U.S. Supreme Court Keeps PAGA Representative Claims Intact From Arbitration
On January 20, 2015, the U.S. Supreme Court declined to review Iskanian v. CLS Transportation Los Angeles, S204032 (June 23, 2014), a key California Supreme Court decision concerning class action arbitration waivers in California.
In Iskanian, the California Supreme Court found that an arbitration agreement waiving employees’ rights to class proceedings was enforceable on the basis that the Federal Arbitration Act (FAA) preempted California’s policy against enforcement of class action waivers. However, with regard to an employee’s claim under the Private Attorney General Act (PAGA), the California Supreme Court held that an arbitration agreement requiring an employee to waive his or her right to bring a representative PAGA action was not preempted by the FAA. In other words, employees could still bring PAGA representative actions even if an arbitration agreement precluded such actions.
On September 22, 2014, the employer filed a petition for writ of certiorari with the U.S. Supreme Court requesting the Court to consider whether an employee’s arbitration agreement waiver of a representative action under PAGA is sufficiently distinguishable from a class action waiver such that the representative action waiver would not be preempted by the FAA.
In November, 2014, the employee who signed the arbitration agreement that contained both a class and representative action waiver, requested the Court to decline review of the case on the ground that the California Supreme Court’s decision was not a final decision (because it was remanded) and because courts are not split on the issue.
The U.S. Supreme Court agreed with the employee and declined to review the California Supreme Court decision. As a result, employees may still maintain PAGA representative actions under Iskanian. However, an employee is more likely to succeed in maintaining a PAGA action in state court than in federal court. Since Iskanian, federal courts have refused to follow Iskanian, and have enforced waivers of PAGA representative actions. However, state courts tend to render waivers of PAGA representative actions as being unenforceable.
A further consideration for employers is that they must ensure compliance with wage and hour laws. With Iskanian remaining intact, employees may bring PAGA representative actions for even minor or technical violations of the Labor Code. Employers may also expect an increase in the filing of ‘PAGA only’ civil actions as a way to work around class action waivers.
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