Why it matters

The U.S. Circuit Court of Appeals for the Ninth Circuit permitted arbitration of a worker's Private Attorneys General Act (PAGA) claim, holding that an individual employee contract can bind government parties. Placido Valdez sued Terminix over an alleged failure to provide rest and meal breaks and included a PAGA claim in his complaint. The pest control company moved to compel arbitration but a district court denied the motion, ruling that the PAGA claim made the state a party to the litigation and the state had not agreed to arbitration. Terminix appealed and, in an unpublished memorandum, the federal appellate panel reversed. The California Supreme Court's Iskanian v. CLS Transportation Los Angeles decision "does not require that a PAGA claim be pursued in a judicial forum," the court said, and "clearly contemplate[d] that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum."

Detailed discussion

Termite technician Placido Valdez filed suit against his former employer, asserting that Terminix failed to provide meal and rest breaks as required by California state law. He also included a count under the state's PAGA in his complaint.

The employer moved to compel arbitration and a district court judge denied the motion. Terminix appealed, making three arguments to the U.S. Court of Appeals for the Ninth Circuit: (1) that the Federal Arbitration Act (FAA) preempts California's rule that a waiver of the right to bring a PAGA claim is invalid (pursuant to the California Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles); (2) that case law subsequent to Iskanian questioned the reasoning of that decision; and (3) that the district court erred when it concluded that PAGA claims categorically cannot proceed to arbitration.

The panel made quick work of the first two arguments. The Ninth Circuit has already ruled on the application of the FAA to the Iskanian rule in Sakkab v. Luxottica Retail North American, Inc., the panel said, where the court held that "the Iskanian rule does not stand as an obstacle to the accomplishment of the FAA's objectives, and is not preempted."

As for the second argument, the court said that no subsequent case called into question the reasoning in Iskanian, as the rule bars any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.

However, the panel agreed with Terminix that Iskanian does not categorically prohibit PAGA claims from arbitration.

"Iskanian and Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum," the court wrote. "Employees can bind government agencies because they 'represent[] the same legal right and interest' as the government in PAGA proceedings."

An employee plaintiff suing under the PAGA does so as the proxy or agent of the state's labor law enforcement agencies. "Accordingly, an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration," the panel said. "Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid."

Sakkab likewise recognized that individual employees may pursue PAGA claims in arbitration, the court added, and the Ninth Circuit has upheld district court decisions compelling arbitration of PAGA claims post-Iskanian.

The panel then found that Valdez's PAGA claim fell within the scope of the arbitration clause, as the parties mutually agreed "to arbitrate covered Disputes." That clause of the agreement applied even after the representative action waiver was severed, and since the PAGA claim "relat[es] to [Valdez's] employment relationship with the Company," and arises under a "state" "employment related law[]," it constituted a covered dispute.

Reversing the denial of the motion to compel arbitration, the court remanded the case to the district court.

To read the memorandum in Valdez v. Terminix International, click here.