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Iskanian and the Private Attorney General Act

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The California Supreme Court’s recent ruling in Iskanian v. CLS Transportation has caused “much ado” among employment attorneys, especially those that deal with class and collective actions. Is the fuss and furor about something of great import or something less consequential?

In Iskanian, the California Supreme Court held arbitration agreements that included class action waivers are generally enforceable so long as the agreements fall under the purview of the Federal Arbitration Act. This part of the holding was not surprising. In a 2011 case, AT&T Mobility v. Concepcion, the United States Supreme Court held the FAA preempted California’s “Discover Bank rule” which previously prohibited enforcement of class action waivers.

Another part of Iskanian’s holding caused more controversy. Iskanian held an employee’s right to bring a claim under the Private Attorneys General Act cannot be waived. PAGA allows an employee to bring a representative action for civil penalties on behalf of the State of California against the employer for Labor Code violations committed against that employee and all “similarly aggrieved” employees. In sum, Iskanian held class action waivers may be enforced when the FAA applies, but PAGA waivers will not be enforced. This means employees who sign arbitration agreements may be precluded from pursuing class actions (if they signed an enforceable waiver) but they can still pursue representative PAGA claims. The critical question is, where must these PAGA claims be pursued?

Since Iskanian, plaintiff attorneys are claiming it stands for more than it really does. They are claiming Iskanian prohibits arbitration of PAGA claims. Nothing in Iskanian prohibits arbitration of PAGA claims. Instead, the California Supreme Court stated a defendant “must answer the representative PAGA claims in some forum,” suggesting arbitration might be an appropriate forum for PAGA disputes. The potential for arbitrating the PAGA claim was not at issue in Iskanian because the arbitration agreement in Iskanian sought to waive the plaintiff’s right to pursue PAGA claims in any forum. Had the arbitration agreement allowed for arbitration of PAGA claims, the court most likely would have held the claims can be arbitrated. Federal district court decisions that have addressed the issue uniformly hold PAGA claims can be arbitrated.

Plaintiff attorneys also claim Iskanian requires a court to stay arbitration while a PAGA claim proceeds in court. However, Iskanian did not contain this holding. Iskanian expressly left open several questions including: “should the arbitration be stayed pursuant to [California Arbitration Act]” pending litigation of the PAGA claims?

Now that the Supreme Court of California has asked the question, what is the answer? Case law from the United States Supreme Court suggests arbitration should never be stayed in favor of litigating PAGA claims, at least not in cases where the FAA applies. In KPMG LLP v. Cocchi, the United States Supreme Court held that where certain claims are arbitrable under the FAA -- even if others are not -- the arbitrable claims must be sent immediately to arbitration. The Cocchi court explained the FAA “leaves no place for the exercise of discretion … but instead mandates that courts shall direct the parties to proceed to arbitration on issues as to which arbitration has been assigned.” Thus, arbitration should proceed regardless of a PAGA claim.

When it comes to arbitration agreements that are governed by the FAA, Iskanian may have been much ado about nothing. It held class action waivers are enforceable under the FAA, a fact we already knew since Concepcion. It also held PAGA claims are not waivable. Although interesting, this part of the holding should not impact arbitration. Iskanian did not prohibit arbitration of PAGA claims and it never held PAGA claims must take precedence over arbitration of other claims.

-Submitted by Spencer Skeen and Tim Johnson, Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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