PAGA ARBITRATION: JUST WHO OWNS THIS CASE?
The big issue pending in California employment law is whether a particular type of collective lawsuit by many workers must be arbitrated. Employees should care about this issue because compelling arbitration will eviscerate their ability to bring actions as a group for sums they would not individually find cost effective to bring: the difference between something or nothing. Further, compelling an individual to arbitrate a small claim is the offer of an illusion for justice. The cost is too high for the employee, but affordable by the employer.
The type of case under review is called a “PAGA” case, or “Private Attorney General Act.” In essence, individual attorneys are appointed by statute as if attorneys for the State of California to recover wages and penalties for employees. Before PAGA, only the State could collect such sums.
Why the “Iskanian a Cat?” Because a California Supreme Court case earlier held that these PAGA cases could not be forced into arbitration of individual claims even if the employee signed an arbitration agreement. The court held, in essence, that PAGA cases belonged to the State of California for the benefit of employees. Iskanian v. CLS Transportation LLC, 59 Cal. 348 (2014).
PAGA ARBITRATION ISSUE CERTAIN TO GO TO U.S. SUPREME COURT
The battle is certain to go the U.S. Supreme Court in the next year or two. The battle is a fundamental constitutional issue of the sovereignty of the State of California to protect its own citizens by conferring on private attorneys as proxies for the State the responsibility to obtain redress and penalties accruing both to the State (75% of the bounty) and the individual employees (25%). The private attorneys’ fees are to be paid by the unscrupulous employer. Everyone wins but the wrongdoer.
On September 28, 2015, a federal court, the Ninth Circuit Court of Appeals, ruled in favor of the Plaintiff (the employees, and indirectly, the State of California) that the group cases could not be forced into arbitration. The employer had argued that the “Federal Arbitration Act” required arbitration if the parties agree to arbitration in a written contract. The Ninth Circuit ruled that there was something unique about PAGA cases: that they were for the benefit State of California, and that the State was not a party to the Arbitration Agreement. The case decided by the Ninth Circuit is Sakkab v. Luxxotica Retail North America, 2015 DJDAR 10850. This is the case almost certainly to go to the Supreme Court.
PAGA ARBITRATION AND THE FUTURE
What this means: For now, employees have scored a victory, but hard days are ahead, as a conservative Supreme Court will quite possibly kick the ball back to Congress to amend the Federal Arbitration Act. The issue will turn on federalism, and whether the Court will recognize that the State has the authority to designate a proxy of private attorney generals with incentives to do the policing that the State does not have the resources to achieve.
PAGA LITIGATION SHAPED BY THE HISTORY OF Iskanian v. CLS Transportation LLC, 59 Cal. 348 (2014).
Here is a short tracing developments I posted as “updates” within this website:
Thur. Sep 22, 2016
The Ninth of the Nine Lives of the Now Skinned Iskanian Cat. FINAL UPDATE.
It’s over at last. The trial court Iskanian case was dismissed by Judge Hess, L.A. Superior Court. The Iskanian dismissal was entered over the protests of his abandoned and bewildered counsel. This leaves open the shadow presence of secret inquiries by defense agents to PAGA representated clients: Let us pay you off confidentially for much more than you can ever get by being the lead Plaintiff [“Private Attorney General”] in the PAGA case. It remains to be seen if this tactic, if it occurs, and if it can be proven, will be nullified by a Court.
But the wreckage left behind by years of appeals is not without redeeming outcomes for employees. A lesson learned for all PAGA cases is to have a back-up. That is, at the time of or after the filing, find at least 2 or more persons ready to act as representatives. Judge Hess’s ruling that the PAGA case is to be put on hold pending arbitration of individual claims was case limited, i.e., is not precedent, and the fight can continue to require the PAGA case to proceed, and the arbitration case to be suspended, pending the PAGA determination. Other courts may see the arbitration gambit by the Defendant for what it is: a delaying tactic it hopes will lead to the disappearance of the PAGA representative.
What now? Iskanian also left another wreckage: The Ninth Circuit in Sakkab v. Luxxotica Retail North America, 2015 DJDAR 10850 ruled some years ago that PAGA cases were not subject to arbitration. The Ninth Circuit followed the reasoning of the California Supreme Court in Iskanian: The FAA did not require arbitration of PAGA cases because the case reverts to the benefit of the State of California. This issue is likely to reach the U.S. Supreme Court.
The related issue of FAA preemption of Section 7 of the NLRA is also likely to reach the U.S. Supreme Court due to a split in the Circuits. In Morris v. Ernst & Young LLP, 2016 DJDAR 8732 (Aug. 22, 2016). The Ninth Circuit held that the NLRA, Section 7, as interpreted by the NLRB, is a substantive right of “concerted action,” that cannot be deprived by a class action waiver agreement signed by individual employees. The Seventh Circuit and Ninth Circuit are lined up against several other Circuit Courts holding just the contrary. A U.S. Supreme Court show-down is inevitable.
In the meantime, there is this anomaly: Plaintiffs’ class action waiver employment agreements [Morris] will be invalidated in the Ninth Circuit, but upheld by California Superior Courts [Iskanian.]
Fri. Jun 24, 2016
More Ways Than One to Iskanian a Cat. UPDATE #5
Los Angeles Superior Court Judge Hess June 22, 2016 dismissed the decades old Iskanian case. I suppose the logic resides in the body of Iskanian himself. No body loves the State of California. Or maybe the it is that the State of California is disembodied and therefore dismissed. I personally never thought of the Plainitff-Employee as the “Private Attorney General” but as the client of the “Private Attorney General.” As in class actions, the body can be one of several, perhaps one of millions. The real issue is whether the body brought into court has interests and injuries typical of the class. The attorneys representing Iskanian were, in my logic, but not the Court’s, the “private attorney general” and they presented a new somebody to love. But Judge Iskanian ruled this alternative body is not the Iskanian Cat. Or, to continue a theme of these updates: Judge Hess has held there is only one way to Iskanian a Cat after all.
Are these Iskanian updates at an end? Time is money, and a decade is a lot of money. Who will fund the next round of appeals? I believe Judge Hess missed the mark on this one, but respect that he saw the case microscopically, while in my bias, I may be seeing it myopically. But a 10 year old Iskanian-less cat may not have the stamina for another climb up the appellate tree. Still, I want my feelings [felines?] to be vindicated, and hope that someone else [but who if there is nobody?] will run that cat up the tree one more time.
Tues. Jun 21, 2016
More Ways Than One to Iskanian a Cat. UPDATE #4
The hairless Iskanian cat now also appears gutless, or more accurately – eviscerated by Iskanian himself. You’ll find some breadcrumbs on this page tracing the Iskanian “updates” 1 through 3. This fourth update is presented in our blog article, entitled: “PAGA Dismissals: Iskanian Bit Off a Duty. Now, Can it Spit It Out?” Iskanian-4 Blog Article. After nearly a decade of this “Private Attorney General” taking his case up and down the appellate hierarchy, it seems to have crashed in Judge Hess’s courtroom when Iskanian himself chose to disappear, suddenly, without warning, and without a hint to his attorneys. Did he get picked off or just ticked off? We may need to wait for Iskanian Update #5 to find out.
Mon. Dec. 14, 2015
More Ways Than One to Iskanian a Cat. UPDATE #3
See Updates 2 and 3, below. Judge Hess ruled that the non-PAGA individual claims are to be arbitrated first. The Judge’s ruling that is not binding precedent in other cases, but will be used as negotiation leverage “off the record” as like issues arise.
Mon. Nov. 16, 2015
More Ways Than One to Iskanian a Cat. UPDATE #2.
I earlier covered a pivotal legal development for the employment law community. See The Iskanian Cat and the Nov. 5, 2015 News Article immediately preceding this article.
“Case sequencing” is the phrase that the Daily Journal has adopted to described the ongoing question: does the PAGA case [a representative case for numerous employees, similar to a class action] proceed to trial in Superior Court before an Arbitration of the individual representative’s claims for wages and Labor Code violations?
Judge Robert Hess of the Los Angeles Superior Court still has not decided that issue, but indicated he felt that the employer-defendant would be deprived of the benefit of its contract to arbitrate if the PAGA case proceeded first. He indicated his decision will be issued next week.
The argument, posed by the defense, is that if the individual plaintiff loses at the arbitration stage, it is evidence that he is not qualified representative of the employee group. The defense, the employer argues, should have that threshold matter decided first.
The Iskanian case was returned to Judge Hess by the California Supreme Court when it held that the PAGA claim did not have to be arbitrated as it was derivative of the right of the State of California to sue on behalf of employees, a right delegated to private attorney generals, i.e., plaintiffs’ attorneys.
What This Means:
The trial court’s ruling will not be precedent unless it is appealed and the subject of a published opinion of the Court of Appeal. However, of course the employer community will consider the trial court’s ruling a victory, and it will put the burden of persuasion on the Plaintiff to appeal.
But a realistic balance is needed: an individual’s very limited wage and meal break violation damages is the “tail” of the case, while the collective rights of the represented group are the “dog.” Let us hope the employer community is not able to use smoke and mirrors to wag the dog.
As I’ve stated in earlier articles on the Iskanian dilemma, the defense driver is not the opportunity for early and efficient resolution of an individual Labor Code claim, but an indirect attack on the PAGA case by delay and division. One tactic is to satisfy by a generous settlement or frustrate the individual by cost and delay to the extent he or she no longer has the desire or fortitude to continue as a representative.
Frid. Nov. 5, 2015:
More Ways Than One to Iskanian a Cat. UPDATE
I earlier covered a pivotal legal development for the employment law community. See The Iskanian Cat. The question arises when a civil action includes both individual claims subject to arbitration and a “PAGA” claim not subject to arbitration. The unsettled question is which part of the case is to be tried first: the arbitration or the PAGA case? But this superficial question belies the deeper tactical considerations: why does it matter?
When looking into the unspoken tactical considerations driving the technical arguments, it becomes clear the employer community wants to delay the timeline on the PAGA case because a threat deferred may be a threat avoided. That is, forcing the individual PAGA representative into early arbitration of his separate claims gives the defense time a) to poke holes in the pending PAGA case; b) obtain potential arbitrator rulings that can be “collateral estoppel” in the PAGA trial, and c) potentially satisfy the individual defendant with an arbitration award or settlement, leaving the PAGA case with no named representative, and / or d) wear down the Plaintiff and his counsel with additional costs and effort. Of course, as in all tactical decisions, this ploy can backfire on the if the employee wins at the arbitration level, and is more determined than ever to continue the PAGA case.
Favorable to the Plaintiff-employee currently: Sakkab v. Luxxotica Retail North America, 2015 DJDAR 10850 — A September 2014 Ninth Circuit decision holding that the PAGA case is to be given priority in being tried. Unfavorable to the Plaintiff-employee: The FAA (Federal Arbitration Act) which may ultimately be decided by the U.S. Supreme Court as applicable to PAGA cases.
Currently, Judge Robert L. Hess, L.A. Superior Court, has this “timing and priority” question under review, the matter having been argued before him on Nov. 2, 2015 after remand by the CA Supreme Court holding that PAGA cases are not pre-empted by the FAA.
What This Means: The federalism and pre-emption battles continue. Eventually, the U.S.S.Ct. will have to decide the ultimate issue of whether PAGA is a claim belonging to the State of California, or if PAGA is a pseudonym for a class action. If PAGA is deemed subject to arbitration, it will mean employers will take the next step: just as the class action procedure may be waived by individual employees, so may a PAGA representative claim. This outcome will essentially eviscerate California’s intended enforcement mechanism for employee Labor Code rights.