The Latest on Arbitration Agreements
The validity of mandatory arbitration agreements continues to be a major focus of litigation and legislation. As employers know, the U.S. Supreme Court currently is reviewing the issue of whether class action waivers violate the NLRA in the consolidated matters Morris v. Ernst & Young, Lewis v. Epic Systems, and Murphy v. NLRB. Briefing is underway in those matters and oral argument is expected this fall.
Meanwhile, federal and state courts in California continue to grapple with the issue of whether PAGA claims may be compelled to arbitration. Both the California Supreme Court (Iskanian v. CLS Transportation) and the Ninth Circuit (Sakkab v. Luxottica Retail) have agreed that an employee may not waive the right to bring a representative PAGA claim in any forum. Thus, arbitration agreements that provide that employees must arbitrate all claims on an individual basis in arbitration and may not pursue claims in any forum on a representative basis under PAGA, are unenforceable. Recently, courts have considered a variation of this issue—whether employees may be compelled to arbitrate their representative or individual PAGA claims (that may not be waived). California courts have said no. These courts primarily have reasoned that an arbitration agreement between an employer and an employee does not apply to a PAGA claim because a PAGA claim is brought in the shoes of the state, and the state did not agree to arbitrate anything. See, e.g., Tanguilig v. Bloomingdale's; Betancourt v. Prudential Overall Supply; Williams v. Superior Court.
The Ninth Circuit, however, has viewed the issue differently. In a recent unpublished disposition in Valdez v. Terminix, the Ninth Circuit held that an employee's PAGA claim must be compelled to arbitration pursuant to the terms of an arbitration agreement between the employee and the employer. The court held that neither Iskanian nor Sakkab barred arbitration of PAGA claims. Instead, these cases merely held that an employee cannot be compelled to waive the right to bring a PAGA claim altogether, in any forum. An agreement to arbitrate all claims, including PAGA claims, is not an agreement waiving the right to bring such a claim. It is merely an agreement to resolve the claim in a forum other than court.
The takeaway from this federal/state court split is that an employer (or employee) may be able to compel arbitration of a PAGA claim in federal court in California, but is highly unlikely to succeed in doing so in state court in California. Even in federal court, the ability to compel arbitration of a PAGA claim is going to depend on the specific terms of the arbitration agreement at issue. If the agreement expressly prohibits arbitration of PAGA claims (as opposed to being silent on the issue), it is not likely that a court will compel arbitration of such a claim.
It is of course also important for employers to consider the outcome they want in their own cases. The Ninth Circuit opinion allowing arbitration of PAGA claims should not necessarily be viewed as a victory for employers or a decision that employers necessarily should avail themselves of to try to compel arbitration of any PAGA claims. Litigating a PAGA claim in arbitration has some notable downsides—e.g. expense (paying an arbitrator by the hour to preside over complex representative claims) and very limited judicial review.
While litigation over arbitration agreements continues, particularly in the wage and hour arena, so do legislative efforts to prohibit these agreements. Senator Al Franken has introduced several bills in recent years aimed at prohibiting employment arbitration agreements. These efforts have never succeeded. Undeterred, Senator Franken has introduced legislation yet again. Dubbed the Arbitration Fairness Act of 2017, this bill would amend the FAA to invalidate predispute employment arbitration agreements (as well as predispute agreements to arbitrate consumer, antitrust, and civil rights disputes). Given the current balance of political power in Congress, it is highly likely that this bill will meet the same fate as it has in prior years.