McLeod Witham

Employer Should Have Challenged Pleadings Rather Than Brought A Motion To Compel Arbitration If It Felt Plaintiff Mislabeled His Claims To Avoid Arbitration

Synopsis: 

California Court of Appeal affirms denial of employer's motion to compel arbitration

In Betancourt v. Prudential Overall Supply, plaintiff alleged that Prudential maintained a “uniform policy and systematic scheme of wage abuse.”  As a result, Betancourt asserted a single claim for “enforcement of the Labor Code” under PAGA and alleged that the Company:  (1) failed to pay overtime; (2) failed to provide meal periods; (3) failed to provide rest periods; (4) failed to pay minimum wage; (5) failed to pay timely wages upon termination; (6) failed to pay timely wages during employment; (7) failed to provide accurate wage statements; (8) failed to keep complete and accurate payroll records; and (9) failed to reimburse necessary business-related expenses and costs.

Because Betancourt signed an arbitration agreement in which he agreed to “submit to final and binding arbitration any and all claims and disputes that are related in any way to [his] employment or the termination of [his] employment” as well as to “forego any right to bring claims on a representative or class member basis,” Prudential brought a motion to compel arbitration.

In addition to arguing that all of Betancourt’s claims related to his employment and, therefore, should be compelled to arbitration, Prudential also argued that Betancourt was attempting to evade arbitration by labeling his garden-variety wage and hour claims as PAGA claims.  Prudential argued that the action was – in substance – a standard wage and hour case and pointed to Betancourt’s “prayer for relief,” which sought business expenses, unpaid wages, interest, attorney’s fees and costs, remedies that do not fall within a PAGA cause of action. 

The Court of Appeal affirmed the trial court’s denial of Prudential’s motion to compel arbitration.  In doing so, the Court of Appeal ruled that a motion to compel arbitration is not the “proper procedural vehicle for sorting through alleged defects in the complaint.”  Accordingly, if Prudential believed that Betancourt was attempting an “end run” around arbitration by mislabeling his causes of action, the Court stated the Company should have challenged the pleadings and then brought a motion to compel arbitration if the complaint asserted private, non-PAGA claims.  As the Court stated “[i]t appears to this court that Prudential may be attempting to make an ‘end run’ around a demurrer or motion to strike, by trying to roll a challenge to the pleadings into a motion to compel arbitration.” 

Finally, in affirming the trial court’s ruling, the Court of Appeal repeatedly cited the California Supreme Court’s holding in Iskanian and made clear that a pre-dispute agreement between an employer and an employee to arbitrate does not bind the State of California to arbitration.  “A PAGA case ‘is not a dispute between an employer and an employee arising out of their contractual relationship.  It is a dispute between an employer and the state . . .’”