Hunton Employment & Labor Perspectives

The U.S. Supreme Court refused on Monday to take up a challenge to the California Supreme Court’s holding that California Private Attorney General Act (“PAGA”) claims cannot be waived in employment arbitration agreements containing a class action waiver.

In Bridgestone Retail Operations LLC v. Brown, et al., the plaintiffs brought wage and hour claims in California state court on a purported representative basis under PAGA.  Bridgestone sought to strike the representative PAGA claims and compel the case into arbitration because the employees had signed arbitration agreements containing class action waivers. The case moved through the appellate process and ultimately was vacated and remanded by the California Supreme Court for consideration in light of Iskanian v. CLS Transportation, in which the California Supreme Court affirmed the validity of a class waiver in an arbitration agreement, but held  that an employee’s purported waiver of the right to bring a representative PAGA action is unenforceable. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014).

Bridgestone petitioned for certiorari to the United States Supreme Court, arguing that the California Supreme Court’s ruling conflicts with the Federal Arbitration Act and the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, which held that the FAA preempts California’s prohibition on class action waivers.

On Monday, the United States Supreme Court denied Bridgestone’s petition, letting the California Supreme Court’s decision stand.  Back in January, the Court similarly denied a petition for review in Iskanian.

Although the viability of PAGA representative action waivers is a seemingly settled question in California state courts -- at least for now -- the question still remains open in California federal court.  The federal district courts in California have been split over whether PAGA waivers are valid.  Some have followed Iskanian’s ban on such waivers as against public policy, while others have upheld PAGA waivers under the FAA.  On June 3, the Ninth Circuit Court of Appeals will hear oral argument in a trio of cases to decide the viability of representative action waivers involving PAGA claims in federal court.  These cases may present another opportunity for the U.S. Supreme Court to take up this issue down the road.

In the meantime, California employers should review their arbitration agreements in light of these recent developments, as well as the California Court of Appeals recent holding in Securitas Security Services USA, Inc. v. Superior Court of San Diego County, 234 Cal. App. 4th 1109 (2015).  In Securitas Security Services, the California Court of Appeals examined an arbitration agreement containing: (i) a class action and PAGA waiver, which had a non-severability clause specific to that waiver; and (ii) a “generic” severability clause applicable to the agreement as a whole.   The court invalidated the entire arbitration agreement, reasoning that Iskanian rendered the PAGA waiver unenforceable and, since the agreement itself stated that the class action/PAGA waiver could not be severed, the agreement as a whole was invalid.

Employers who have similar non-severability clauses in their arbitration agreements could face an unwelcome surprise, finding themselves subject to wage and hour class action exposure going forward that they thought was almost entirely mooted by implementation of class action waivers.