The U.S. Supreme Court’s recent ruling that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA) does not extend to claims under the California Private Attorneys General Act (PAGA). Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP et al. v. Morris et al., No. 16-300; National Labor Relations Board v. Murphy Oil USA, Inc., et al., No. 16-307 (May 21, 2018); Iskanian v. CLS Transportation Los Angeles (2014) 59 Cal.4th 348.
Last week’s much anticipated U.S. Supreme Court ruling that class action waivers in employment arbitration agreements are enforceable sent waves across both sides of the employment bar. The decision favors the implementation of arbitration agreements for employers that do not yet have them and updating arbitration agreements for employers that do. But the Supreme Court’s decision does not extend to claims under the PAGA. Under the PAGA, employees can recover civil penalties for violations of the California Labor Code. Seventy-five percent of the civil penalties are recoverable by the State, with the remaining amount recoverable by employees. The rationale underlying the carve-out for PAGA claims from class action waivers is that PAGA claims are brought on behalf of the State, and the State is not a party to the arbitration agreement. Therefore, PAGA claims remain exempted from class action waiver provisions in arbitration agreements. Whether or not PAGA claims may be brought on a class-wide basis in arbitration or whether they must be decided by a court remains an open question in California.