PAGA Waiver in Arbitration Agreements

Arbitration Agreements

Plaintiffs attorneys and defense attorneys are waging a battle over arbitration agreements.  A new Ninth Circuit decision is considered a win for the plaintiffs’ bar.  A few years ago, it was difficult for an employer to enforce an arbitration clause in California.  Recently, the U.S. Supreme Court in AT&T v. Concepcion made it clear that the Federal Arbitration Act prohibits states (or courts) from creating special exemptions from arbitration.  As a result, more and more employers require employees to waive their rights to court trials in favor of arbitration.

Since Concepcion, state and federal courts have been more willing to require parties to use arbitration when they sign a valid arbitration agreement.  Many plaintiff attorneys don’t like arbitration for a number of valid reasons, and therefore try to find ways to keep their cases out of arbitration.  Many defense attorneys prefer arbitration, and therefore look for ways to ensure the case can be kept in arbitration.  I believe arbitration is an acceptable forum for the right case, but some cases need to be resolved by the courts.

A significant reason why employers like arbitration agreements is that they may limit an employee’s ability to bring a representative action (e.g., class action).  Most arbitrations are not currently set up to handle class action cases.  If an employee signs an otherwise valid arbitration agreement, the employee could be forced into arbitration without the ability to bring a class action.

PAGA Waiver in Arbitration Agreements

But what about PAGA claims?  Can an employer include a PAGA waiver in arbitration agreements? California’s Labor Code Private Attorney General Act is similar to a class action in that any aggrieved employee can sue an employer for any violation of the Labor Code, and the employee can bring the claim on behalf of himself/herself as well as “any other aggrieved employee.”  This is very similar to a class action.  PAGA claims, however, are not class action claims and therefore are not subject to the same strict procedures and guidelines governing class actions.

In Iskanian v. CLS Transportation, California’s Supreme Court said employees have an unwaivable right to bring representative PAGA actions, and refused to force an employee to litigate his PAGA claims in arbitration. This created a mad dash by Plaintiff’s lawyers to include PAGA claims in all litigation to avoid arbitration.  Some Plaintiff firms will only bring PAGA actions.  Many federal district court decisions refused to follow Iskanian, and continued to force employees to bring PAGA claims in arbitration.  Defense lawyers began looking for any reason to remove cases to federal courts to ensure the arbitration agreements would be enforced.  We ended up with a rift between the federal courts and California’s Supreme Court.

The Ninth Circuit recently concluded that the FAA did not bar the holding in Iskanian, and that an employer could not enforce a PAGA waiver in arbitration agreements with employees.  The Luxottica case is another blow to employers trying to avoid representative actions.

I expect we will continue to see several cases on this issue in the upcoming year.  If you use arbitration agreements, or are considering whether to use an arbitration agreement, speak with a knowledgeable attorney who can help you decide the best course of action.  If you are an employee contemplating litigation but are concerned about being forced into arbitration, you should consult with an employment attorney with experience representing employees in court and in other forms of alternative dispute resolution.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

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