PAGA/Blow-Up Provision

NICHOLE KEC, Petitioner, v. THE SUPERIOR COURT OF ORANGE COUNTY, Respondent; R.J. REYNOLDS TOBACCO COMPANY, et al.,

It is the established law of this state that a predispute contractual waiver of claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.) is invalid. Here, the parties’ arbitration agreement purports to waive class actions and any “other representative action” (the representative waiver). There is no dispute that this representative waiver is broad enough to cover a PAGA claim, and is thus invalid. Usually, where a single contract provision is invalid, but the balance of the contract is lawful, the invalid provision is severed, and the balance of the contract is enforced. But here, the arbitration agreement goes on to provide that the provision containing the class action and representative waiver is not modifiable nor severable. The arbitration agreement also contains a provision that if the representative waiver is found to be invalid, “the Agreement becomes null and void as to the employee(s) who are parties to that particular dispute”—a so-called “‘blow-up’ provision.”

Plaintiff Nichole Kec brought individual, class, and PAGA claims against defendants R.J. Reynolds Tobacco Company, Reynolds American Inc., and three individual employees at R.J. Reynolds Tobacco Company. Plaintiff alleged, in essence, that she and others were misclassified as exempt employees, resulting in various violations of the Labor Code. R.J. Reynolds Tobacco Company and Reynolds American Inc., moved to compel arbitration of plaintiff’s individual claims except the PAGA claim.

The court granted the motion. The court reasoned: (1) Because defendants had not asked the court to rule on the enforceability of the representative waiver, it had not found the representative waiver invalid, and thus the blow-up provision had not been triggered; and (2) the blow-up provision may apply only to the attempted waiver of the PAGA claim, not to the arbitrability of plaintiff’s claims under the Labor Code. Plaintiff filed the present writ petition.

https://www.courts.ca.gov/opinions/documents/G058119.PDF