Employee Losing Labor Code Claims In Arbitration Has No Standing To Pursue PAGA Representative Action

Just last week, in Sorokunov v. NetApp, Inc., No. A171964, 2026 WL 590943 (Cal. Ct. App. March 3, 2026), the Fourth District Court of Appeal held that an employee lacked standing to prosecute a PAGA claim for Labor Code violations in a civil proceeding after the arbitrator separately ruled against the employee’s same individual Labor Code claims.

In this case, Alexander Sorokunov sued his former employer, NetApp, Inc., seeking damages and civil penalties under the Private Attorneys General Act (“PAGA”) for allegedly collecting or receiving wages paid to him, secretly paying him less than promised under a contractual wage scale, and by permitting a discretionary process for determining commissions owed. (Sorokunov did not bring class action claims).

The trial court granted NetApp’s motion to compel arbitration of Sorokunov’s individual non-PAGA Labor Code claims but refused to stay the PAGA claims during the arbitration proceedings. In the arbitration proceeding, the arbitrator ruled against Sorokunov on his individual Labor Code claims.

The trial court granted Net App’s motion for judgment on the pleadings as to Sorokunov’s PAGA claim based on the same Labor Code violations, holding that issue preclusion barred Sorokunov from prosecuting the Labor Code claims under PAGA. Issue preclusion prevents litigation of the same issues in subsequent proceedings, but only if:

1. The issue to be precluded from relitigation is identical to the issue in the prior proceeding;
2. The issue was actually litigated;
3. The issue was decided;
4. The decision was final and on the merits; and
5. Preclusion is sought against the same party or a party in privity.

Sorokunov appealed, contending that the arbitrator’s award could not have preclusive effect in the PAGA matter because the parties were not the same or in privity (given the PAGA action is prosecuted on behalf of the State), and therefore issues in the PAGA matter were not identical to those decided in arbitration.

The Court of Appeal rejected both arguments, finding that while the arbitrator’s decision precluded Sorokunov from prosecuting a PAGA action, it did not have any preclusive effect against the LWDA generally because the trial court’s order only held that Sorokunov had no PAGA standing. The order would not prevent other NetApp employees from asserting Labor Code claims against NetApp for themselves or as agents of the LWDA. Nor would it prevent the LWDA from investigating and prosecuting the same alleged Labor Code violations itself.

As to the identical issues requirement, the Court of Appeal explained that “to the extent [Sorokunov’s] PAGA standing is dependent on having suffered the same Labor Code violations that have been adjudicated in arbitration, his standing and the underlying violations are considered identical issues.” Thus, the arbitrator’s determination that there were no Labor Code violations satisfied the “identical issues” requirement and stripped Sorokunov of PAGA standing.

Sorokunov also attacked NetApp’s arbitration agreement, claiming that it created an illusory promise because it allowed NetApp to unilaterally amend, suspend, or terminate the arbitration provision and apply any changes to the arbitration agreement to any wage claims known but not previously filed for dispute resolution. The two pertinent sections of the arbitration agreement state:

NetApp reserves the right to revise the Plan, and the policies and programs referenced in this Plan, at any time and without advanced notice, to the extent permitted by applicable law.

The Company reserves the right to amend (including but not limited to adding to, deleting or otherwise modifying), suspend and/or terminate the Plan at any time in its sole discretion, consistent with and to the extent permitted by applicable law, but such action shall not apply to any Dispute in Internal Dispute Resolution or External Dispute Resolution as provided in Paragraphs 17 and 26 herein.

The Court of Appeal compared this language with the arbitration agreement in Peleg v. Neiman Marcus Group, Inc., 204 Cal.App.4th 1425 (2012). In Peleg, the agreement was illusory because it gave the company the express right to cancel arbitration as to claims it knew about, but which had not been submitted to arbitration. As a result, the express cancellation right conflicted with the implied covenant of good faith and fair dealing. The Court distinguished NetApp’s arbitration agreement because it stated that NetApp could not modify the agreement as to filed claims and was silent as to known but unfiled claims. Additionally, NetApp’s arbitration agreement only permitted modification “consistent with and to the extent permitted by applicable law.” Based on that language, the covenant of good faith and fair dealing operated to prevent NetApp from modifying the arbitration provision once a claim was known but not yet filed. In light of these provisions, the operation of law resulted prevented NetApp’s arbitration agreement from being illusory.

The key takeaway from this decision is that a defendant that defeats Labor Code claims in arbitration may be able to use that ruling to preclude the plaintiff from re-litigating the same issues (including PAGA standing and underlying Labor Code violations) in civil court. Further, employers should carefully review arbitration agreements to ensure that any provision allowing the employer to modify the agreement limits the modification to future unknown claims, as the failure to limit the modification provision could imperil the arbitration agreement’s enforceability.