By David Kadue
The traditional posture of California employers apprehensive about “gotcha” wage and hour claims is to hunker down and wait for the next lawsuit. But a few brave souls have taken the offensive. We celebrate two examples here. We cannot guarantee the success of their efforts, but we applaud their courage.
Declaratory relief action against California Labor Commissioner
One annoying peculiarity of California employment law is the Bluford doctrine, announced in a 2013 Court of Appeal decision called Bluford v. Safeway Inc. The Bluford case announced that truck drivers—already paid handsomely by mileage rates and by hourly rates for specified tasks and situations—were entitled to additional, separate pay for each rest period, under a notion that “employees must be compensated for each hour worked at either  the legal minimum wage or  the contractual hourly rate.” The court found it immaterial that the truck drivers earned, on an hourly average, far more than the minimum wage. Although Bluford was a controversial decision, the California Supreme Court declined to grant the employer’s petition for review.
OK. Fair (or unfair) enough. Then came the California Labor Commissioner and the Division of Labor Standards Enforcement, to rub salt in the Bluford wound. The DLSE determined that employers who pay on a piece-rate basis not only must separately pay for rest periods, but also must pay for those periods at a rate higher than the minimum wage or a contractual wage. According to the DLSE, an employer must pay piece-rate workers for rest periods at a rate equal to their average hourly piece-earning rate (which would vary on a continuous basis and which could greatly exceed the minimum wage). The DLSE announced this determination in a November 2013 internal memorandum, developed without the benefit of a rule-making process. The resulting “underground regulation” robs piece-rate paying employers of the certainty of paying rest periods at a fixed, pre-determined hourly rate.
Certain agricultural employers, heavily reliant on piece-rate labor, got mad as heck and decided not to take it anymore. In April 2015, in a case entitled Ventura County Agricultural Association v. Su, employer associations sued the government. They brought a petition for writ of mandate and a complaint for declaratory and injunctive relief in Sacramento County Superior Court. They argue that the DLSE has issued an unlawful regulation and one that is contrary to Bluford. We wish them well.
Making a federal case out of compelling a plaintiff to arbitrate PAGA claims
Our second profile in employer courage involves yet another annoying California peculiarity: the ability of employees to renege on arbitration agreements and bring representative actions to pursue Labor Code violations in state court under the Private Attorneys General Act. California plaintiffs owe this special privilege to a 2014 California Supreme Court decision called Iskanian v. CLS Transportation. There the Supreme Court acknowledged that courts, under the Federal Arbitration Act, must enforce arbitration agreements even when the agreements have waived the employee’s right to bring class actions that could advance state public policy. The simple reason is that the FAA, a federal statute, requires enforcement of arbitration agreements notwithstanding some anti-arbitration state policy.
But that’s only part of Iskanian. In another part, the California Supreme Court refused to enforce the arbitration agreement’s waiver of the right to participate in a representative PAGA action. The Supreme Court reasoned that a PAGA plaintiff is immune to an arbitration agreement because the PAGA plaintiff is acting as a private attorney general, standing in the shoes of California’s employment law enforcement agency. And that entity never signed an arbitration agreement. Iskanian, while binding on state court judges, does not control the decisions of federal judges. Many of those judges have faithfully applied the FAA to enforce arbitration agreements that waive representative actions, and have explained how Iskanian got it wrong.
So how does an employer, wanting to use its broad arbitration agreement against a pesky PAGA plaintiff, invoke the wisdom of federal judges when the plaintiff can sue in state court, where the judges must follow Iskanian? To get into federal court, doesn’t one need a basis for federal jurisdiction? And haven’t courts held that the FAA itself is not a sufficient basis for same?
Enter now an old friend of the civil rights movement: 42 U.S.C. § 1983. Section 1983 authorizes a federal lawsuit against anyone who, acting under color of state law, acts to deprive any person of federal rights. Section 1983 is what alleged victims of unconstitutional police conduct invoke when they bring actions in federal court. But, more broadly, Section 1983 applies when a person acting under color of state law (e.g., a PAGA plaintiff purporting to stand in the state agency’s shoes) is attempting to deprive another person (e.g., our friend the employer) of the other person’s federal rights (e.g., the right that the FAA confers upon contracting parties to have an arbitration agreement enforced like any other contract).
We have yet to see a judicial decision endorsing this inventive attempt to open the door to a federal action enforcing an arbitration agreement against a PAGA plaintiff. And one must remember that federal courts guard their jurisdiction carefully and sometimes erect arcane procedural hurdles to confront any party brave enough to venture there. Nonetheless, some intrepid employers have recently knocked on the federal door to see if a judge will honor their federal right to have an arbitration agreement enforced against a PAGA plaintiff. We wish these brave employers well, too.