California Court of Appeal Finds Arbitration Agreement With PAGA Waiver Unenforceable

On March 10, 2009, the California Second District Court of Appeal in Franco v. Athens Disposal Company, Inc., B203317 (Mar. 10, (2009) addressed the enforceability of an arbitration agreement with a class action and “private attorney general” waiver clause in a case brought by a former employee as a class action against his employer for violations of the California Labor Code.

Background Facts

The plaintiff, Edizon Franco, was a former garbage truck driver for Athens Disposal Company. During his employment, the plaintiff signed an arbitration agreement (written in Spanish) that included a waiver of “any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of class or in a private attorney general capacity.” Following the termination of his employment, the plaintiff fi led a class action complaint against Athens alleging that he had been denied meal and rest periods, overtime and that the company engaged in illegal payroll practices in violation of the California Labor Code and Business and Professions Code. In his complaint, the plaintiff sought civil penalties as provided for by the Private Attorneys General Act (PAGA). The PAGA authorizes an aggrieved employee to recover civil penalties “on behalf of himself ... and other current or former employees.”1 Following the fi ling of the lawsuit, Athens fi led a motion to dismiss the case and compel arbitration per the terms of the arbitration agreement signed by the plaintiff. The trial court granted the company’s motion to compel arbitration of the plaintiff’s claims because the arbitration agreement precluded the plaintiff from proceeding either as a class representative or as a private attorney general.