Judge Guts Key Arbitration Waiver in Nursing Home Workers’ Suit

SAN FRANCISCO (CN) – Citing binding precedent, a federal judge tossed part of an arbitration agreement that required nursing home employees suing for unpaid wages to give up their right to seek civil penalties under the Private Attorneys General Act, a law that deputizes private citizens to enforce California’s strict labor codes.

U.S. District Judge William Alsup ruled Monday that waivers forcing employees to give up their right to bring PAGA actions are invalid because they hurt the state’s interest in penalizing employers who violate wage and labor safety laws.

For 17 years, Flora Gonzales worked with dementia patients as a medication aide at a nursing home in Fremont, California. Around 2014 or 2015, the nursing home where she worked was bought by Brookdale Senior Living, the largest senior housing operator in the United States.

In 2017, Gonzales filed a class action against Brookdale, along with the home’s previous owner Emeritus, claiming she and other employees had been deprived of meal and rest breaks and were required to work overtime without compensation. The complaint included a Private Attorneys General Act claim seeking civil penalties on behalf of the state and her fellow workers.

That Brookdale and Emeritus sought to arbitrate rather than defend the case is par for the course, as was with Gonzales’ response that the agreement Brookdale had her sign when it took over the facility in 2014 is unconscionable and unenforceable.

Alsup saw differently, finding Gonzales couldn’t show “any overly harsh or one-sided result created by the agreement.” But he found the provision requiring Gonzales to waive her PAGA claim invalid because it has nothing to do with arbitration and is simply incompatible with public policy.

He pointed to Iskanian v. CLS Transportation Los Angeles, a frequently cited 2014 California Supreme Court ruling that class action waivers are unenforceable across the board.

While that might have been the end of it, Brookdale and Emeritus countered with a recent U.S. Supreme Court decision in Epic Systems v. Lewis that threatens to upend collective PAGA lawsuits.

Justice Neil Gorsuch wrote in the majority’s opinion that it is not illegal under federal law for employers to force workers to waive their class action rights as a condition of employment.

As Alsup wrote in a brief, somewhat jeering summary of the case, “In Epic Systems, the Supreme Court held that contract defenses which invalidated arbitration agreements were a ‘device’ that manifested ‘judicial antagonism’ towards arbitration and were therefore preempted by the Federal Arbitration Act.”

Alsup rejected the argument that the Supreme Court’s decision in Epic Systems overrules Iskanian. He cited Sakkab v. Luxottica, where the Ninth Circuit said the Iskanian rule is binding on federal courts:

“The California Supreme Court’s decision in Iskanian expresses no preference regarding whether individual PAGA claims are litigated or arbitrated. It provides only that representative PAGA claims may not be waived outright,” the Ninth Circuit panel wrote. “The Iskanian rule does not prohibit the arbitration of any type of claim.”

Alsup wrote, “Put simply, PAGA waivers are invalid because they hurt California’s interest in enforcing the Labor Code and not because of any reason that has anything to do with arbitration. Therefore, our court of appeals held in Sakkab, that the Federal Arbitration Act did not pre-empt the California Supreme Court’s decision in Iskanian.  For these same reasons, the holdings of Epic Systems and Sakkab are therefore not clearly irreconcilable and this order remains bound by Sakkab.”

Reached by phone on Tuesday, Brookdale’s attorney Shannon Rea Boyce with Littler Mendelson said she does not comment on ongoing litigation.

Employment attorney Jocelyn Burton, who represents Gonzales, said Tuesday employment defense lawyers have been looking to expand Epic ever since the decision came out.

“They want to expand Epic beyond what it is, and most courts have not accepted the analysis that Epic implicitly overrules Iskanian,” Burton said.

But PAGA is one of the few strong protections that low-wage workers have, she explained, as employers know that wage-and-hour lawsuits can be prohibitively expensive to pursue.

“It’s to enforce labor laws that otherwise wouldn’t be enforced,” Burton said. “Part of the problem is in a lot of these cases we are dealing with really low-wage workers and it’s difficult for an attorney to justify opening a case for maybe $10,000 worth of wage claims. Employers know that, and as a result there’s nothing other than PAGA to deter employers from flaunting labor laws.”

Burton said she doesn’t really see Epic weakening PAGA at this point. “The Supreme Court tends to be pro arbitration, but they haven’t really taken on PAGA.”


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