Former employees sued their former employer, alleging wage and hour violations and seeking civil penalties under the California Private Attorneys General Act of 2004 (PAGA). In response, the employer petitioned for arbitration under the parties’ arbitration agreement. The agreement provided that arbitration shall be the exclusive forum for any dispute and prohibited employees from bringing a “representative action.”

The trial court granted the arbitration petition on all causes of action except for the PAGA claim, relying on the California Supreme Court decision in Iskanian v. CLS Transportation Los Angeles LLC, which held that agreements that waived the right to bring PAGA representative actions in any forum were unenforceable. The trial court stayed the PAGA claim pending the conclusion of the arbitration.

On appeal, the employer argued that the court erred because Iskanian is inconsistent with a recent Epic Systems decision by the U.S. Supreme Court. The appellate court rejected this argument, finding that Epic Systems did not address the scenario in Iskanian, which involved a claim under PAGA brought on behalf of the government, and the enforceability of an agreement barring a PAGA representative action in any forum. The court concluded that the trial court properly ruled that the waiver of representative claims in any forum is unenforceable. The appellate court agreed with other California court rulings that held that Iskanian’s view of a PAGA representative action — that a PAGA litigant is an agent of the state — means that this claim cannot be compelled to arbitration based on an employee’s arbitration agreement absent some evidence that the state consented to the waiver of the right to bring the PAGA claim in court. There was no such evidence in this case.

The employer also argued that the parties’ arbitration agreement should be interpreted to mean that if the representative-action waiver is unenforceable, the PAGA claim for statutory penalties remains subject to arbitration. The court rejected this argument on the basis that several California courts of appeal have held that a PAGA arbitration requirement is unenforceable based on Iskanian’s view that the state is the real party in interest in a PAGA claim for penalties.

The court also distinguished federal courts that have reached a different conclusion regarding the arbitrability of a PAGA representative claim, finding that these decisions were unpersuasive because the courts did not fully consider the implications of the qui tam nature of a PAGA claim on the enforceability of an employer-employee arbitration agreement.

Correia v. NB Baker Elec., Inc., No. D073798 (Cal. Ct. App. Feb. 25, 2019).