California Supreme Court to clarify interplay between arbitration and PAGA claims
March 28, 2018
An employee brought a Private Attorneys General Act (PAGA) representative claim for civil penalties to recover for violations of Labor Code section 558, which sets statutory penalties for underpaid wages owing to individual employees. The employer moved to compel arbitration on an individual basis of the portion of the PAGA claim seeking individualized relief for violations of section 558.
The Court of Appeal held: (a) PAGA claims for violations of section 558 cannot be arbitrated because state labor law enforcement agencies are the real parties in interest under such claims, and arbitration of PAGA claims cannot proceed without their consent; and (b) under Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348, this result is not preempted by the Federal Arbitration Act (FAA). The Court of Appeal disagreed with Esparza v. KS Industries, LP (2017) 13 Cal.App.5th 122, which held that an employee’s PAGA claim seeking relief under section 558 was a private dispute over underpaid wages that fell outside Iskanian’s rule and that an employee could therefore be compelled to arbitrate this dispute on an individual basis pursuant to the FAA.
The California Supreme Court granted review to determine the FAA preemption question. This is the latest in a long line of cases in which the United States Supreme Court and California appellate courts have embraced differing approaches to the scope of FAA preemption of state laws that stand in the way of the enforcement of arbitration agreements according to their terms.