In Lawson v. ZB, N.A. (2018) 18 Cal.App.5th 705, California’s Fourth District Court of Appeal recently ruled that the two elements comprising damages under Labor Code § 558 – (a) underpaid wages and (b) denominated assessments – are indivisible. Because a claim under Labor Code § 558 is indivisible and it is a civil penalty encompassed by the California Private Attorneys General Act (“PAGA”), the entire claim under Labor Code § 558 is not subject to any arbitration agreement between an employee and an employer, even if the employee waived his or her right to bring a class or representative claim against his or her employer.  The rationale behind this holding is that, in bringing a PAGA claim, “an employee is not acting on his or her own behalf, but on behalf of the state and the state is not bound by the employee’s prior agreement, including any waiver of his or [her] right to bring a representative action.”

In Lawson, the plaintiff employee filed a putative class action complaint alleging various wage and hour claims and seeking penalties and underpaid wages under Labor Code § 558. The defendant employer moved to compel arbitration on the plaintiff employee’s individual claims pursuant to an arbitration agreement whereby the plaintiff had waived her right to bring a class or representative action. The trial court granted the defendant’s motion to compel arbitration, but rather than compelling only the underpaid wages portion of the Labor Code § 558 claim to arbitration, the trial court ordered that the entire claim – including penalties – be compelled to arbitration. On appeal by the defendant employer, the court in Lawson dismissed the appeal, issued a peremptory writ of mandate commanding the trial court to vacate its order bifurcating the Labor Code § 558 claim and enter a new order denying the defendant employer’s motion to arbitrate. Of note, the Lawson court disagreed with Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228 decided last year, which held that Labor Code § 558 claims are divisible.

Specifically, in Esparza, the Fifth District Court of Appeal held that the underpaid wages portion of a claim under Labor Code § 558 is subject to arbitration pursuant to the terms of the parties’ arbitration agreement and the Federal Arbitration Act. In short, the Esparzacourt held that a plaintiff can pursue relief under Labor Code § 558 in his or her own right.