February 2, 2016

The growing PAGA exception to freedom of contract

By Deborah J. La Fetra Senior Attorney

A couple years ago, in Iskanian v. CLS Transportation Los Angeles, the California Supreme Court held that employees who act as “representatives” to assert claims under the Private Attorney General Act (PAGA) are acting as “deputies” on behalf of the state and therefore cannot exercise their freedom to contract for arbitral resolution of employment disputes. California-based federal courts had generally held to the contrary, finding that the Federal Arbitration Act preempted state law prohibitions on arbitral resolution of disputes, even those purporting to enforce state labor law. Last year, however, the Ninth Circuit Court of Appeals held in Sakkab v. Luxottica Retail North America that PAGA claims must be heard in court, despite an employee’s willing agreement to arbitrate those claims. Luxottica–the parent company of Lenscrafters, the employer in this case–filed a petition for rehearing en banc, which PLF supported with an amicus brief, joined by the National Federation of Independent Business Small Business Legal Center. Today, the Ninth Circuit denied that petition. We hope Luxottica will file a petition for a writ of certiorari, in which case PLF will certainly be on board to support it. The Iskanian decision—and now Sakkab—cannot be reconciled with the Federal Arbitration Act’s preemptive protection of the freedom of contract. The Supreme Court denied certiorari in Iskanian itself, but the anti-arbitration doctrine is now established across the Ninth Circuit, inviting other western states to enact laws “deputizing” private citizens to enforce labor and consumer laws and then using those state laws as a reason to invalidate arbitration contracts. The time is ripe for the Supreme Court to resolve this issue.

What to read next