Court of Appeal Orders Arbitration for a PAGA Lawsuit with an Individual Claim

In July of 2024, California’s Private Attorneys General Act (“PAGA”) was substantially reformed in an effort to curb the filing of frivolous “shakedown” lawsuits against California employers. On December 30, 2024, a 2^nd District Court of Appeal effectuated another potential limitation on PAGA lawsuits by mandating arbitration for a PAGA lawsuit that includes an individual claim, despite the lawsuit not expressly including an individual claim.

Based on a prior Court of Appeal ruling allowing PAGA lawsuits to proceed without arbitration when no individual claims are made, plaintiff attorneys have been able to avoid arbitration in “headless” PAGA lawsuits where only representative claims are made on behalf of other aggrieved employees. However, this more recent Court of Appeal ruling in the matter of Leeper v. Shipt, Inc. (B339670, 2^nd District Court of Appeal, filed July 10, 2024), denied Leeper’s claim that her PAGA lawsuit was brought in a purely representative capacity on behalf of other employees. Pursuant to the Court’s finding that Leeper’s PAGA lawsuit included an individual claim as well as representative claims, the Court ordered Leeper’s individual claim to arbitration while staying the remainder of her lawsuit on behalf of other employees.

In reaching this conclusion, the Court relied primarily on the statutory language of PAGA. Specifically, California Labor Code section 2699, subdivision (a) describes a PAGA claim as “a civil action brought by an aggrieved employee on behalf of the employee and other current or former employees.” Based on a plain language interpretation of the statute, the Court reasoned that PAGA actions inherently have both an individual component and a representative component. The Court was not persuaded by Leeper’s efforts to cite other portions of the statute in support of her arguments against arbitration, finding additional portions of the statute to contradict her arguments.

While it remains to be seen whether this ruling will be appealed to the California Supreme Court, the Leeper decision could represent the end of “headless” PAGA lawsuits being filed in an effort to avoid arbitration. By extension, ordering the individual claims in PAGA lawsuits to arbitration will result in potentially lengthy stays for the representative claims in those lawsuits, creating disadvantages for plaintiff attorneys caused by the delay of discovery.

The Leeper decision represents the latest in what appears to be a momentum shift against the improper utilization of PAGA claims, and it could potentially mean the end of a loophole that has been exploited by plaintiffs to avoid arbitration and stays of their PAGA lawsuits.