Decision: A number of federal courts in California have recently rejected the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles LLC that employees cannot waive representative claims under the Private Attorneys General Act (PAGA) through arbitration agreements. PAGA permits employees, in lieu of government enforcement, to bring representative actions on behalf of other aggrieved employees to recover penalties for purported California Labor Code violations. The District Court for the Central District of California was the first to disagree, holding in Fardig v. Hobby Lobby Stores that “[e]ven in light of Iskanian, the court continues to hold that the rule making PAGA claim waivers enforceable is preempted by the FAA [Federal Arbitration Act]” and that federal courts are not bound by the California Supreme Court’s understanding of federal law. Last month, three more district courts followed suit, upholding the enforceability of agreements to individually arbitrate employment claims despite the inclusion of PAGA representative claims in the lawsuit. See Langston v. 20/20 Companies, Inc.Chico v. Hilton Worldwide, Inc.;Ortiz v. Hobby Lobby Stores, Inc. In the Langston decision, for example, the court explained its rejection of Iskanian: “it is not an individual’s ability to waive the government’s right that drives the [Iskanian] court’s rule, but rather the court’s general disfavor for pre-existing agreements to arbitrate such claims individually,” which is inconsistent with the Supreme Court’s arbitration-friendly decision inAT&T Mobility LLC v. Concepcion.

Impact: These recent decisions by federal courts may bring about the removal of one of the last barriers to full enforcement of arbitration agreement with class action waivers. The growing split between California federal and state courts on whether employers can compel arbitration of lawsuits that include PAGA claims may prompt the United States Supreme Court to review the Iskanian decision, which is currently the subject of a petition for writ of certiorari.