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When crafting arbitration agreements, consider effect of PAGA on class actions

by on
in Employment Law,Human Resources

It’s hard to create binding and en­­forceable arbitration agreements in California. Some courts considering California arbitration agreements have held that actions brought by em­­ployees under the California Private Attor­­ney General Act of 2004 (PAGA) can’t be blocked by arbitration agreements. To do so would be unconscionable.

Recent case: When Iman Daud became an advisor for Ameriprise Financial Services, she signed a stand­­ard agreement that included an arrangement that let her borrow $132,000 to set up her business and which stipulated the repayment terms. The agreement stated that, at the time each year Daud’s payment was due, the company would pay her an equal bonus. Essentially, Ameriprise was forgiving the loan payment in yearly increments.

The agreement also included a provision that required arbitration of all claims. It prohibited class actions.

Daud left after less than one year. Ameriprise said she owed the loan balance and started the arbitration process. Daud countersued over the terms of the loan, but did so in federal court—and on behalf of all others similarly situated.

The court dismissed her class claims, based on the arbitration agreement. It then considered whether the class action prohibition could legally coexist with PAGA. It said that, in theory, it cannot. That’s because PAGA deputizes individuals to represent others and bring public-interest claims. However, Daud never cited PAGA in her complaint. The court said only her individual claim can be arbitrated. (Daud v. Ameriprise, No. 8:10-CV-00302, CD CA, 2011)

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