the California Supreme Court later clarified its own standing rules in *Adolph v. Uber Technologies, Inc.*, holding that an employee retains standing to pursue the non-individual claims in court even if their individual claim is sent to arbitration.
The Court of Appeal in the Marshalls case found it unnecessary to delve deeply into the post-*Viking River* debate—including the complexities of “headless” PAGA actions addressed in cases like *Leeper*—because the contract language from 2014 was definitive.
“We agree with LaCour that they did not [agree to arbitrate individual PAGA claims],” the court affirmed, leading to the denial of Marshalls’ motion to compel arbitration.
The concurring opinion by Justice Streeter offered a sharp critique of the *Viking River* decision, suggesting the U.S. Supreme Court overstepped by imposing federal procedural concepts onto state law claims, potentially violating principles of federalism and the Tenth Amendment by overriding state rules on claim joinder and res judicata. However, Justice Streeter agreed that based purely on the 2014 contract language, LaCour had not consented to arbitrate his individual PAGA component.