Gonzales v. Emeritus Corporation

Background

Flora Gonzales brought a putative class action and representative action under California’s Private Attorneys General Act (PAGA), along with wage-and-hour claims, against Emeritus Corporation, Summerville at Atherton Court LLC, Brookdale Living Communities, Inc., Brookdale Senior Living Communities, Inc., Brookdale Vehicle Holding, LLC, and Doe defendants. The complaint alleged six California Labor Code claims, including claims seeking relief under Labor Code Section 558(a), and one claim under Section 17200 of the California Business and Professions Code. Four of the Labor Code claims were asserted as representative PAGA claims.

The opinion states that Gonzales worked as a medical aid and technician for seventeen years at a senior-care facility. In 2014, Brookdale entities acquired the facility and imposed a mandatory dispute-resolution policy. The policy stated that employees agreed to arbitration by continuing to work after receiving it, and refusal to sign the handbook describing the arbitration process could result in immediate termination. Gonzales signed the arbitration agreement and handbook in 2014. Her employment ended in 2017.

The agreement required arbitration of legal disputes arising from or related to employment, including wage-and-hour disputes, and included a class-action waiver and a PAGA waiver. Gonzales filed her action in state court in July 2018, and the defendants removed it to federal court in October 2018. The defendants moved to compel arbitration of all claims. The parties disputed whether the agreement was enforceable, whether the PAGA waiver was enforceable, and whether the unpaid-wage amounts sought under Section 558(a) could be separated from the PAGA claims and sent to arbitration.

Rulings on the Arbitration Agreement

The court held that the arbitration agreement was valid and enforceable and that it covered the claims at issue. Gonzales argued that the agreement was unconscionable, meaning unfairly imposed or unfairly one-sided, because the defendants imposed it without requiring her signature and threatened termination if she refused to sign the handbook. The court found a high degree of procedural unconscionability but held that Gonzales had not shown a sufficiently harsh or one-sided result to invalidate the agreement. The court also rejected her argument that the agreement denied meaningful discovery, noting that the agreement allowed discovery as directed by law or the arbitrator and allowed the arbitrator to issue subpoenas when needed.

Gonzales also argued that language concerning the PAGA waiver was ambiguous. The court held that, even assuming the language was ambiguous, it could be separated from the rest of the agreement and did not invalidate the arbitration requirement. The court further held that the PAGA waiver was collateral, rather than central, to the agreement’s main purpose of requiring arbitration.

The court therefore ordered Gonzales’s non-PAGA, individual claims to arbitration. The agreement’s class-action waiver stated that no dispute could be arbitrated as a class or collective action. The court left it to the arbitrator to decide whether Gonzales had some other basis for bringing a class or collective action.

PAGA Waiver

The court held that the PAGA waiver was unenforceable under binding California Supreme Court and Ninth Circuit precedent. The court rejected the defendants’ argument that a United States Supreme Court decision, Epic Systems Corporation v. Lewis, had displaced that precedent. The court concluded that the reasoning of Epic Systems and the reasoning supporting the rule against representative PAGA waivers were not clearly irreconcilable.

Because the waiver was unenforceable, the representative PAGA claims remained in federal court rather than going to arbitration. The court stated that the agreement itself provided that, if the waiver was found unenforceable, the representative PAGA action would be litigated in that court.

Section 558(a) Wage Claims and Stay

The court held that it did not need to decide whether unpaid-wage claims under Section 558(a) could be separately arbitrated. A California Supreme Court decision issued after the action was filed held that Section 558(a)’s underpaid-wage amounts were not civil penalties and could not be brought as PAGA claims. That decision left it to the trial court to determine whether such amounts should be removed or pleaded under another legal theory.

The court granted leave to amend in part and denied it in part. Gonzales could amend the unpaid-wage portion of her PAGA claims only to allege unpaid wages under a Labor Code provision other than Section 558(a).

The court also stayed the representative PAGA claims while the individual arbitration proceeded. A stay pauses the court case while another proceeding—in this case, arbitration—takes place. The court reasoned that the PAGA claims were connected to the individual claims being arbitrated.

Disposition

The defendants’ motion to compel arbitration was GRANTED IN PART AND DENIED IN PART. It was granted as to Gonzales’s individual claims, which were ordered to individual arbitration. It was denied as to the representative PAGA claims, which remained in federal court and were stayed pending arbitration. Leave to amend the complaint was GRANTED IN PART AND DENIED IN PART, solely as to the PAGA claims for unpaid wages previously brought under Section 558(a). Gonzales was ordered to file the amended complaint by December 12 at noon.

Judge William Alsup signed the order on November 23, 2019.