United States: The Widening California Divide: The Rejection Of Iskanian By Federal District Courts And Potential Resolution

Last Updated: January 14 2015
Article by John B. Lewis

In an October 22, 2014, posting, we addressed the growing divide between California federal district courts and the California Supreme Court over whether an arbitration agreement can waive an employee's right to pursue a representative claim under the state's Private Attorney General Act (PAGA).  That divide has now widened as two more federal district courts have rejected the June 23, 2014, holding of Iskanian v. CLS Transp. Los Angeles, LLC, 327 P. 3d 129 (2014).  (Discussed in a June 23, 2014, posting here).  Iskanian is currently pending on certiorari before the United States Supreme Court.  (See Petition in CLS Transp., L.A. LLC v. Iskanian, No. 14-341).  The question presented: "Is an employee's waiver in an arbitration agreement of a collective or 'representative action' under [PAGA] so distinguishable from a 'class action' waiver that it is immune from the otherwise preemptive effective of the Federal Arbitration Act . . . as held by this Court in AT&T Mobility v. Concepcion?"  [citations omitted].

Three amici briefs have weighed in on the issue, including The Pacific Legal Foundation and National Federation of Independent Business.  The Petition currently is scheduled for conference on January 9, 2015.  If granted, the Supreme Court could resolve the growing divide, because federal not state courts ultimately determine the scope of federal preemption.  See Gade v. Nat'l Solid Waste Mgmt. Ass'n., 505 U.S. 88, 98 (1992); Kilgore v. Key Bank Nat'l Ass'n, 673 F.3d 947, 960 (9th Cir. 2012).  Otherwise, the type of court deciding the waiver issue  ̶  state or federal  ̶  will be determinative rather than the constitutional authority of that court.

The two recent opinions, Lucero v. Sears Holding Mgmnt. Corp., Case No. 3:14-cv-01620 (S.D. Cal. Dec. 2, 2014), and Mill v. Kmart Corp., Case No. 14-cv-02749 (N.D. Cal. Nov. 26, 2014), now join Ortiz v. Hobby Lobby Stores, Inc., 2014 U.S. Dist. LEXIS 140552 (E.D. Cal. Oct. 1, 2014); Chico v. Hilton Worldwide, Inc., 2014 U.S. Dist. LEXIS 147752 (C.D. Cal. Oct. 7, 2014); and Langston v. 20/20,Companies, Inc., 2014 Wl 5335734 (C.D. Cal. Oct. 17, 2014) in rejecting the Iskanian holding.  The opinion, on reconsideration after Iskanian, in Fardig v. Hobby Lobby Stores, Inc., 2014 U.S. Dist. LEXIS 139359 (C.D. Cal. Aug. 11, 2014) reached a similar conclusion.

The federal courts above uniformly agreed that the essence of the Iskanian opinion regarding PAGA waivers is hostile to arbitration and contrary to the FAA.  As described in Lucero:

The Iskanian court concluded that an employee's agreement not to bring a representative PAGA action is contrary to public policy if it takes place before a suit arises, but nevertheless explained that, after a labor dispute arises, an employee is free to choose not to bring a representative PAGA claim.

But, citing Langston, the Lucero court concluded that disfavor of pre-dispute arbitration agreements actually prompted the Iskanian decision:

" . . . [A]lthough the [Iskanian] 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 [Iskanian] court's general disfavor for pre-existing agreements to arbitrate such claims individually."

Lucero at 8, citing Langston, 2014 WL 5335734 at *7.

While there is disagreement among federal courts over the availability of individual PAGA claims, the majority of the recent decisions require that PAGA claims be brought on an individual basis.  In Ortiz, however, the court found that "PAGA actions cannot exist on an individual basis" but that "Plaintiff's PAGA action falls within the waiver provision and Plaintiff is banned from pursuing her PAGA claim in arbitration."  2014 U.S. Dist. LEXIS at *38-39.  Regardless, the post-Iskanian federal court decisions provide that PAGA claims cannot be maintained in court.

The present state-federal conflict encourages forum shopping in removable diversity cases and obscures the proper role of the Federal Arbitration Act.

The Bottom Line: The present split on PAGA waivers warrants U.S. Supreme Court review.  Until that occurs, the full enforcement of an employment arbitration agreement still depends on whether a state or federal court is considering it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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