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Why it matters
In an unpublished decision in March, the Ninth Circuit (the federal circuit court governing California, Oregon, Washington, Nevada, Arizona, Hawaii, Alaska, Montana and Idaho) permitted arbitration of a worker's Private Attorneys General Act (PAGA) claim, holding that an individual employee contract can bind government parties. The California Supreme Court's Iskanian v. CLS Transportation Los Angeles decision "does not require that a PAGA claim be pursued in a judicial forum," the court said, and "clearly contemplate[d] that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum."
When aggrieved employees bring PAGA claims along with their other employment claims, courts have used Iskanian in response to an employer’s motion to compel binding arbitration to stay the PAGA claims, pending an arbitration of the non-PAGA claims, effectively forcing the employer to fight two battles, one in arbitration and one in court. The added expense of two consecutive proceedings has increased the cost and likelihood of settlement of otherwise non-meritorious claims. While this opinion is unpublished, its reasoning can be applied the bar individual litigants from pursuing their PAGA claims in court, which should reduced the cost and likelihood of settlement of otherwise non-meritorious claims.
Termite technician Placido Valdez filed suit against his former employer, asserting that Terminix failed to provide meal and rest breaks as required by California state law. He also included a count under the state's PAGA in his complaint.
The employer moved to compel arbitration and a district court judge denied the motion. Terminix appealed, making three arguments to the U.S. Court of Appeals for the Ninth Circuit: (1) that the Federal Arbitration Act (FAA) preempts California's rule that a waiver of the right to bring a PAGA claim is invalid (pursuant to the California Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles); (2) that case law subsequent to Iskanian questioned the reasoning of that decision; and (3) that the district court erred when it concluded that PAGA claims categorically cannot proceed to arbitration.
As to the first argument, the Ninth Circuit previously ruled on the application of the FAA to the Iskanian rule in Sakkab v. Luxottica Retail North American, Inc., the panel said, where the court held that "the Iskanian rule does not stand as an obstacle to the accomplishment of the FAA's objectives, and is not preempted."
As for the second argument, the court said that no subsequent case questioned the reasoning in Iskanian; the rule bars any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.
However, the panel agreed with Terminix that Iskanian does not categorically prohibit PAGA claims from arbitration.
"Iskanian and Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum," the court wrote. "Employees can bind government agencies because they 'represent the same legal right and interest' as the government in PAGA proceedings."
An employee plaintiff suing under the PAGA does so as the agent of the state's labor law enforcement agencies. "Accordingly, an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration," the panel said. "Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid."
Sakkab likewise recognized that individual employees may pursue PAGA claims in arbitration, the court added, and the Ninth Circuit has upheld district court decisions compelling arbitration of PAGA claims post-Iskanian.
The panel then found that Valdez's PAGA claim fell within the scope of the arbitration clause, as the parties mutually agreed "to arbitrate covered Disputes." That clause of the agreement applied even after the representative action waiver was severed, and since the PAGA claim "relat[es] to [Valdez's] employment relationship with the Company," and arises under a "state" "employment related law," it constituted a covered dispute.
Reversing the denial of the motion to compel arbitration, the court remanded the case to the district court.
To read the memorandum in Valdez v. Terminix International, click here.