On June 24, 2014, the California Supreme Court issued a controversial decision in Iskanian v. CLS Transportation Los Angeles, LLC. While the Court in Iskanian confirmed that an express class action waiver in an employment arbitration agreement is enforceable under California law, it also held that an arbitration agreement provision barring arbitration of a workers' representative Private Attorneys General Act (PAGA) claim is invalid as a matter of California public policy. Under PAGA, employees can sue their employer for certain workplace violations on behalf of themselves, as well as other current or former employees, in "representative suits" similar to class actions.
The Iskanian Court reasoned that PAGA claims are outside the scope of the Federal Arbitration Act (FAA) because PAGA claims address disputes between the state and the employer, not between two contracting private parties. The impact of this decision is that employers would no longer be able to compel employees to arbitrate PAGA claims. Thus, following Iskanian, employers across California hoped that this decision excluding PAGA from the FAA would be taken up and reviewed by the United States Supreme Court. A more detailed review of the decision may be found here: California Supreme Court Issues Iskanian Decision.
On September 22, 2014, CLS Transportation filed its petition for a writ of certiorari with the United States Supreme Court, presenting the following question:
"Is an employee's waiver in an arbitration agreement of a collective or "representative action" under the California Private Attorneys General Act, Cal. Labor Code § 2698 et seq., so distinguishable from a "class action" waiver that it is immune from the otherwise preemptive effect of the Federal Arbitration Act, 9 U.S. Code § 1, et seq., as held by this Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011)?"
On January 20, 2015, the Court denied CLS Transportation's petition. As a result, Iskanian remains good law in California state courts.
On the other hand, federal courts are not bound by Iskanian and several federal district courts have refused to apply Iskanian, instead requiring employees to arbitrate their PAGA claims on an individual basis. Given this current split in authority, and because employers remain vulnerable to costly class and representative actions, it is imperative that California employers retain legal counsel to ensure that their arbitration agreements are developed with these issues in mind. Sheppard Mullin's Labor and Employment Practice Group has a team of attorneys well versed in this constantly changing area of law. We are available to evaluate whether arbitration agreements are compatible with your business needs and to draft an agreement to meet those needs.
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