Dike v. Zara USA, Inc.

Background

Ginika Dike alleged that Zara required non-exempt employees to complete COVID-19 screenings before starting their shifts. The screenings involved answering questions on a computer and taking temperatures. Dike alleged that the screenings could take several minutes, that employees were told not to include that time when clocking in, and that they were not paid for it.

Dike sued Zara in state court on December 16, 2022. After Zara removed the case to federal court, Dike filed a first amended complaint asserting five California-law claims: failure to pay wages and compensation, failure to provide accurate wage statements, failure to pay wages upon separation, violation of California’s Unfair Competition Law, and remedies under the Private Attorneys General Act (PAGA). Each claim was brought on behalf of Dike and the class.

Zara moved to compel arbitration of Dike’s individual claims and to dismiss the class and representative PAGA claims. Zara relied on a Mutual Dispute Resolution Agreement that Dike signed when she was hired as a sales associate on March 22, 2019. The agreement required covered disputes to be resolved through binding arbitration rather than in court. It also required covered claims to be brought individually and barred multi-plaintiff, class, collective, and representative actions. The agreement stated that claims that could not lawfully be covered by that waiver were not covered and included severability provisions.

Arbitration Agreement and Unconscionability

The Federal Arbitration Act governed the motion. The court considered whether a valid arbitration agreement existed and whether the agreement covered the dispute. Dike did not dispute signing the agreement or that it contained arbitration provisions. Instead, she argued that the agreement was unconscionable, meaning unfairly imposed or excessively one-sided under California contract law.

The court held that the agreement was a contract of adhesion because it was presented as a condition of employment, but that fact alone did not make it unenforceable. The court found only minimal oppression and surprise. Although Dike was not assisted by an attorney and said she was told to sign the onboarding documents promptly, she did not provide enough detail about how long she had to review them or show that her attempts to ask questions were unsuccessful. The arbitration agreement was a separate two-and-a-half-page document, its sections were labeled, and its bold language clearly stated that covered disputes would go to arbitration instead of a judge or jury.

The court also rejected Dike’s argument that the agreement was substantively unconscionable, meaning unjustifiably one-sided. The agreement expressly required both Zara and Dike to arbitrate covered claims, and its examples included claims an employer might bring, such as breach of contract, theft of trade secrets, and unfair competition. The court concluded that the agreement was mutually binding even if Zara might be more likely to use some provisions in practice.

PAGA Provision

Dike argued that the agreement contained an invalid wholesale waiver of PAGA claims. PAGA allows an employee to seek civil penalties on behalf of California for Labor Code violations against the employee and other workers. The court read the agreement as waiving only non-individual PAGA claims, not Dike’s individual PAGA claim. The court reasoned that the agreement repeatedly required claims to be brought individually and contained severability language.

The court further held that even if the PAGA waiver were interpreted as a wholesale waiver, the invalid portion could be severed. Under that reading, Dike’s individual PAGA claim would remain subject to arbitration, while the non-individual claim could proceed in court.

Disposition

The court held that the arbitration agreement was enforceable and that Dike must arbitrate her individual claims against Zara. The court granted Zara’s motion to compel arbitration, except for Dike’s non-individual PAGA claim, which it stayed pending the California Supreme Court’s decision in Adolph. The court did not state in the conclusion that it separately granted or denied Zara’s request to dismiss the class claims. The parties were ordered to notify the court within 10 days of the state court’s decision so that a case-management conference could be scheduled.