Case Update: California Supreme Court Holds Waivers of Representative Claims under California’s Private Attorneys General Act Unenforceable

On June 24th of this year, in Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court upheld the enforceability and validity of an employer’s use of class action waivers in arbitration agreements between the employee and the employer. However, this decision does not completely destroy the possibility for employees to take action against their employer. In the same case, the Court also upheld that an arbitration agreement which waives employees’ representative actions under California’s Private Attorneys General Act (also known as PAGA) is unenforceable under state law.

Private Attorney’s General Act

Before we get into what this decision means for employees, let’s discuss PAGA. Under PAGA, an employee is authorized by the state to bring an action against his or her employer and recover penalties on behalf of the state for the employer’s state law violations. Essentially, the employee is acting in the interest of the state. If penalties are awarded, seventy-five percent of the penalties go to the state and the employee keeps the remaining twenty-five percent of the penalties. This is unlike the usual class action suits in which all of the penalties are awarded to the employees.

Representative Actions Unenforceable

While Iskanian held that an arbitration agreement is generally enforceable, the Court held that an employer cannot force the waiver of an employee’s representative PAGA claims. The Court reasoned that such a waiver would be against public policy as it is important that employers be held accountable for state law violations. The Court’s decision stalls employers’ efforts to avoid employee class action lawsuits. This is because a waiver of PAGA claims will most likely not be enforced in a California court, and if the class action waiver includes language discussing a waiver of PAGA claims then there is a possibility a California court would find the entire arbitration agreement unenforceable.

As discussed above, PAGA claims may be less compelling for employees to pursue than class action claims because seventy-five percent of the recovery under PAGA claims goes to the state, but the penalties can potentially be considerable. Thus, the decision in Iskanian should give those employees who have signed arbitration agreements hope because employees can still pursue penalties in court if class action claims are not possible. Finally, there are a few perks when an employee files a PAGA claim. Unlike class action lawsuits, the employee in a PAGA claim does not need to meet the typical class certification requirements (which can often be difficult obstacles to overcome) because fellow employees do not need to be added into litigation as one employee can represent all of the harmed employees. In addition, the employee does not need to share his twenty-five percent cut of the penalty.

If employees are seeking to take action against their former employer, they should not lose hope just because they signed a class action waiver. If an employer violated state law, there is still a good chance the employee can ensure that the employer is not only held accountable for violating the law, but also can ensure that he or she receives the proper damages that is owed to him or her.

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