A Win for California Workers: Iskanian Upholds and Strengthens PAGA Claims

In Iskanian v. CLS Transportation Los Angeles, LLC, filed on June 23, 2014, the California Supreme Court strengthened the Private Attorneys General Act (PAGA), Labor Code § 2698, et seq.  Specifically, the Court held that arbitration agreements that waive employees’ right to proceed with representative PAGA Gear-and-Gavel_dark-blueactions violate public policy.  As such, they are not enforceable.  This aspect of the Court’s opinion is a huge win for employees, and means that PAGA actions are alive and well even where employers seek to avoid them through contractual waivers.

Iskanian involved an arbitration agreement that prohibited employees from engaging in either class actions or representative actions.  The Court’s ruling regarding class actions will be addressed in a later post.  With respect to representative actions, the real question was whether such a prohibition prevented Mr. Iskanian from bringing a PAGA action.  (As explained in several earlier posts, PAGA permits employees, acting as private attorneys general, to bring representative actions to recover civil penalties available under the Labor Code.)

Hitting the nail squarely on the head, the Court held that PAGA claims could not be waived.  Numerous California statutes provide that contracts that exempt their parties from the requirements of the law are in violation of public policy.  An arbitration agreement seeking to exempt the parties from the requirements of PAGA was no exception to this general rule.

The Court then went on to address whether the Federal Arbitration Act (FAA) preempted the rule against PAGA waivers.  The Court held that it did not, because the FAA is aimed at private disputes, while PAGA actions are fundamentally disputes between employers and the State of California.  This holding is consistent with the United States Supreme Court’s holding in EEOC v. Waffle House (2002) 534 U.S. 279.  In that case, the Supreme Court held that an arbitration agreement between an employer and an employee did not prevent the EEOC from bringing a claim on behalf of that employee.

The Court then noted that nothing in the FAA suggested that that statute was intended to constrain states’ efforts to enforce the laws by deputizing employees to bring actions under those laws.

The Court also addressed several other important questions regarding PAGA claims.  The Court held that PAGA penalties should be awarded not just to the employee bringing the claim, but also to all of the other employees who had been affected by the Labor Code violations.  There had been some confusion about this issue, with at least one court holding that the PAGA penalties go entirely to the employee who brings the PAGA action.  Cf. Cunningham v. Leslie’s Poolmart, Inc. (C.D. Cal. June 25, 2013) No. 13-2122.

The Court also held that a state cannot avoid the FAA by permitting employees to bring claims for individual damages suffered by other employees (as opposed to claims for civil penalties on behalf of those employees).  The Court reasoned that such actions would be equivalent to class actions.  Pursuant to the holding in Concepcion, actions of this type would not survive a class action waiver.  Therefore, the holding in Iskanian only applies to claims that can only be brought by the state or its representatives, where a judgment is binding on the state, and where the penalties go mainly to the state.

The Court also addressed the important issue of whether PAGA claims violate the separation of powers doctrine under the California Constitution.  The Court held that they do not.  Thus, employers should not be able to raise this potential defense in future PAGA actions.

One important issue that the Court did not address is whether PAGA claims can be filed on behalf of individuals, or whether they must be brought in a representative capacity.  Cf. Quevedo v. Macy’s, Inc. (C.D.Cal.2011) 798 F.Supp.2d 1122, 1141-42 (PAGA claims may be brought on behalf of individual employees) and Reyes v. Macy’s, Inc. (2011) 202 Cal.App.4th 1119, 1123-1124 (PAGA claims must be representative in nature).  Nonetheless, the Court concluded that prohibiting representative PAGA claims would frustrate the very purposes of PAGA.

The Court also did not address how the case should proceed now that Mr. Iskanian was required to arbitrate his individual claims, but also permitted to proceed with his representative PAGA claims in court.  This question will likely bedevil many plaintiffs and defendants who are in a similar situation due to a class action waiver.  Employers should carefully consider whether it is more efficient to handle all of the proceedings in a class action, rather than incur the expense of multiple claims in different forums.

PAGA claims have a relatively short statute of limitations.  This means that the time within which an employee must bring a claim under PAGA is shorter than it is for many other claims.  If you believe that your employer may be violating the California Labor Code, and want to speak with an experienced attorney, do not hesitate to act.  Please feel free to contact Hunter Pyle Law at 510.444.4400, or by email to inquire@hunterpylelaw.com.