The U.S. Supreme Court recently denied a petition for certiorari that challenged a California Supreme Court decision carving out an exception to the federal high court’s recent holdings in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant that mandatory class action waivers in arbitration provisions are generally enforceable under the Federal Arbitration Act (FAA) and preempt inconsistent state laws. The employer’s petition sought a reversal of the portion of the California court’s holding that a waiver of California Private Attorney General Act (PAGA) representative actions in employment arbitration agreements is invalid. The case, Iskanian v. CLS Transportation Los Angeles, LLC, had created a divide between federal and state courts in California on the issue of the enforceability of PAGA waivers.

PAGA creates a private right of action for employees to sue their employers for certain violations of the California Labor Code on behalf of the state government. PAGA splits any recovered penalties with the state and permits recovery of attorneys’ fees and costs. The statute also grants employees the right to sue on behalf of themselves, as well as other current or former employees, similar to a class action.

The case arose in 2006, when limousine driver Arshavir Iskanian filed a class action complaint against his employer, CLS Transportation Los Angeles LLC, for alleged violations of California’s wage and hour laws. CLS filed a motion to compel arbitration because Mr. Iskanian had signed an employment arbitration agreement, which contained a class action waiver. The trial court granted the motion to compel, and the case reached the California Supreme Court.

The California Supreme Court found that class action waivers in employment agreements are generally enforceable under the FAA, overruling its 2007 decision in Gentry v. Superior Court, which held that class action waivers in the employment context may be unenforceable under certain circumstances. However, the court ruled that the arbitration agreement’s waiver of class and representative actions could not be enforced for PAGA claims. The court reasoned that, unlike other claims, PAGA claims may not be waived, because the law allows the individual to step into the shoes of the state to seek redress of a public dispute and that the FAA’s preemption of the state’s public policy against class action waivers does not extend to the rights of a public agency, in whose place employees act under PAGA.

In its petition to the U.S. Supreme Court, the employer argued that the California high court’s decision was “manifestly incorrect” and that the California Legislature and courts have a history of ignoring the FAA’s preemptive effect. The employer also highlighted the divide between California state and federal courts on whether the FAA preempts California’s law regarding the unenforceability of PAGA waivers and argued that the federal courts need “binding federal authority” on the issue. In contrast, Mr. Iskanian argued that the California court’s decision did not conflict with the court’s FAA jurisprudence because the FAA does not require enforcement of agreements waiving representative claims on behalf of the state.

As a result of the denial of the petition for certiorari, employees’ rights to bring representative claims against employers under PAGA remain intact if the claims are brought in California state court. The denial of certiorari does not constitute binding authority on federal district courts, however, and therefore fails to resolve the conflict between state courts and several federal district courts that have refused to follow the Iskanian decision. This means that unless this FAA preemption issue is later accepted for review by the U.S. Supreme Court in a different case, cases involving PAGA representative claims may have different results, depending on whether they are filed in federal or state court.

If you have any questions on the use of arbitration agreements or the Iskanian case, please contact Erin K. Clarke at 215.864.8318 or, Consumer Financial Services Practice Leader Alan S. Kaplinsky at 215.864.8544 or, Mark J. Levin at 215.864.8235 or, or the Ballard Spahr attorney with whom you work. 

Copyright © 2015 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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