The divide continues between California and federal law on whether an arbitration agreement can entirely waive an employee’s ability to seek classwide or multiparty representational relief. The Supreme Court on Tuesday denied certiorari in CLS Transp. Los Angeles LLC v. Iskanian, No. 14-341, leaving in place the California Supreme Court’s June 23 ruling that representative claims under the state’s Private Attorneys General Act (PAGA) cannot be waived in an arbitration agreement.

Since Iskanian, a number of federal district courts had rejected the California Supreme Court’s reasoning, holding that the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision requires enforcement of class or representative action waivers in arbitration agreements as a matter of Federal Arbitration Act preemption—even where the claims are pursued under PAGA. [Indeed, federal district courts have rejected Iskanian’s conclusions in Lucero v. Sears Holding Mgmnt. Corp., Case No. 3:14-cv-01620 (S.D. Cal. Dec. 2, 2014); Mill v. Kmart Corp., Case No. 14-cv-02749 (N.D. Cal. Nov. 26, 2014); Ortiz v. Hobby Lobby Stores, Inc., 2014 U.S. Dist. LEXIS 140552 (E.D. Cal. Oct. 1, 2014); Chico v. Hilton Worldwide, Inc., 2014 U.S. Dist. LEXIS 147752 (C.D. Cal. Oct. 7, 2014); and Langston v. 20/20,Companies, Inc., 2014 WL 5335734 (C.D. Cal. Oct. 17, 2014)]. 

The diametrically opposite outcomes in the federal and the California state courts supported the possibility of U.S. Supreme Court review. After all, coming from an influential jurisdiction like California, Iskanian’s analysis of Concepcion in the context of PAGA claims created a wide exception that other states may choose to follow. Certainly, the state-federal conflict at a minimum encourages forum shopping in removable diversity cases and obscures the role and scope of the Federal Arbitration Act. Those issues were highlighted in the certiorari petition. Yet, the Court’s decision to deny review leaves them unresolved and subject to different interpretation depending on the sovereignty of the court.

Going forward, in California state courts, employees will not be barred by representative action waivers from pursuing PAGA claims. In 2009, the California Supreme Court in Arias v. Superior Court held that the Rule 23 certification requirements do not apply to PAGA claims because those claims seek civil penalties—as opposed to damages—on behalf of state agencies. Thus, employees’ ability to maintain PAGA claims despite class and representative action waivers depends upon the specific provisions of that statute and upon the ambit of FAA preemption. Tuesday’s certiorari denial likely creates additional incentives for employees to opt for California state court where they can pursue PAGA classes without restriction. But questions abound regarding how mandatory arbitration of individual employment claims after Iskanian will dovetail with trials of PAGA claims in state court. Simple issues such as which claims will go first (arbitral or PAGA) were not resolved by the Iskanian decision. A discussion of that California Supreme Court opinion can be found in this blog’s June 23, 2014 entry.

Bottom line: The U.S. Supreme Court’s denial of certiorari in CLS Transp. Los Angeles LLC v. Iskanian, No. 14-341, leaves federal and California court in a “standoff” position. The denial means that California state courts will continue to permit employees to pursue PAGA representative claims even where arbitration agreements contain class and representative action waivers. Federal courts, meanwhile, have consistently concluded that the Supreme Court’s Concepcion decision requires enforcement of those waivers.