In a landmark 2-to-1 decision, the Ninth Circuit held that the Federal Arbitration Act does not preempt the California Supreme Court’s ruling in Iskanian, which held that waivers of the right to bring a representative action under California’s Private Attorneys General Act (PAGA) are not enforceable. See Sakkab v. Luxottica Retail N. Am., No. 13-55184 (9th Cir. Sept. 28, 2015) (click here for a copy of the decision).
The majority of the panel found that California’s Iskanian ruling, which prohibited waivers of representative PAGA claims, is not hostile to arbitration since the Iskanian ruling did not prevent arbitration or set forth a preference regarding litigation or arbitration. The Iskanian ruling simply barred waivers of representative PAGA claims.
The majority of the Ninth Circuit panel distinguished Concepcion, where the US Supreme Court expressed concerns that class action proceedings were fundamentally inconsistent with arbitration. The US Supreme Court in Concepcion expressed concerns about class action arbitration because the rights of absent class members may not be adequately protected through informal arbitration procedures and thus raise due process concerns. The Ninth Circuit emphasized that PAGA representative actions do not raise similar concerns as a class action because PAGA actions are not brought on behalf of absent class members. Instead, PAGA actions are brought on behalf of the state of California for labor code violations.
The majority of the panel also stressed that historically, states possessed police powers to regulate employment relationships and protect workers, and one should not lightly infer federal preemption of these state powers unless there was a clear, express purpose of Congress to do so.
After finding that the FAA does not preempt the Iskanian ruling, the majority remanded the case to the district court to determine whether the PAGA representative action would proceed in court or before an arbitrator, although in a footnote the panel seems to suggest that the representative action should be litigated.
A dissenting member of the panel found that Concepcion controlled this case, and under Concepcion, the FAA would preempt the Iskanian ruling. The dissenting opinion reasoned that forcing the arbitration of collective actions under PAGA would conflict with the fundamental attributes of arbitration.