Ninth Circuit Preserves California Employees’ Rights under PAGA

On Monday, the U.S. Court of Appeals for the Ninth Circuit protected the right of employees in California to bring representative actions under the Private Attorneys General Act of 2004, commonly known as PAGA. That decision, Sakkab v. Luxottica Retail North America, No. 13-55184 (9th Cir. Sept. 28, 2015), means that an employee who has signed a mandatory arbitration agreement which attempts to bar representative claims against the employer may nonetheless bring a representative claim under PAGA.

PAGA emboldens aggrieved employees to step into the shoes of the California Labor Workforce Development Agency to enforce California’s Labor Code. Penalties recovered from employers who have violated the Labor Code are then divided between the State and the aggrieved employees.

As discussed in previous blog posts, employees’ right to bring representative actions suffered a significant blow when the U.S. Supreme Court held in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), that the Federal Arbitration Act preempted California’s law (and those of other states) which invalidated consumer contracts that prohibited representative actions. However, the California Supreme Court subsequently ruled that, notwithstanding Concepcion, PAGA waivers are unenforceable as a matter of state law in Iskanian v. CLS Transportation Los Angeles (2014) 59 Cal.4th 348. In that case, the California Supreme Court reasoned that the state legislature chiefly enacted PAGA to ensure compliance with the state’s labor code through qui tam actions, not merely to assert the individual rights of private litigants. On that basis, the court in Iskanian concluded that the Federal Arbitration Act – which concerns bargaining between private parties – did not preempt PAGA.

Following Iskanian, employers in Sakkab and other cases nonetheless argued that the Federal Arbitration Act preempts the unenforceability of PAGA waivers under California law. On two occasions this year, the U.S. Supreme Court has declined to consider that argument: first with respect to Iskanian and second as to Bridgestone Retail Operations, LLC v. Brown, 2015 WL 86028, No. 14-790.

That argument failed again this week before the Ninth Circuit, which emphasized the public benefits of representative PAGA actions in concluding that the Federal Arbitration Act does not preempt California’s ability to protect employees through such actions. In that regard, the Ninth Circuit agreed with the California Supreme Court in Iskanian that enforcing an employee’s waiver of the right to bring a representative PAGA action allows an employer to dodge responsibility for its own violations of the law. The Ninth Circuit further stressed PAGA’s central role in enforcing California’s labor laws, stating that “[t]he explicit purpose of the rule barring enforcement of agreements to waive representative PAGA claims is to preserve the deterrence scheme the legislature judged to be optimal.” Sakkab at 28.

Bryan Schwartz Law applauds the Ninth Circuit for trusting the state legislature’s judgment that it could significantly reduce violations of the California Labor Code by allowing employees to vindicate the state’s interest in strong labor protections.