CA Courts Still Reluctant To Enforce Arbitration Agreements For PAGA Claims

Published date30 May 2022
Subject MatterLitigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Class Actions
Law FirmKelley Drye & Warren LLP
AuthorMs Kimberly C. Carter and Nathan Jamieson

Courts have little leeway to avoid enforcement of an arbitration clause. Indeed, the United States Supreme Court has spilt much ink reinforcing the power and scope of the Federal Arbitration Act ("FAA"), the legislation requiring that courts compel arbitration of claims subject to an arbitration clause. In California, however, employees can circumvent their arbitration clauses by asserting Private Attorneys General Act ("PAGA") claims, a loophole that two California Courts of Appeal decisions have recently reinforced. The United States Supreme Court, nonetheless, appears poised to step-in and potentially close this loophole for good.

The PAGA Claim Exception

The California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 378 (Cal. 2014), carved out an exception to the general rule that employees can be compelled to arbitration pursuant to an arbitration clause included in their employers' arbitration agreement. The Iskanian court held that arbitration provisions requiring an employee to litigate their employment claims in arbitration simply do not apply to representative actions. As a result, a California court cannot force an employee to arbitrate claims brought on a representative basis.

Representative basis, in this context, does not mean class action plaintiffs, but qui tam actions in which the plaintiff brings the action on behalf of a completely distinct entity even though only the entity actually has standing to pursue that claim. As a statute that is litigated on a representative basis, PAGA permits employees to act as private attorney generals, enabling them to sue their employers for claims on a representative basis for claims that only the State of California could previously have brought. Indeed, PAGA was a solution to the perceived problem that many Labor Code provisions went unenforced because they were punishable only as criminal misdemeanors for which only a district attorney'not an employee'was entitled to bring suit. As a result, a PAGA action allows an employee to stand in a district attorney's shoes and enforce Labor Code provisions that only a district attorney previously was permitted to enforce. The employee, however, may only seek civil penalties related to the employer's noncompliance with particular statutes; PAGA does not recompense the plaintiff for his or her damages he or she experienced as a result of the employer's noncompliance.

In holding both that arbitration clauses cannot prevent...

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