Schwendeman v. Health Carousel, LLC

Background

Connie Schwendeman asserted a single claim under California’s Private Attorneys General Act (PAGA) against Health Carousel, LLC and Health Carousel Travel Network, LLC, collectively referred to as Health Carousel. She alleged Labor Code violations involving the calculation of overtime and double-time pay, including the treatment of housing, meal, and incidental stipends and certain nondiscretionary bonuses. Her amended complaint sought civil penalties under California Labor Code section 2699(f). The parties had earlier removed the complaint’s requests for unpaid wages and certain other penalties.

Before starting her employment, Schwendeman received Health Carousel’s new-hire documents through an online portal. She electronically signed a five-page Mutual Agreement to Arbitrate Claims on July 6, 2017, and never opted out. The agreement stated that arbitration was voluntary and not a mandatory condition of employment. It covered employment-related claims, including wage claims and claims under federal or state law, and waived class and collective actions. It did not expressly waive a representative PAGA claim.

The agreement also contained a delegation clause. That clause gave the arbitrator, rather than a court or agency, exclusive authority to decide disputes about the agreement’s interpretation, applicability, enforceability, or formation. Health Carousel moved to compel arbitration and dismiss the action.

Delegation and waiver

The court applied the Federal Arbitration Act, which generally requires enforcement of qualifying arbitration agreements. Ordinarily, a court decides whether an arbitration agreement exists and whether it covers the dispute. The court explained that parties may instead clearly and unmistakably delegate those “gateway” questions to an arbitrator.

Applying the Supreme Court’s decision in Rent-A-Center, the court held that the delegation clause assigned arbitrability questions to the arbitrator. “Arbitrability” means whether a particular dispute must be arbitrated. The court determined that the agreement delegated questions about whether the agreement covered Schwendeman’s PAGA claim.

The court separately considered Schwendeman’s argument that Health Carousel waived its right to enforce the delegation clause. The court—not the arbitrator—decided that waiver issue because neither party contended that the agreement delegated waiver to the arbitrator. To establish waiver, Schwendeman had to show that Health Carousel knew of its arbitration right, acted inconsistently with that right, and caused her prejudice.

The court found that Health Carousel did not act inconsistently with its right to have the arbitrator decide the agreement’s scope. Although Health Carousel’s opening brief asked the court to decide whether the agreement was valid and covered the PAGA claim, Health Carousel invoked the delegation clause in its reply after Schwendeman raised specific contract-interpretation arguments. Health Carousel had filed its motion shortly after the complaint and less than two weeks after the operative amended complaint; it had not litigated the case for months or years or waited until after an adverse ruling. The court also found that Schwendeman had not shown the type of prejudice required to establish waiver.

Authority to agree to PAGA arbitration

The court decided, rather than delegated, whether Schwendeman had authority to agree to arbitration of the PAGA claim. PAGA permits an aggrieved employee to seek civil penalties on behalf of the employee and other current or former employees, acting as a representative of the state’s labor-law enforcement agencies.

Schwendeman relied on California appellate authority stating that an employee cannot agree before a dispute arises to arbitrate a representative PAGA claim because the state owns the claim and the employee is not yet acting as the state’s representative. Health Carousel relied on Ninth Circuit decisions holding that an individual employee acting as a government agent can agree to pursue a PAGA claim in arbitration.

The court stated that the California Supreme Court had not resolved whether a predispute employee-employer agreement could compel arbitration of a representative PAGA claim. Predicting how that court would rule, the court relied on the reasoning of the California Supreme Court’s decision in Iskanian and the Ninth Circuit’s decision in Sakkab. It concluded that a predispute agreement to arbitrate a PAGA claim is binding and that Schwendeman had authority to agree to arbitration. The court left the question whether the particular PAGA claim falls within the agreement’s scope to the arbitrator.

Disposition

The court GRANTED the motion to compel arbitration. It stated that the arbitrator would decide the arbitrability of the PAGA claim. The court STAYED the action pending arbitration rather than dismissing it as Health Carousel had requested. The clerk was directed to administratively close the case. If the arbitrator determines that the PAGA claim is not subject to arbitration, Schwendeman may request that the court reopen the action and lift the stay.