Federal District Courts and California’s Private Attorneys General Act (PAGA)

California’s Private Attorneys General Act, or PAGA, provides that employees can recover civil penalties that otherwise could be recovered only by state law enforcement agencies.  Examples of the civil penalties that can be recovered under PAGA include penalties:  for the failure to pay wages due (Labor Code (LC) § Gear-and-Gavel_dark-blue210); for inadequate wage statements (LC § 226.3); and for violations of wage orders regarding working conditions (LC § 1198).  PAGA also allows employees who have been harmed to bring representative claims on behalf of all other affected employees.  As such, it is a powerful tool for vindicating workers’ rights.

After the United States Supreme Court decision in AT&T Mobility v. Concepcion, many employers began to require employees to sign arbitration agreements that prevent them from bringing representative claims under PAGA.  In Iskanian v. CLS Transportation (2014) 59 Cal.4th 348, the California Supreme Court addressed the critical issue of whether such agreements are contrary to public policy and unenforceable.  Justice Goodwin Liu, writing for the majority, reasoned that PAGA was established for important public reasons.  Therefore:

An employment agreement [that] compels the waiver of representative claims under the PAGA…is contrary to public policy and unenforceable as a matter of state law.

Just Liu then turned to the question that must be asked in the wake of Concepcion:  Does the Federal Arbitration Act (FAA) preempt this analysis?  After surveying the history and purpose of the FAA, Justice Liu concluded that it did not, because the FAA was only intended to cover private disputes.  PAGA claims are between the employer and the state.  As such, they are not private disputes.  The FAA therefore does not apply to them.

Justice Ming Chin, concurring with the majority, had a different analysis.  He noted that every PAGA action, whether seeking penalties as to one employee or as to others as well, is a representative action on behalf of the state.  The arbitration agreement at issue barred representative actions.  It therefore barred the plaintiff from pursuing a PAGA claim in any forum.

Under Mitsubishi Motors v. Soler (1985) 473 U.S. 614, 637, the FAA does not require enforcement of a “provision in an arbitration agreement forbidding the assertion of certain statutory rights.”  The FAA therefore does not require enforcement of an arbitration agreement that forbids employees from bringing representative PAGA claims.

Iskanian is binding on all California courts, and must be followed unless it is reversed by the United States Supreme Court.  One might think that because it addresses an issue that is unique to California law, federal district courts would defer to it.  However, to the contrary, the federal courts that have considered this aspect of Iskanian have unanimously rejected it.  See, for example, Lucero v. Sears Holdings Mgmt. Corp. (S.D.Cal., Dec. 2, 2014) 2014 U.S. Dist. LEXIS 168782 (citing five other district court cases).

The federal courts rejecting Iskanian’s PAGA analysis rely upon the reasoning in one of the earliest cases to take up the issue, Langston v. 20/20 Companies (C.D.Cal., Oct. 17, 2014) 2014 U.S. Dist. LEXIS 151477.  In Langston, the court noted that it was not required to defer to the California Supreme Court, because the role of interpreting federal statutes like the FAA was left to federal courts.

Langston then concluded that Iskanian was driven by a “general disfavor” for agreements to arbitrate PAGA claims individually.  This analysis is wrong for two reasons:

First, the Langston court argues that Justice Liu contends that PAGA waivers are unconscionable because an employee cannot waive a right that belongs to the government.  However, as set forth above, to the contrary Justice Liu argues that PAGA waivers are unconscionable because PAGA was established for a public reason.

Second, the Langston court argues that Justice Liu’s reasoning about the unwaivability of PAGA claims is inconsistent with Jusice Liu’s later concession that an employee is free to choose whether or not to bring a PAGA claim after he becomes aware of Labor Code violations.  That analysis is fallacious.  There is an obvious and significant difference between pre-dispute waivers and permitting employees not to bring claims once they become aware of certain conduct.  There is nothing inconsistent in the argument that (1) employers cannot be allowed to require employees to waive their right to bring PAGA claims before disputes arise, but (2) employees can decide not to bring PAGA claims once they have learned about certain violations.

Furthermore, even if an employee chooses not to bring a PAGA claim, the government can always bring the claim.  See EEOC v. Waffle House (2002) 534 U.S. 279 (individual cannot waive government’s interest in bringing discrimination claims).  Therefore, PAGA claims are not truly waivable either before or after an employee has learned about a violation.

Interestingly, none of the federal district court decisions disagreeing with Iskanian has addressed Justice Chin’s concurrence.  However, that more narrow analysis might be better suited to survive the current federal assault.

If you have questions about PAGA claims, or believe that your rights in the workplace have been violated, please feel free to contact the attorneys at Hunter Pyle Law for a free consultation.