9th Circuit Green Lights Compelling PAGA Claims To Arbitration In Federal Court

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06/23/2017

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9th Circuit Green Lights Compelling PAGA Claims To Arbitration In Federal Court

 By: Rebecca Hause-Schultz

This month, the Ninth Circuit Court of Appeals (“9th Circuit”) held that claims made pursuant to the Private Attorney General Act (“PAGA”) may be compelled to arbitration. In a PAGA claim, a Plaintiff steps into the shoes of the Attorney General and seeks to recover civil penalties for Labor Code violations on behalf of the State.  In Valdez v. Terminix, Plaintiff signed an arbitration agreement as part of his employment with Defendant. Defendant sought to compel Plaintiff’s PAGA claim to arbitration, as the parties agreed to arbitrate all claims relating to Plaintiffs employment relationship with the Company. Defendant did not contend that Plaintiff had waived his right to bring a representative PAGA claim altogether, just that the PAGA claim should be resolved in arbitration.

There has been conflicting case law as to whether a PAGA claim, which technically belongs to the State, may be compelled to arbitration. The question is particularly complex as the State is not a party to the employee’s arbitration agreement, and thus the State did not agree to arbitrate the PAGA claim in the first place. In Valdez, the court reasoned that even though the Plaintiff was standing in the shoes of the State, an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration.

It is important to note that Valdez is a federal case, and California courts are not required to follow this decision. Even more, the decision is unpublished, so it does not create precedent in Federal Court either; although, the court indicated that two prior cases, Iskanian in the California Supreme Court and Sakkab from the 9th Circuit, “clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum.” In contrast, at least one California court decided the issue differently, holding that because the State is the real party in interest, the PAGA claim cannot be ordered to arbitration without the State’s consent, regardless of whether the claim is individual or representative. (See Tanguilig v. Bloomingdales.)

COUNSEL TO MANAGEMENT:

Further, this case highlights the ongoing development of the law regarding enforceability of arbitration agreements, and the current inconsistencies between the courts as to whether representative PAGA claims may be compelled to arbitration. Given the current uncertainty in the law, employers must carefully balance with counsel the type of arbitration agreement that best suits their needs. Further, because the State and Federal courts are split as to whether arbitration provisions involving representative PAGA claims are enforceable, in ongoing litigation, companies should work closely with counsel to determine the advantages and disadvantages of litigating claims in State or Federal Court, and the desirability of removing claims to Federal Court. If you have questions about rolling out an arbitration agreement at your Company, or about your current arbitration agreement, contact the Saqui Law Group.

 

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