Why it matters: Rejecting the California Supreme Court’s decision in Iskanian v. CLS Transportation, a federal district court in the state held that an employee could waive her rights to a Private Attorney General Act (PAGA) claim by virtue of an employment agreement. The suit involved a sales representative who sued her employer, alleging she was misclassified as an independent contractor, claiming various labor code violations and including a PAGA claim. The employer moved to compel arbitration based on an employment agreement that also waived class or representative actions. Relying on Iskanian, the employee argued she could not waive her rights to bring a representative PAGA claim. But joining two other federal courts to consider the issue, the judge wrote that Iskanian “disfavored” arbitration agreements in contravention of the Federal Arbitration Act (FAA) and U.S. Supreme Court precedent. The decision could increase the likelihood that the Supreme Court will consider Iskanian, which has been appealed to the nation’s highest court.

Detailed Discussion

In June, the California Supreme Court issued a split decision addressing an employment arbitration clause in Iskanian v. CLS Transportation. The majority 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.”

M’Bili Langston filed her lawsuit prior to the Iskanian decision but relied upon it in her efforts to dodge arbitration. Langston claimed that her employer, 20/20 Companies, Inc., misclassified her sales representative position as an independent contractor in violation of several provisions of the California labor code. On behalf of a putative class of workers, she also sought civil penalties pursuant to PAGA.

The employer moved to compel individual arbitration based upon a Mutual Arbitration Agreement requiring all disputes between the parties to be resolved via arbitration as well as prohibiting class or representative actions.

Pointing to Iskanian, Langston told the court that representative PAGA claims could not be waived through an arbitration agreement, asserting that the claims must be litigated in federal court.

U.S. District Court Judge Jesus G. Bernal soundly rejected application of the California Supreme Court opinion, holding that arbitration of the plaintiff’s claim was mandated by the FAA.

“Although California courts control the interpretation of California statutes, such as PAGA, the role of interpreting federal statutes, like the FAA, is left to federal court,” he wrote. “Thus this court need not defer to the California Supreme Court’s conclusion that the FAA does not preempt its rule that arbitration agreements are unconscionable if they waive an employee’s right to bring a representative PAGA claim.”

Iskanian “treats arbitration agreements disfavorably,” the court added, and the California Supreme Court further displayed its prejudice against arbitration by inconsistently applying its rationale.

“While concluding that an employee’s agreement not to bring a representative PAGA action is contrary to public policy if it takes place before any dispute arises, the court nevertheless explained that, after a labor dispute arises, an employee is free to choose not to bring a representative PAGA claim. Moreover, after a dispute arises, an employee may agree to ‘resolve a representative PAGA claim through arbitration,’ ” Judge Bernal wrote. “Thus, although the court asserts that the basis for holding representative PAGA claim waivers unconscionable is that an employee cannot waive a right that properly belongs to the government, the court nevertheless acknowledges that an employee may actually sometimes waive the government’s right to bring a PAGA claim. That inconsistency illuminates the fact that, it is not an individual’s ability to waive the government’s right that drives the court’s rule, but rather the court’s general disfavor for pre-existing agreements to arbitrate such claims individually.”

The court added that two other California federal courts have similarly concluded that the FAA preempts the holding in Iskanian.

After determining that the arbitration agreement at issue was valid and clearly encompassed each of the plaintiff’s claims, the court granted 20/20’s motion to compel individual arbitration.

To read the order in Langston v. 20/20 Companies, Inc., click here.