A California superior court judge has ruled, in a closely watched and much anticipated decision, that individual arbitration must precede an employee’s representative claims under California’s Private Attorney General Act (PAGA). The nearly decade-old case at issue is Iskanian v. CLS Transportation, BC35621, filed in Los Angeles County Superior Court in August of 2006.
Arshavir Iskanian, a limo driver, filed a proposed wage class action alleging that he and other drivers were denied meal and rest periods and the payment of overtime in violation of the California Labor Code. He subsequently filed additional claims under PAGA, which allows employees to sue over workplace violations on behalf of themselves and other workers, through representative suits similar to class actions. Iskanian, however, had signed an arbitration agreement with the company containing a class and representative action waiver. His case eventually went to the California Supreme Court, which ruled in June 2014 that arbitration agreements with mandatory class waivers are generally enforceable, but carved out an exception by stating that PAGA claims cannot be waived.
This decision followed the US Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), which stated that class action waivers are valid and any rule to the contrary is preempted by the Federal Arbitration Act (FAA). The California Supreme Court inIskanian, however, found that a PAGA representative action is not a private dispute to which the FAA applies. The California Supreme Court also left for the trial court to decide whether Iskanian’s representative PAGA claims or his individual claims should proceed first.
Iskanian argued that a PAGA claim is a civil law enforcement action that should take precedent over a private dispute in arbitration. CLS Transportation, on the other hand, argued that allowing the PAGA claim to proceed before addressing Iskanian’s individual claims would in essence undermine or nullify Iskanian’s arbitration agreement. On November 25, 2006, Judge Robert L. Hess agreed with CLS Transportation and ordered that Iskanian must adjudicate his individual claims in private arbitration before he can proceed on his PAGA claims in court on behalf of other drivers and the California Division of Labor and Standards Enforcement. Judge Hess reasoned that “arbitration could be completed significantly more quickly than a trial,” and that while discovery on Iskanian’s individual claims had been mostly completed in 2009, “considerably greater discovery would be necessary to prepare the PAGA claim for trial.”
Because of Iskanian’s well-known status in the legal community through the California Supreme Court’s landmark ruling regarding mandatory class waivers and PAGA, many attorneys and other courts may be inclined to follow Judge Hess’s ruling in addressing suits involving individual claims that must be arbitrated and additional PAGA claims. While plaintiffs will undoubtedly argue that this decision is narrow and limited to the specific facts of the case, the decision may actually have broader implications beyond claims for alleged wage issues, including claims for health and safety violations or other claims that the California Supreme Court may one day decide are not private disputes subject to the FAA. Employers facing lawsuits involving such claims from employees with arbitration agreements should consult with an employment law specialist to assess their options and whether such recent state and federal court decisions apply.