In its motion, In-N-Out argued that the plaintiffs’ claims were required to be arbitrated under controlling Supreme Court case law, Viking, decided only when their appeal was pending. The plaintiffs made several arguments. These included that the agreement didn’t require arbitration of individual PAGA claims, and that, in any case, the defendant’s participation in trial proceedings waived its right to arbitration.  

The plaintiffs who filed suit were former employees of the defendant restaurant chain. While employed, they signed arbitration agreements in which they agreed that they would pursue any employment claims with In-N-Out through arbitration under the Federal Arbitration Act. Their employment agreements included a waiver that specified they would have no right to bring, have heard, or arbitrated their disputes as private attorney general actions. However, this provision also specified that the waiver could be severed from the agreement if the controversy were filed as a private attorney general action and the court found that the waiver was unenforceable.

The plaintiffs sued In-N-Out for penalties under PAGA based on the company’s alleged practice of mandating that employees buy and wear specific clothes without reimbursing them for those clothes, and also requiring them to buy particular cleaning products to maintain the clothes without reimbursing them. The plaintiffs’ lawsuit was brought both for themselves and other employees in the same situation.

During discovery, the defendant moved to compel arbitration. It had discovered a pending United States Supreme Court case, Viking, in which the defendant was asking the Court to overturn California’s Iskanian rule, which bars arbitration of PAGA claims. Using the Iskanian rule as its rationale, the trial court denied the defendants’ motion, and they appealed.

The Court of Appeals reasoned that post-Viking, every PAGA lawsuit can be understood as made up of an individual claim, as well as a representative claim, that grows out of violations suffered by other employees. These claims can be severed from one another, and the individual claim can be subject to arbitration, even when the state doesn’t participate or agree. In this case, the employment agreement specifies that the waiver of PAGA included in the agreement could be severed from the rest of the agreement if severance was needed to ensure that an individual claim goes through arbitration.

The Court of Appeals decided that the arbitration agreements mandated that individual PAGA claims could be arbitrated, and that the defendant did not waive its right to compel arbitration through its involvement in trial proceedings. It reversed the lower court’s decision as to one of the plaintiffs, while sending the other case back to consider his arguments.

The appellate court also reasoned that it could not reconcile the analysis in the United States Supreme Court case Viking with the California Supreme Court’s decision in Kim v. Reins International California, Inc.. Because these cases couldn’t be reconciled and California law was being interpreted, the Court of Appeals followed Kim to allow plaintiffs to retain standing to pursue their representative PAGA claims in court, even though their individual claims were compelled to arbitration.

The Court of Appeals also concluded that the defendant hadn’t waived its right to arbitrate the case since it raised the right to arbitrate as soon as it had a chance of success and there was no unreasonable delay.

Arbitration clauses can become crucial aspects of employment and other litigation. If your company is involved in litigation involving a contentious arbitration clause, call experienced Los Angeles business litigation attorney Ben Mehdian to develop a strong strategy for your case. Contact us at (844) 463-4342 or (310) 889-0706 or via our online form to schedule a consultation and protect your business.

A few months later, one of the plaintiffs alleged he’d suffered a racially hostile work environment and asserted three causes of action under the California Fair Employment and Housing Act (FEHA), which is the state law that forbids workplace discrimination and harassment in California. The plaintiff had been offered employment, but he hadn’t signed the offer letter, and so the court denied the defendant’s motion to compel arbitration. The defendant then asked that class allegations in the plaintiff’s complaint be stricken because the plaintiff couldn’t adequately represent those workers that had agreed to arbitration by signing the offer letter.

Two other named plaintiffs were added. The complaint alleged that multiple Black coworkers faced repeated instances of being called racial slurs and facing other discrimination by their fellow coworkers as well as their supervisors. The plaintiffs were part of a subclass of workers that were initially employed by staffing agencies, but who became direct employees of Tesla.

Tesla moved to compel arbitration of the plaintiffs’ claims the following year. The plaintiffs argued that they weren’t required to arbitrate any claims based on Tesla’s actions before the start date specified in the offer letter. They also argued they were entitled to seek a public injunction in court since the arbitration provision prohibited it in arbitration proceedings.

The lower court partly granted Tesla’s petition. It reasoned that the arbitration clause required arbitration of disputes that arose after the start date. However it denied the motion to the extent that plaintiffs were asking for a public injunction.

On appeal, the Court of Appeals determined that the plain language of the arbitration provision indicated that it only covered claims that arose after direct, contractual employment began, as specified in the offer letters. The defendants also argued that the lower court had made a mistake in dividing the plaintiffs’ claims according to whether they were directly employed since the plaintiffs had asserted claims covering the whole time they were at Tesla rather than sequential hostile workplace incidents from before and after the period of their employment. The Court of Appeals pointed out that the defendants had required the trial court to do this because it had moved for arbitration.

The Court of Appeals also concluded that the lower court had appropriately refused to require the plaintiffs to arbitrate their request for a public injunction under FEHA. The defendant argued that a public injunction should only apply to acts directed to the entire public, not its employees, but didn’t have any case law or legislative history to back up that argument. The Court of Appeal explained that it was well-established that FEHA, as a workplace discrimination law, also served a public purpose. The arbitration provision in question in this case provided for resolution of covered disputes but forbade the arbitrator from granting nonindividual relief, such as a public injunction. That particular right of the plaintiffs’ was not waived in any forum.

The lower court’s order was affirmed.

Many businesses face complicated controversies in connection with arbitration agreements with their employees. If your company is involved in employment litigation involving a contentious arbitration clause, call experienced Los Angeles employment litigation attorney Ben Mehdian to develop a strong strategy for your case. Contact us at (844) 463-4342 or (310) 889-0706 or via our online form to schedule a consultation and protect your business.

The case arose under complicated circumstances. Paradigm, which is a sports management company, had signed Pacquiao in February 2020. There were talks of a possible megafight. However, since losing to Yordenis Ugas in 2021, Pacquiao hasn’t fought. He was scheduled to face welterweight champion Errol Spence, but Spence was injured and withdrew, and Ugas replaced him. Paradigm sought, but was not able to obtain, an injunction to stop the bout, which TGB Promotions presented.

TGB Promotions mostly works with Premier Boxing Champions (PBC). Pacquiao had previously had fights with PBC in 2019, and according to TGB’s attorney, TGB had an ongoing contractual relationship with the boxer that predated the contract for representation that he had with Paradigm. TGB attributes Paradigm’s failure to get an injunction to stop the bout their ongoing relationship with the boxer.

At trial, the plaintiff claimed that Pacquiao had not operated in good faith and hadn’t disclosed to it an arrangement with TGB Promotions. They also argued that the defendant wasn’t credible on questions of their contract. During the trial, evidence was presented that allegedly showed a Facetime conversation Pacquiao had with an executive previously at ESPN. In the face of that evidence, Pacquiao denied he knew through that executive was.

The plaintiff’s attorney also said that even though the boxer had an obligation to TGB Promotions, he accepted $3.3 million from Paradigm and yet refused a bout to face Mikey Garcia that Paradigm had arranged before the lawsuit was filed. Pacquiao’s business associates advised against the fight, and so the boxer worked with PCB instead and signed for a fight with Spence. Garcia, for his part, said that a deal was not reached, and he left Paradigm.

Ruling 9-3 in favor of Paradigm, which had represented Pacquiao, the jury issued a verdict against Pacquiao and rendered a judgment of $5.1 million, made up of $3.3 million in actual damages and $1.8 million in punitive damages. The jury ruled that the boxer acted in bad faith.

Pacquiao did not make it clear whether he will appeal. His legal team has insisted that a crucial piece of evidence should have been considered and wasn’t. After Paradigm closed its case, the boxer’s legal team put forward a motion for nonsuit, arguing that the contract between Pacquiao and Paradigm was invalid because it hadn’t been filled out on the requisite California State Athletic Commission (CSAC) paperwork. The sides hadn’t gone before the commission’s executive officer Andy Foster for his signature, which was also required.

In a prior case involving MMA world champion Ronda Rousey and her manager, Rousey’s legal team made a successful argument to invalidate the agreement on the same grounds. However, Rousey was licensed by CSAC at the time of the dispute, while Pacquiao was not, so it’s not clear what the ruling would be in Pacquiao’s case.

If you have a dispute involving breach of contract call experienced Los Angeles business litigation attorney Ben Mehdian to develop a fearless strategy to handle your case. Contact us at (844) 463-4342 or (310) 889-0706 or via our online form to schedule a consultation and protect your business.