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United States Supreme Court Denies Review Of Iskanian Case

On January 20, 2015, in the matter of Iskanian v. CLS Transportation (Case No. S204032, June 23, 2014), the United States Supreme Court denied CLS Transportation’s request for review of the California Supreme Court’s decision. In Iskanian v. CLS Transportation, the California Supreme Court issued a ruling concerning whether or not the Federal Arbitration Act (FAA) preempted California’s policy against enforcement of class action waivers on the grounds that such waivers were contrary to public policy or unconscionable. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348.) The California Supreme Court ruled that yes, California’s policy was preempted by the FAA. Hence, the Court ruled that arbitration agreements that bar employees from bringing class action cases are enforceable. The Court further held, however, that arbitration provisions requiring employees to waive Private Attorney General Act (“PAGA) claims are not enforceable. PAGA claims allow for aggrieved employees to pursue penalties against an employer on behalf of the State of California, provided that formal notice and waiting procedures are followed. The statute of limitations on PAGA penalties is one year.

Consequently, in light of the above, the Iskanian opinion remains good law, and is binding on all state courts. As previously reported in our last newsletter, however, California federal district courts are not following Iskanian’s ruling that PAGA waivers in arbitration agreements are not enforceable, and collectively finding that arbitration provisions providing for the waiver of PAGA claims are enforceable.

What does all of this mean?

As California federal district courts appear to have no intention of following the state Supreme Court, one can expect significant forum shopping by both parties. If an employer is forced to defend itself in state court, so long as Iskanian holds up, the trial courts will not enforce provisions in arbitration agreements which waive representative PAGA claims.

From an employer standpoint, employers with arbitration agreements which contain a class action waiver should be looking for any reason on the face of a Complaint to remove a wage/hour class action case, which includes PAGA claims, to federal court.

In addition, Employers may also consider changing their arbitration agreements to clarify that representative actions under PAGA (if any portion of the class or representative waiver is found to be unenforceable) are to also proceed in arbitration. This was a point of contention raised in the Iskanian case and a California appellate decision post- Iskanian (Ramos v. Fry’s Electronics Inc., Case number B246404, not published.). In both Iskanian and the Fry decisions, the Courts noted that since the arbitration agreements at issue did not provide what forum representative PAGA claims could proceed under, then the parties would need to address that issue suggesting that the PAGA claims could proceed in state court while the individual claims would proceed in arbitration. Both Courts stated that on remand the parties were to address the forum issue and discuss whether the parties could agree on a forum for resolution of all of the claims, and, if the parties could not agree, whether it was appropriate to bifurcate the claims going to arbitration and those going to court. The pros/cons of defending PAGA representative claims in arbitration should be closely evaluated before an employer decides to change its arbitration agreement, and counsel consulted with respect to any changes made to the agreement.

From an employee standpoint, employees who have signed arbitration agreements with class action waivers will allege a PAGA claim as part of any wage/hour lawsuit, and will file their complaints in state court. Hence, we expect PAGA actions to multiply in the wake of Iskanian. Keep in mind, however, that PAGA actions are subject to a significantly shorter statute of limitations period – one year– compared to the three-year to four-year statute of limitations normally plead in non-PAGA actions. What this means is that any putative representative group of employees covered under a PAGA claim will consist of far fewer employees (and thus translating to less exposure for the employer).

ABOUT THE AUTHOR: Ms. Silva is a graduate of University of the Pacific. She is senior counsel in the firm’s Employment Practices Group. She is a former prosecutor and has considerable trial experience. Contact her at rsilva@tysonmendes.com

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