PAGA and Arbitration Agreements in California

Background: What is PAGA?

The Private Attorney General Act of 2004, or PAGA, allows a private citizen to pursue civil penalties on behalf of the State of California Labor and Workforce Development Agency (LWDA). PAGA gives the private citizen the unique ability to act as an attorney general, as he or she has the right to seek civil penalties that would normally only be available to the state. The fines imposed under the law are divided with 75% of the penalties rewarded going to the LWDA and 25% going to the aggrieved employee(s). This 25% is in addition to any other compensation owed to the employees, such as unpaid wages, unpaid meal premiums, and so on.

Latest Developments

Since PAGA’s enactment, employers have sought ways to restrict the possibility of employee class or representative-claims, including arbitration agreements with mandatory class and representative-action waivers. Plaintiffs’ attorneys have frequently challenged these waivers’ legality in recent years. In 2014, the California Supreme Court ruled that employees could not waive class or representative-claims under PAGA. In the case, Iskanian v. CLS Transportation Los Angeles LLC, the defendant, a limousine company, sought dismissal of the plaintiff’s claim, contending that the plaintiff, an employee of the company, had signed an arbitration agreement expressly waiving his ability to bring claims on a class or representative basis. The California Supreme Court ruled that employees cannot waive class or representative-claims under PAGA, a deviation from the court’s common view that arbitration agreements with mandatory class or representative waivers are generally enforceable.

On January 20, 2015, the U.S. Supreme Court declined to hear CLS Transportation’s challenge, leaving the state court’s decision on PAGA claims intact. The U.S. Supreme Court has historically been skeptical of California decisions on arbitration agreements but decided to leave in place the California decision in Iskanian.

Interestingly, numerous federal courts in California had rejected the case’s holding that employees cannot waive PAGA representative claims by an arbitration agreement, leaving a divergence of holdings on the issue. California courts are still struggling to resolve fights over whether federal law permits waiving the claims and whether they are subject to class-action rules.

For now, employees cannot waive PAGA representative claims by an arbitration agreement, at least in California state courts.

What This Means to You

The attorneys at Carlson & Jayakumar LLP will keep you updated on the latest developments in PAGA cases. Future cases in both state and federal courts will give us a better understanding of how to interpret PAGA.

In the meantime, companies operating in California may need to rethink their use of arbitration agreements. If you would like your arbitration agreements reviewed, or have any other legal inquiries, please contact the attorneys at Carlson & Jayakumar LLP at (949) 222-2008.