California Courts' Split Widens on Arbitrability of PAGA Claims

Additional questions concerning the applicability of AT&T Mobility v. Concepcion to representative actions arose this week when a California intermediate court of appeals ruled that claims under the state's Private Attorneys General Act (PAGA) are not subject to individual arbitration. This decision magnifies a split among the California courts on this issue that will likely remain until the state Supreme Court, and perhaps U.S. Supreme Court, issues a definitive decision.

The panel decision in Brown v. Superior Court "part[s] company" with an earlier ruling of the U.S. District Court for the Central District of California. The district court had concluded that exempting PAGA claims from arbitration would violate the Federal Arbitration Act (FAA). The same issue is also pending before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles.

The PAGA statute allows an aggrieved employee to bring a civil action on behalf of himself or herself and other current or former employees for labor code violations. At issue is whether an employer can enforce an arbitration agreement that prohibits class or other representative actions in arbitration when an employee brings a PAGA claim.

The panel in Brown held that enforcing the arbitration agreement would violate California public policy. It noted in its analysis that a PAGA claim is a non-waivable statutory claim that provides a public remedy, and such a remedy cannot be effectuated if an arbitrator is precluded from awarding class or representative relief. The panel distinguished Concepcion on the ground that it dealt with private party class actions, not with public rights.

The courts disagreeing with Brown's analysis hold that the FAA contains no exception for PAGA claims. They reason that under Concepcion, arbitration agreements must be enforced as written, and states lack the power to exempt claims from the FAA on public policy grounds. Concepcion held that "[s]tates cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons."

We disagree with the reasoning in Brown and constantly monitor developments in arbitration law to provide our clients with current advice for drafting and enforcing arbitration agreements.