/>iCalifornia’s Private Attorneys General Act (PAGA)[1] allows “aggrieved employees” to sue their employers for Labor Code violations to collect civil penalties “on behalf of himself or herself and other current or former employees.” The issue of how to resolve PAGA claims where the employee and employer are subject to a binding arbitration agreement has been hotly contested over the last several years, as reported many times in this blog [see here, here, and here].
Until recently, the latest contention in the longstanding PAGA saga was whether the appellate decision in Balderas v. Fresh Start Harvest, Inc.[2] gave the green light for plaintiffs to pursue “headless” PAGA claims—where a plaintiff asserts a PAGA action solely on behalf of other employees, purporting to abandon their individual PAGA claim for civil penalties arising out of alleged violations against the plaintiff. Despite the obvious problems with this theory, many plaintiffs bringing PAGA lawsuits adopted this strategy in an effort to sidestep their obligation to arbitrate their individual PAGA claims before being allowed to pursue non-individual claims in court.
However, on December 30, 2024, the California Court of Appeal for the Second Appellate District published an opinion that is favorable to employers. In Leeper v. Shipt, Inc. et al.[3]the Court concluded that based on the unambiguous language of the PAGA statute, every PAGA action necessarily contains both an individual and non-individual PAGA claim, regardless of whether the plaintiff attempts to disavow their own individual PAGA claim. This means that a non-individual PAGA claim cannot exist without its individual companion, and plaintiffs cannot utilize this strategy to avoid arbitration.
Landmark Supreme Court Decisions Addressing PAGA and Arbitration Agreements
Prior to 2022, where there was an otherwise enforceable arbitration agreement, California courts generally would not allow PAGA claims to be divided into individual and non-individual claims, making it difficult to compel PAGA claims to arbitration. In 2022, the U.S. Supreme Court held in Viking River[4]that California’s rule prohibiting arbitration of individual PAGA claims violated the Federal Arbitration Act (FAA). The Court in Viking River further held that an employer can enforce an arbitration agreement in a PAGA action by dividing individual and non-individual PAGA claims and compelling arbitration as to the individual PAGA claim. Viking River defined an “individual PAGA claim” as a claim for civil penalties arising from alleged Labor Code violations committed specifically against the named plaintiff or plaintiffs.[5]
The following year, the California Supreme Court adhered to this precedent in Adolph v. Uber,[6] finding that “individual” PAGA claims are subject to arbitration. Significantly, Adolph held that under the statutory definition of “aggrieved employee,” a PAGA plaintiff whose individual PAGA claims are compelled to arbitration does not lose standing to assert non-individual PAGA claims in court.
Balderas and the Emergence of “Headless” PAGA Lawsuits
On the hunt for a means to avoid arbitrating the issue of whether a plaintiff is an aggrieved employee through an issue preclusive arbitration award on their individual PAGA claim, over the last nine months, there has been a noticeable uptick in plaintiffs purporting to abandon their individual PAGA claims—i.e., the headless PAGA action. The impetus for this strategy is the California Court of Appeal’s March 2024 decision in Balderas v. Fresh Start Harvest, Inc.[7]
In Balderas, an agricultural worker attempted to avoid an arbitration agreement by alleging PAGA claims in a non-individual capacity only. The plaintiff’s complaint alleged that she was “not suing in her individual capacity; she is proceeding herein solely under the PAGA, on behalf of the State of California for all aggrieved employees, including herself and other aggrieved employees.”[8] The trial court, on its own motion, struck the complaint because the employee “had not filed an individual action seeking PAGA relief for herself” and therefore lacked standing to pursue a non-individual PAGA claim.[9]
Addressing only PAGA’s standing provisions, the Balderas court reversed, holding that “an employee who does not bring an individual claim against her employer may nevertheless bring a PAGA action for herself and other employees of the company.”[10] In dicta, the court stated that the “inability for an employee to pursue an individual PAGA claim does not prevent that employee from filing a representative PAGA action.”[11]
Many plaintiffs latched onto this language, using it to formulate an argument that a PAGA plaintiff can side-step arbitration entirely by forfeiting their individual PAGA claim and proceeding entirely on behalf of non-party employees.
The Leeper Decision
On December 30, 2024, the Second Appellate District handed down a decision in Leeper[12] that unambiguously rejected the “headless” PAGA theory.
In Leeper, the plaintiff, an independent contractor, sued the company Shipt, Inc., alleging that her PAGA suit was brought as a “PAGA action on a representative, non-individual basis” and “in [her] representative capacity as an aggrieved employee on behalf of the [s]tate and all similarly aggrieved individuals subjected to the [alleged] violations.” Shipt petitioned to compel arbitration of the plaintiff’s individual PAGA claim pursuant to the parties’ binding arbitration agreement, but the trial court denied Shipt’s petition on the basis that plaintiff did not pursue an individual PAGA claim and thus there was no arbitrable claim.
The Second District Court of Appeal, however, reversed and found that the unambiguous statutory language in Labor Code § 2699(a) requires that “any PAGA action necessarily includes both an individual PAGA claim and a representative [non-individual] PAGA claim.” (emphasis added).[13] The Court disagreed with plaintiff’s reading of the statute, which would require it to either ignore the plain language of the statute authorizing PAGA suits to be “brought by an aggrieved employee on behalf of the employee and other current or former employees” (emphasis added), or, it would require the court to read the statute’s “and” as “and/or.” The Court found that doing either would be contrary to fundamental tenants of statutory construction, namely, that courts assign the statute’s words their usual and ordinary meaning. Further supporting its interpretation, the Court recognized that legislative history shows that the Legislature deliberately chose the word “and” in the statutory description of a PAGA action and rejected the word “or” which phrased the language in the disjunctive.
The Leeper court explained further that Balderas “addresses only PAGA standing issues and thus relies only on section 2699(c)(1)’s definition of ‘aggrieved employee,’”[14] not the language of section 2699(a) requiring PAGA actions to be brought “on behalf of the employee and other current or former employees.” (emphasis added). Thus, Balderas “did not have occasion to discuss, did not discuss, and its holding does not address, whether a plaintiff may carve out an individual PAGA claim from a PAGA action.”[15] The Leeper court held that to the extent language in Balderas “may suggest the Court of Appeal accepted the plaintiff’s and trial court’s characterization of PAGA claims as capable of being asserted on behalf of aggrieved employees other than the named plaintiff,” that discussion is dicta. As a result, even though the plaintiff’s complaint eschewed all individual PAGA claims and sought “non-individual civil penalties” only, the trial court was required to compel arbitration of plaintiff’s individual PAGA claim and stay litigation of the non-individual PAGA claim.[16]
Takeaways
Other appellate courts have been grappling with the same issues present in Balderas and Leeper, setting the stage for potential California Supreme Court review. In Sood Enterprises,[17] Garcia,[18]and Barnett,[19] the Second Appellate District and Fourth Appellate District are poised to rule on the issues decided in Leeper and Balderas.
Importantly, Balderas was decided prior to significant amendments to the PAGA statute that came into effect in June 2024 (as discussed on our blog here). These reforms heighten the showing required for plaintiffs to demonstrate standing in a PAGA case, and apply to PAGA claims made on or after June 19, 2024, but not to claims based on PAGA notices submitted to the Labor and Workforce Development Agency before June 19, 2024. In light of these amendments, the “headless” PAGA actions are likely a fleeting phenomenon.
Still, Leeper should be viewed as a notable and positive development for California employers, especially those who have recently drafted arbitration agreements to conform to the PAGA amendments. Leeper could be an indication of the impending consensus and signal an end to the “headless” PAGA action. Employers facing these PAGA claims should continue to watch the developments in this area to see if greater clarity is afforded from the Courts of Appeal, or if the California Supreme Court takes it up for review.
FOOTNOTES
[1] Cal. Lab. Code §2698 et seq.
[2] Balderas v. Fresh Start Harvesting, Inc., 101 Cal.App.5th 533 (2024).
[3] Leeper v. SHIPT, Inc., 2024 WL 5251619, Cal.App. 2 Dist., No. B339670.
[4] Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022).
[5] Id. at 649.
[6] Adolph v. Uber Technologies, 14 Cal.5th 1104 (2023).
[7] Balderas v. Fresh Start Harvesting, Inc., 101 Cal.App.5th 533 (2024).
[8] Id. at 536.
[9] Id.
[10] Id.
[11] Id. at 537.
[12] Leeper v. SHIPT, Inc., 2024 WL 5251619, Cal.App. 2 Dist., No. B339670.
[13] Id. at *1.
[14] Id. at *6.
[15] Id.
[16] Id.
[17] Sood Enterprises, Inc. v. Medina, 2024 WL 4286386, Cal. App. 2 Dist., No. B333390.
[18] Garcia v. Omni Hotels Management Corporation, 2024 WL 3843700, Cal. App. 4 Dist., No. D084151.
[19] Barnett v. First American Home Warranty Corporation, 2024 WL 4820844, Cal. App. 4 Dist., No. D084315.
