Ninth Circuit Holds that Non-Individual PAGA Claims Cannot be Compelled to Arbitration Even When the Agreement Only Waives Class or Collective Actions

On May 10, 2024, the Ninth Circuit decided Yuriria Diaz v. Macys West Stores, Inc.  In that case, Diaz brought California Private Attorneys General Act (“PAGA”) claims against her former employer.  The district court compelled both Plaintiff’s individual and non-individual PAGA claims to arbitration, reasoning that the arbitration agreement’s broad language must be interpreted to encompass both types of claims.  Macy’s appealed.

The parties’ arbitration agreement provided that “all employment-related legal disputes” are subject to arbitration.  However, it also included a class or collective action waiver.  The district court reasoned that the class or collective action waiver did not encompass PAGA claims because the Supreme Court distinguished class actions from non-individual PAGA claims in Viking River.

The Ninth Circuit explained that the district court had erroneously applied after-acquired legal developments to determine the parties’ intent when entering into the contract.  Returning to basic principles of contract law, the Ninth Circuit stated that the Supreme Court’s 2022 decision could provide little insight into the parties’ intent when entering into an agreement ten years earlier.  The Court then looked to the terms of the agreement itself, which repeatedly referred to a bilateral relationship between the employer and the individual employee, and concluded that the parties had only consented to arbitrate plaintiff’s individual claims.

Macy’s requested that the Ninth Circuit dismiss plaintiff’s non-individual claims per the Supreme Court’s decision in Viking River. But as we explained in this previous post, in Adolph v. Uber Technologies Inc. the California Supreme Court disagreed with the holding in Viking River that once an individual PAGA claim is compelled to arbitration, the plaintiff loses statutory standing to pursue non-individual claims in court.  Because the California Supreme Court has the final word on California law, the Ninth Circuit followed Adolph and refused to dismiss plaintiff’s non-individual claims.  The Ninth Circuit did not explicitly instruct the district court to stay the proceedings but simply anticipated the parties would do so per their agreement, which required this action.  However, other district courts have explicitly interpreted Adolph to require that the non-individual claims be stayed until arbitration concludes.  See Josephson v. Lamon Constr. Co., No. 2:23-cv-00043-DAD-AC, 2024 U.S. Dist. LEXIS 17938 Feb. 1, 2024); (E.D. Cal. Rubio v. Marriot Resorts Hosp. Corp., No. 8:23-cv-00773-FWS-ADS, 2023 U.S. Dist. LEXIS 211867 (C.D. Cal. Oct. 18, 2023).

Key Takeaways:

  • Most arbitration agreements likely pre-date Viking River, so even if an arbitration agreement includes only a class or collective action waiver, it could still be interpreted as requiring arbitration of only individual PAGA claims.
  • Adolph suggested that non-individual claims should be stayed pending the outcome of arbitration, and courts are beginning to agree that this is the correct procedure.