In-N-Out Appeals Denial of Its Motion to Compel Arbitration

Earlier this year, In-N-Out Burger appealed a trial court’s denial of its motion to compel arbitration of the claims of plaintiffs who were seeking penalties against it under the Labor Code Private Attorneys General Act of 2004. Under PAGA, the plaintiffs of Piplack et al v. In-N-Out Burgers were allowed to sue for certain civil penalties and attorneys’ fees on behalf of themselves and other similarly situated employees, rather than bring a class action lawsuit for damages.

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.