PAGA claims are alive and well in California

But a well-drafted arbitration agreement can still prevent class action litigation

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Last year, in Epic Systems v. Lewis, the U.S. Supreme Court affirmed that an employee can be required, as a condition of employment, to enter into a predispute arbitration agreement waiving the right to file or participate in a class action. In the wake of the Epic decision, many have questioned whether employers can now require employees to waive their right to bring a representative action under the Private Attorney General Act (“PAGA”). This week, the California Court of Appeal answered “no.”

In Correia v. N.B. Baker Electric, Inc., the employer argued that the California Supreme Court case Iskanian v. CLS Transportation (finding PAGA waivers unenforceable) is no longer binding in light of Epic. The Court of Appeal disagreed, stating that Epic did not specifically address arbitration provisions regarding claims for civil penalties, such as PAGA representative actions. The Court followed several recent appellate decisions finding PAGA actions cannot be compelled to arbitration absent evidence that the State (on whose behalf a PAGA claim is assumed to be filed) consented to such a term in the arbitration agreement.

Though the employer’s arbitration agreement included an unenforceable PAGA waiver, it also included a valid severability clause, which provided that if any provision of the agreement is found invalid, it does not preclude enforcement of remaining portions of the agreement. Accordingly, the remainder of the arbitration agreement was still enforceable.

Following Correia, arbitration agreements remain effective against most claims. Careful drafting by experienced legal counsel will maximize their effectiveness and enforceability.