The Split of Authority Between State and Federal Courts Continues as to Whether Arbitration Clauses Can Prevent Employees from Filing Representative Court Actions Under the Private Attorney General’s Act (PAGA)
Three recent state court decisions from the Fourth and Second Districts have come down in California, invalidating attempts by employers to enforce arbitration clauses as they relate to representative actions under PAGA. These cases are Montano v. Wet Seal Retail, Inc. (2017) 7 Cal.App.5th 1248; Betancourt v. Prudential Overall Supply (2017) __ Cal.Rptr.3d __, 2017 W.L. 895834 and Hernandez v. Ross Stores (2016) 7 Cal.App.5th 171. In all three of these decisions, the courts of appeal affirmed decisions of the trial court in which the trial court refused to compel arbitration of PAGA representative actions even though the employee had signed an arbitration agreement, agreeing to arbitrate such claims. In so ruling, these courts of appeal considered the California Supreme Court case of Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348, 381.
In Iskanian, the California Supreme Court had determined that pre-dispute waivers of the right to bring class or representative actions were unenforceable. However, the Iskanian case did not decide the issue of whether or not an employer could compel an employee to arbitrate representative PAGA claims. Each of these recent appellate decisions relied upon the rationale of the Iskanian case to reach the conclusion that an employer cannot compel an employee to arbitrate representative claims under PAGA. The rationale of these appellate courts was that a PAGA representative action is an action not on behalf of the individual employees, but on behalf of the State. Therefore, the courts determined, even if the employee had agreed to arbitrate his or her claims, relating to PAGA, no such agreement had been made by the State. The Montano v. Wet Seal Retail Inc. (2017) 7 Cal.App.5th 1248, case acknowledged that several federal district courts within California have found PAGA waivers to be enforceable under the Federal Arbitration Act (FAA). The Court of Appeal in Montano, however, stated that decisions of lower federal courts are not binding on state courts and that, therefore, until the United States Supreme Court resolves the issue, they are bound to follow the Supreme Court’s decision in Iskanian.
Ironically, during the same time period, the Ninth Circuit, a higher federal court, in the case of Poublon v. CH Robinson Company (2017) 846 F.3d 1251, reached the exact opposite conclusion of those three California state appellate courts. Specifically, in Poublon, the court reversed the district court’s decision denying the employer’s motion to compel arbitration. The Ninth Circuit ruled that the arbitration clause in question, was not unconscionable, and should apply to compel arbitration of plaintiff’s PAGA claims, including the representative aspects of her claim. The Ninth Circuit in analyzing Iskanian, said that nothing in that case compelled a conclusion that requiring arbitration of representative claims was unenforceable as against public policy. The Ninth Circuit relied on the U.S. Supreme Court decision of AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), which broadly interpreted the range and enforceability of arbitration clauses under the Federal Arbitration Act.
So, it appears that the split in authority between state and federal courts in California will continue. As the court in the Montano case said, “. . . this may well be a particular area of law that needs a final decision from the U.S. Supreme Court to resolve the conflict.”