The PAGA Saga

A judicial battle is raging in the courts of California, one of many fought in the war against ‎the Federal Arbitration Act (“FAA”)‎ ‎and one with nationwide implications. The battle concerns ‎a rule established by the California Supreme Court in Iskanian v. CLS Transportation Los ‎Angeles that waivers of representative actions brought by employees pursuant to California’s ‎Private Attorney General Act (“PAGA”)‎ ‎ are unenforceable (the “Iskanian rule”).‎ ‎The PAGA ‎authorizes an “aggrieved employee” to bring a civil action against an employer “on behalf of ‎himself or herself and other current or former employees” for violation of any provision of the ‎Labor Code that provides for a “civil penalty” otherwise collected by the Labor and Workforce ‎Development Agency.‎ Both state and federal courts in California, as well as the United States ‎Court of Appeals for the Ninth Circuit, agree that the Iskanian rule is not ‎preempted by the FAA. In other words, all California courts have held that waivers of ‎representative PAGA actions contained in arbitration agreements entered into by employers and ‎employees are unenforceable and that this does not violate the FAA or undermine its objectives.‎<br><br>This Essay argues that the interpretation of the Iskanian rule by both the state and the ‎federal courts in California ultimately leads to its preemption by the FAA under current Supreme ‎Court precedent. The state courts’ interpretation either places PAGA claims entirely outside the ‎scope of the FAA or renders such claims non-arbitrable in the vast majority of cases. It thereby ‎‎“prohibits outright the arbitration of a particular type of claim,” triggering FAA preemption.‎ As ‎for the federal courts, their interpretation of the Iskanian rule, while not as clearly in violation of ‎the FAA, nonetheless ultimately runs afoul of it. The federal courts’ reasoning leads to PAGA ‎claims being litigated in many cases notwithstanding an otherwise valid and applicable arbitration ‎agreement. This outcome renders arbitration agreements unenforceable and violates the FAA ‎because it undermines “the enforcement of arbitration agreements according to their terms.”‎ ‎At ‎the end of the day, the Supreme Court has held that a state “cannot require a ‎procedure that is ‎inconsistent with the FAA, even if it is desirable for unrelated reasons,”‎ ‎including in the ‎context of statutes giving rise to a private attorney general role for individual plaintiffs such as ‎the PAGA.‎ Therefore, the fate of the Iskanian rule, unless the Supreme Court reverses its long-‎standing course, is FAA preemption.‎