Why it matters

In the latest interpretation of Iskanian v. CLS Transportation, a California appellate panel affirmed a trial court's ruling that a worker's Private Attorneys General Act (PAGA) claim could not be sent to arbitration. Bernadette Tanguilig claimed Bloomingdale's violated state labor law with regard to the payment of meal breaks, and the national retailer responded with a motion to compel arbitration pursuant to an employment agreement. Relying on Iskanian, a trial court judge denied the motion, and the appellate panel affirmed. "[R]egardless of whether an individual PAGA cause of action is cognizable, a PAGA plaintiff's request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer," the court wrote. "This is because the real party in interest in a PAGA suit, the state, has not agreed to arbitrate the claim."

Detailed discussion

Bloomingdale's employee Bernadette Tanguilig filed suit against her employer in 2014, alleging that the national retailer failed to provide its commission-earning employees with paid rest periods, minimum wage for noncommission-producing activities, complete and accurate wage statements, and timely payment of their wages. The complaint was a representative action on behalf of herself and fellow employees pursuant to the state's PAGA.

Pursuant to an employment agreement accepted by Tanguilig, Bloomingdale's moved to compel arbitration. The agreement required signatories to submit "all employment-related legal disputes, controversies or claims" to a four-step dispute resolution process that culminated in final and binding arbitration and prohibited an arbitrator from "consolidat[ing] claims of different [employees] into one proceeding" and from "hear[ing] an arbitration as a class or collective action."

Before Bloomingdale's filed its motion to compel, the California Supreme Court issued its decision in Iskanian v. CLS Transportation. In that case, the state's highest court upheld the general enforceability of class waivers in mandatory employment arbitration agreements but carved out an exception for employees to bring representative actions under PAGA, holding that "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy."

A trial court denied Bloomingdale's motion to compel. On appeal, the employer argued that Iskanian was wrongly decided because the Federal Arbitration Act (FAA) should preempt California's bar against the compelled waiver of a PAGA representative action. Alternatively, the employer contended that Tanguilig should be required to arbitrate the individual element of her PAGA claim.

The appellate panel made quick work of the employer's suggestion that it should depart from Iskanian. As an inferior state court, the appellate court was bound to follow the California Supreme Court's holding, the panel wrote, particularly in the absence of a contrary opinion from the U.S. Supreme Court on issues of federal law. Further, "we note that the Ninth Circuit has ruled that Iskanian correctly decided the federal question, thus superseding conflicting prior federal court decisions cited by Bloomingdale's," the court added.

"We conclude that Iskanian definitively resolves the arbitrability of the representative claim," the appellate court said. "The representative action waiver in the Agreement is unenforceable under state law and this California rule is not preempted by the FAA. Tanguilig's purported waiver of her right to bring a representative PAGA action is unenforceable."

As for Bloomingdale's second argument, that the individual portion of Tanguilig's PAGA claim should be compelled while the representative portion of the claim should be stayed, the panel found it "less than clear whether an 'individual' PAGA cause of action is cognizable, even in a judicial forum. Permitting pursuit of only individual penalties appears inconsistent with PAGA's objectives." At least three appellate courts have concluded that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim, the court noted.

"We need not decide this question either, since we conclude that, regardless of whether an individual PAGA cause of action is cognizable, a PAGA plaintiff's request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer," the panel concluded. "This is because the real party in interest in a PAGA suit, the state, has not agreed to arbitrate the claim."

Or, as the California Supreme Court put it in Iskanian, "a PAGA claim lies outside the FAA's coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the [Labor and Workforce Development] Agency or aggrieved employees—that the employer has violated the Labor Code."

"Because a PAGA plaintiff, whether suing solely on behalf of himself or herself or also on behalf of other employees, acts as a proxy for the state only with the state's acquiescence and seeks civil penalties largely payable to the state via a judgment that will be binding on the state, the PAGA claim cannot be ordered to arbitration without the state's consent," the appellate panel wrote.

This understanding of a PAGA claim does not conflict with the purposes of the FAA, the court said, because the FAA aims to ensure an efficient forum for the resolution of private disputes—not qui tam citizen actions on behalf of the government for the purposes of enforcing state law.

To read the decision in Tanguilig v. Bloomingdale's, Inc., click here.