Employment Arbitration Agreements

PAGA waiver issue resolved (for now) for the State, but Federal activity continues…

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Employers have increasingly relied on arbitration agreements with employees for disputes arising out of the employment relationship, and class action waivers contained in those agreements have provided a means to avoid class or representative actions for those disputes as well. In 2014, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles upheld the enforceability of class action waivers in employment arbitration agreements, however, that case carved out an exception for actions brought under California’s Private Attorneys General Act (“PAGA”), which allows an individual to bring Labor Code claims against an employer for themselves as well as other aggrieved employees on behalf of the State. The Iskanian court found that, because PAGA claims are brought by the employee in place of the State, there is a distinct State interest in the matter, and that an employee’s waiver of a representative or class action in a private arbitration agreement is not binding on that State’s interest. As such, although Iskanian affirmed the enforceability of class/representative action waivers in arbitration agreements generally, it excepted PAGA claims from this ruling.

The U.S. Supreme Court declined to hear the appeal on Iskanian, and on June 1, 2015 it declined to hear an appeal in another state case involving the same issue, Bridgestone Retail Operations LLC v. Brown. However, a number of federal courts have ruled contrary to Iskanian, and on June 3, 2015, the Ninth Circuit Court of Appeal (which is the federal appellate district encompassing California) heard arguments on this same issue in a trio of consolidated wage-related cases. Sakkab v. Luxottica Retail N. America; Sierra v. Oakley Sales Corp., and Hopkins v. BCI Coca-Cola Bottling Co. The 9th Circuit’s decision, when it comes down anytime in the next three months to a year, will likely be appealed to the U.S. Supreme Court, and it is yet to be seen whether the country’s high court will be more amenable to hearing this issue brought up through federal cases than it was with State cases. In the meantime, employers who use arbitration agreements with class action waivers should be aware that such waivers are in question as they relate to PAGA claims. Given the rapid changes in this area of law, employers should consult with competent employment counsel before implementing or revising their arbitration agreements, and a review of any existing arbitration agreements may be appropriate.