The legal pot is really boiling these days when it comes to civil penalty claims under the Labor Code Private Attorneys General Act. Many, if not most, California class action complaints contain PAGA claims, and plaintiffs increasingly are filing so-called “pure PAGA actions” that purport to seek only civil penalties under PAGA and not wages, premiums or statutory penalties that typically are sought in class actions. Some plaintiffs reason that if they can first get a judgment for PAGA penalties, they can then invoke “collateral estoppel” to collect other remedies in a second action. This is quite an evolution from the conventional wisdom that a PAGA cause of action in a class action complaint is simply a fail-safe in the event the court refuses to certify a class.
One of the most significant PAGA issues today is whether a representative PAGA claim waiver in an arbitration agreement is valid. The California Supreme Court in Iskanian v. CLS Transportation, (2014) 59 Cal.4th 348, said it is not, and the U.S Supreme Court denied certiorari. But a growing number of federal courts are holding the opposite. An example is Ortiz v. Hobby Lobby Stores, Inc., 2014 WL 4961126 (E. D. Cal. 2014), where the Eastern District noted that the majority of federal courts find PAGA waivers to be enforceable and find California decisions to the contrary to be preempted by the Federal Arbitration Act. Since California courts are bound by Iskanian, companies with PAGA waivers in their arbitration agreements should consider removing complaints with PAGA claims to federal court if they are able to do so.
Defendants unable to remove their case to federal court at least can build a record in the state court and hope that the U.S. Supreme Court will soon decide to tackle California’s PAGA waiver doctrine. In this regard, some commentators have noted that a recent petition for certiorari granted in DIRECT TV, Inc. v. Imburgia, Docket No. 14-462 (March 23, 2015), may provide the high court with an opportunity to review of the California Supreme Court’s PAGA ruling in Iskanian. Another PAGA waiver case to watch is Bridgestone Retail Operations fka Morgan Tire & Auto v. Brown, Docket No. 14-790, where a petition for certiorari currently is pending in the U.S. Supreme Court.
Meanwhile, the California appellate courts are dealing with a series of post-Iskanian issues. In Securitas Security Services USA, Inc. v. Superior Court (Edwards), (2015) 234 Cal.App.4th 1109, the Court of Appeal determined that a PAGA representative action waiver was unenforceable even though the arbitration agreement was not mandatory and the plaintiff had the right to opt out of the agreement. However, because the court determined that the PAGA waiver was not severable under the terms of the agreement, it invalidated the entire arbitration agreement. In Franco v. Arakelian Enterprises, Inc., (2015) 234 Cal.App.4th 947 (2015), the Court of Appeal ordered plaintiff’s claims to arbitration on an individual basis, except for the representative PAGA claims, which it stayed in court pending the outcome of the individual arbitration.
These cases likely are just the beginning of a wave of California decisions on PAGA waivers and their impact on arbitration agreements. Unfortunately, California employers will have to live with these decisions unless and until the U.S. Supreme Court steps in. For now, the prudent course would be for employers to review their arbitration agreements with special attention to representative waivers of PAGA claims and severability agreements, especially agreements providing that PAGA waivers are not severable from the rest of the agreement if a court or arbitrator should hold them to be invalid.