One of the last barriers to full enforcement of arbitration agreements with class action waivers sustained another blow last week. A California federal district court disagreed with the California Supreme Court in holding that an employment arbitration agreement can waive an employee's right to pursue a representative claim under the state's Private Attorney General Act ("PAGA"). Langston v. 20/20 Companies, Case No. EDCV 14-1360 JGB (C.D. Cal. Oct. 17, 2014).
It is well known by now that the U.S. Supreme Court has taken a favorable view of arbitration agreements that waive a litigant's ability to pursue class or representative action claims, either in court or arbitration. Since 2009, the Court has chiseled away at the obstacles and procedural rules preventing enforcement of such arbitration agreements based upon the Federal Arbitration Act ("FAA"). Indeed, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Court held that the FAA's policy of enforcing arbitration agreements pre-empted a California rule requiring the availability of class-wide arbitration.
But California courts remain undaunted. This summer, the California Supreme Court held that Concepcion did not require individual arbitration of a claim brought under PAGA where the individual litigant represents a class on behalf of the government—even though the individual remains in control of the litigation. That case, Iskanian v. CLS Transp., L.A., LLC, 327 P.3d 129 (Cal. 2014), currently is pending on certiorari before the United States Supreme Court. The petition in CLS Transp., L.A. LLC v. Iskanian, No. 14-341, raises the question addressed by the district court: "Is an employee's waiver in an arbitration agreement of a collective or 'representative action' under [PAGA] so distinguishable from a 'class action' waiver that it is immune from the otherwise preemptive effect of the Federal Arbitration Act as held by this court in AT&T Mobility v. Concepcion?" (citation omitted).
Now, for the third time, a federal district court has refused to follow the Iskanian court's lead. In Langston, the Central District of California held that Concepcion does require enforcement of an employment arbitration agreement, even if that means compelling individual arbitration of PAGA claims. The judge in Langston explained that Concepcion instructed that an arbitration agreement cannot be invalidated by impermissible application of a policy "in a fashion that disfavors arbitration." Nevertheless, the Iskanian court held PAGA waivers in arbitration agreements to be unconscionable, even though it acknowledged that an employee could choose on his or her own to waive the government's right to bring a PAGA claim. The district judge seized on this apparent illogic that he interpreted to be in conflict with Concepcion: "That inconsistency illuminates the fact that, it is not the individual's ability to waive the government's right that drives the [Iskanian] court's rule, but rather the court's general disfavor for pre-existing agreements to arbitrate such claims individually." Thus, Langston joined two previous California federal district courts (See Ortiz v. Hobby Lobby Stores, Inc., No. 2:13-cv-01619 (E.D. Cal. Oct. 1, 2014), and Fardig v. Hobby Lobby Stores, Inc., No. SACV 14-00561 JVS (C.D. Cal. Aug. 11, 2014)) in upholding the enforceability of an agreement to individually arbitrate, despite the presence of PAGA representative claims.
The U.S. Supreme Court may soon decide whether this latest conflict between the California state and federal courts warrants clarity following in the footsteps of Concepcion. Until then, the scope of the full enforcement of an employment arbitration agreement depends on which court is considering it.
As a result, a third federal court has now disagreed with the California Supreme Court's Iskanian result, widening the divide between enforcement of arbitration agreements in federal and state courts. In California state court, an arbitration agreement cannot waive an individual's ability to pursue PAGA representative claims on behalf of the government. At least in some federal courts, the Concepcion rule continues to require enforcement of arbitration agreements, even if that requires individual arbitration of a PAGA claim.
The Bottom Line: A split is growing between California state and federal courts over whether a defendant can compel the arbitration of PAGA claims.
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