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U.S. Supreme Court Declines Review of PAGA Arbitration Dispute
For the second time, the United States Supreme Court declined to review a challenge to the California Supreme Court’s ruling that claims brought under the Private Attorney General Act (PAGA) cannot be forced into arbitration. This applies even when employment arbitration agreements contain waivers of class or representative actions.
On June 1, 2015, the Supreme Court denied a petition for review in Bridgestone Retail Operations, LLC v. Milton Brown, et al. (No. 14-790). The denial left standing the California Supreme Court’s decision in Iskanian v. CLS Transportation, 59 Cal.4th 348 (2014), which held that PAGA representative claims cannot be waived through arbitration agreements.
What Is the Private Attorney General Act (PAGA)?
California’s Private Attorney General Act allows employees to bring legal actions against employers for violations of the California Labor Code. These claims seek civil penalties that would otherwise be recoverable by the State of California.
Unlike traditional employment lawsuits, PAGA claims allow an employee to act as a representative of the State, bringing claims on behalf of:
- The employee bringing the claim
- Other similarly situated current or former employees
- The State of California
Because of this structure, PAGA representative actions share some similarities with class actions, though they are technically enforcement actions on behalf of the state.
The California Supreme Court’s Decision in Iskanian v. CLS Transportation
In Iskanian, the California Supreme Court overturned a lower court ruling that required a PAGA claim to be arbitrated individually.
The court held that waivers of the right to bring representative PAGA actions are unenforceable. According to the court, requiring employees to waive these rights as a condition of employment violates California public policy.
The court explained that PAGA claims differ from typical employment disputes. Rather than being purely contractual disputes between employer and employee, PAGA claims represent enforcement actions brought on behalf of the state for alleged labor code violations.
For this reason, the court concluded that the Federal Arbitration Act (FAA) does not preempt California law prohibiting the waiver of PAGA representative claims in employment agreements.
The Bridgestone Case and the Supreme Court Petition
Following the Iskanian decision, the employer in that case petitioned the United States Supreme Court for review. The Court denied the petition in January 2015.
The Bridgestone Retail Operations case raised similar issues. The litigation had originally been stayed pending the California Supreme Court’s decision in Iskanian because both cases involved employees seeking to pursue representative PAGA claims despite arbitration agreements that included class and representative action waivers.
After Iskanian was decided, the Bridgestone case was vacated and remanded so that the ruling could be applied.
Bridgestone then filed a petition asking the U.S. Supreme Court to review the case. The company argued that the California Supreme Court’s ruling conflicted with the FAA and the Supreme Court’s earlier decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), which held that the FAA preempts California rules restricting class action waivers in arbitration agreements.
The employees responded that the petition raised the same arguments that had already been rejected in the Iskanian petition and did not present any new legal issues warranting Supreme Court review.
The U.S. Supreme Court declined to hear the case, effectively leaving the California Supreme Court’s ruling intact.
Ongoing Federal Court Disagreements Over PAGA Waivers
Although the Supreme Court’s denial of review appeared to settle the issue under California law, disagreement remained within the federal courts.
Several federal district courts in California rejected the reasoning in Iskanian, concluding that the Federal Arbitration Act requires enforcement of PAGA waivers in arbitration agreements.
Because of this split in interpretation, the Ninth Circuit Court of Appeals was expected to address whether PAGA waivers are enforceable in federal court.
What the Decision Means for California Employers
At the time of the decision, the legal landscape meant that California employers generally could not rely on arbitration agreements containing class or representative action waivers to avoid PAGA litigation in state court.
As a result, employers remained exposed to representative PAGA lawsuits seeking civil penalties for labor code violations, even when employees had signed arbitration agreements.
Future rulings by federal courts or the U.S. Supreme Court could potentially revisit the issue. However, for the time being, representative PAGA actions continued to proceed in California courts despite arbitration agreements.