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The Continued Legal Uncertainty Over PAGA Waivers In Arbitration Agreements

Can an employer require an employee to sign an arbitration agreement that waives the employee's right to bring a PAGA action? That depends on who you ask.

California's Private Attorney General Act ("PAGA"), codified in California's Labor Code, allows an employee - on behalf of himself/herself and an entire group of "aggrieved" employees - to sue an employer for alleged violations of California's employment laws. The employee bringing the PAGA action is considered to be acting as an arm of the State of California, and 75% of any monetary penalties assessed against the employer go to the State of California. PAGA actions can be a huge headache for employers, because in addition to the potential that huge penalties will be assessed against the employer, the employer may also be on the hook for the employees' attorneys' fees.

Last June, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the California Supreme Court, in a pro-employee ruling, held that California law "prohibits waiver of PAGA representative actions in an employment contract," and that the Federal Arbitration Act ("FAA") does not preempt California's prohibition of PAGA waivers in employment contracts. The U.S. Supreme Court recently denied review of the Iskanian decision, which means that in state court, an employee's waiver of her PAGA rights is - at least for the time being - unlawful and unenforceable. In fact, the California state Court of Appeal just applied Iskanian in a decision handed down on Friday striking down an entire arbitration agreement containing a PAGA waiver on public policy and contract grounds; see Securitas Security Services v. Super. Ct. (D066873, February 27, 2015)(see attached decision here).

However, the story is decidedly less clear in California's federal courts.

Numerous federal courts throughout the state of California have explicitly refused to apply Iskanian, holding - at least in federal court - that PAGA waivers signed by employees are enforceable. The latest federal court in California refusing to apply the California Supreme Court's Iskanian decision is Estrada v. Cleannet United States 2015 U.S. Dist. LEXIS 22403 (N.D. Cal. Feb. 24, 2015) (see attached decision here), decided just last week, in which the federal court reached the following conclusion: "The Court finds that the provision prohibiting Plaintiffs from proceeding on a representative basis extends to representative PAGA claims. To the extent the Iskanian holding would frustrate the FAA's goals, the Court finds that it is preempted."

But federal courts in California are by no means unanimous on this issue; some - including one last month - have agreed with and applied Iskanian to invalidate PAGA waivers; see Hernandez v. DMSI Staffing, LLC, 2015 U.S. Dist. LEXIS 12824 (N.D. Cal. Feb. 3, 2015)("While Iskanian's holding ... is not binding on this Court, for the reasons stated below, this Court finds Iskanian persuasive and agrees with its conclusion that the FAA does not preempt the Iskanian rule.").

Stay tuned to this blog for further updates on this cutting-edge issue. If you have any questions about this or any other employment and labor law questions your company may be facing, please feel free to contact us.

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