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9th Circuit: Employers Can’t Force Arbitration of an Employee’s Representative PAGA Claims

Published by on November 10, 2015

In an important and highly anticipated decision for California employers, the United States Court of Appeals for the Ninth Circuit sided with the California Supreme Court in upholding the 2014 Iskanian rule (Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 391 (2014)), which makes employee waivers of representative Private Attorneys General Act […]

In an important and highly anticipated decision for California employers, the United States Court of Appeals for the Ninth Circuit sided with the California Supreme Court in upholding the 2014 Iskanian rule (Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 391 (2014)), which makes employee waivers of representative Private Attorneys General Act (“PAGA”) claims in arbitration agreements with their employers unenforceable. [Sakkab v. Luxottica Retail N. Am., Inc., 9th Cir., No. 13-55184, Sept. 28, 2015]. 

The Ninth Circuit’s decision will stop the current legal divide with some California federal district courts who had been rejecting the California Supreme Court’s ruling, holding that PAGA claims waivers in arbitration agreements must be enforced as a matter of Federal Arbitration Act (“FAA”) preemption. See, e.g., Lucero v. Sears Holdings Mgmt. Corp., No. 14-CV-1620 AJB WVG, 2014 WL 6984220 (S.D. Cal. Dec. 2, 2014); Mill v. Kmart Corp., No. 14-CV-02749-KAW, 2014 WL 6706017 (N.D. Cal. Nov. 26, 2014); Ortiz v. Hobby Lobby Stores, Inc., 52 F. Supp. 3d 1070, 1075 (E.D. Cal. 2014); Langston v. 20/20 Companies, Inc., No. EDCV 14-1360 JGB SPX, 2014 WL 5335734 (C.D. Cal. Oct. 17, 2014).

In Sakkab, Shukri Sakkab brought a wage and hour class action and representative PAGA claims against Lenscrafters (owned by Luxottica), Sakkab’s former employer. Luxottica filed a motion to compel arbitration pursuant to an arbitration provision that stated Sakkab would not file a class, collective, or representative action against Luxottica.

Prior to the California Supreme Court’s Iskanian ruling, the district court granted Luxottica’s motion to compel arbitration and rejected Sakkab’s argument that the right to bring a representative PAGA claim could not be waived in an arbitration provision. Sakkab appealed to the Ninth Circuit. While Sakkab’s appeal was pending, the California Supreme Court issued its ruling in Iskanian that mandatory PAGA waivers are unenforceable under California law.

The Ninth Circuit recently reversed the district court’s order granting the employer’s motion to compel arbitration, holding that the waiver of Sakkab’s representative PAGA claims could not be enforced because the FAA did not preempt the Iskanian rule. Specifically, the Ninth Circuit determined that Iskanian “leaves parties free to adopt the kinds of informal procedures normally available in arbitration,” and “only prohibits them from opting out of the central feature of the PAGA’s private enforcement scheme—the right to act as a private attorney general to recover the full measure of penalties the state could recover.” Thus, the Ninth Circuit held that the Sakkab class action must be arbitrated, but that the PAGA claims must be remanded to the district court.

Laconic Lookout:

Pursuant to the Iskanian rule, now confirmed in a split decision by the Ninth Circuit, California employers cannot require employees to waive representative PAGA claims in employment and/or arbitration agreements. Although an en banc rehearing by the Ninth Circuit or a petition to the United States Supreme Court may change this rule, agreements containing such waivers of representative claims will not be enforced in California. As a result of this decision, California employers can expect to see an increase in alleged PAGA claims because employees will use them to attempt to avoid arbitration of their lawsuits.

An employer may consider requesting a stay of the PAGA action pending arbitration of the employee’s individual claims underlying the PAGA claims. If the stay is denied, however, the employer may face simultaneous litigation in two forums: the individual claims in arbitration and the PAGA claims in court. It is important to weigh the strategic advantages and disadvantages of such a decision as litigating in this fashion could be significantly duplicative, time-consuming and expensive.

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