BlogLine

California appellate court rejects “Headless PAGA” as a way to avoid arbitration

1/13/25

By: John K. Rubiner

At the very end of 2024, the California Court of Appeal for the Second District issued its opinion in Leeper v. Shipt (Cal. App. December 30, 2024) 2024 WL 5251619. This is an important case concerning when a Private Attorney General Act (PAGA) case must be sent to arbitration. The Court clearly rejected the dicta in Balderas v. Fresh Start Harvesting, Inc. (2024) 101 Cal.App.5th 533 (Balderas), which indicated a plaintiff could avoid arbitration by asserting claims in a representative capacity only – a so-called “Headless PAGA” claim – foregoing any personal recovery under PAGA. 

There has been a lack of clarity on this issue since the U.S. Supreme Court’s 2022 ruling in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 (Viking River). In Viking River, the Court held a PAGA claim has both “individual” and “representative” components. Therefore, in cases where the plaintiff signed an arbitration agreement pursuant to the Federal Arbitration Act (FAA), the representative component should be stayed while the individual component should be arbitrated. The California Supreme Court recognized that, even where the individual component of a PAGA claim is sent to arbitration, it still remains a part of a larger action including the representative component that remains in court. Adolph v. Uber Technologies, Inc. (2024) 14 Cal.5th 1104. Moreover, the California Supreme Court held the arbitrator’s determination that a Plaintiff is (or is not) “aggrieved” for PAGA standing purposes is binding on the trial court – so if an arbitrator finds a PAGA plaintiff is not “aggrieved,” the representative action in the trial court would be dismissed. 

Since Adolph, plaintiffs’ attorneys have been creative in seeking ways to avoid arbitration – and the sometimes-lengthy stay of the “representative” action, that accompanies arbitration of the “individual” claims. Many employees who believe they’ve been treated unfairly by their employers have chosen to expressly disclaim any personal recovery and seek to bring only PAGA representative claims – or Headless PAGA claims. Under this theory, the employee hopes to avoid arbitration by claiming there is no “individual” claim to be arbitrated as they seek no individual damages or other recovery. Some courts have accepted this theory, and its use was spurred on by the appellate court’s dicta in Balderas. In fact, according to a November 2024 Bloomberg article, “[i]n the six months since Balderas was published, more than a third of 122 PAGA cases filed in California Superior Court, Los Angeles County were clearly “headless.” And 17 of the 122 cases, or about 14%, specifically cited Balderas.” https://news.bloomberglaw.com/litigation/california-workers-try-to-avoid-arbitration-with-headless-paga. Leeper rejected this theory and recognized that even if a plaintiff chooses to disclaim any individual recovery, every PAGA claim necessarily retains both individual and representative elements. For example, even when an employee disclaims the right to recovery, there are still necessarily “individual” issues that must be resolved (for example, is the employee “aggrieved” and, if so, as to which alleged Labor Code violations). The court clearly stated where the parties have a valid and enforceable arbitration agreement, these “individualized” issues should be decided by an arbitrator. 

As for takeaways, employers should ensure they have strong arbitration agreements subject to the FAA and, when confronted with a PAGA case, need to move to compel arbitration of the “individual” component at the earliest opportunity. Given the importance of this issue to the interpretation of PAGA, it is likely that this issue will reach the California (and possibly United States) Supreme Court soon. Stay tuned…

In the meantime, if you have any questions about PAGA, arbitration agreements in employment, or other employment-related issues, please contact John K. Rubiner, john.rubiner@fmglaw.com; 213-615-7060 or any member of FMG’s California Employment Practice Team.