On June 25, 2012 and July 7, 2014, we reported on the issue of waiver of representative claims under California’s Private Attorneys General Act of 2004 (“PAGA”). In Iskanian v. CLS Transportation of Los Angeles, LLC, the California Supreme Court held that a representative claim under PAGA was not waivable. Following a district court’s dismissal of a claim under PAGA following a motion to compel arbitration, the United States Court of Appeals for the Ninth Circuit was asked to decide whether the California rule from Iskanian was preempted by the Federal Arbitration Act (“FAA”). The Ninth Circuit held that it was not.
The case involved a dispute regarding overtime wages between a former employee and Luxottica Retail North America, Inc. Prior to the California Supreme Court’s holding in Iskanian, Luxottica moved to compel arbitration under a dispute resolution agreement, and the district court agreed, dismissing the case to arbitration. However, in so doing, the district court reached a holding that ultimately was in conflict with Iskanian, which was decided during the pendency of the appeal. Finding that, among other purposes, the purpose of PAGA was to “permit aggrieved employees to act as private attorneys general to collect civil penalties for violations of the Labor Code,” the Ninth Circuit held that the FAA did not preempt the Iskanian rule because its saving clause permits invalidation by “generally applicable contract defenses, such as fraud, duress, or unconscionability,” and that the Iskanian rule was one of those generally applicable contract defenses that may be persevered by the savings clause. The court then found that the Iskanian rule expresses no preference regarding whether such representative claims must be litigated or arbitrated, and, therefore, it did not conflict with the FAA because it did not “conflict with arbitration.” Sakkab v. Luxottica Retail North America, Inc., No. 13-55184 (9th Cir. Sep. 28, 2015).