A new amicus brief filed with U.S. Supreme Court in Viking v. Moriana argues that California’s Private Attorneys General Act (PAGA) is not exempt from the rules of the Federal Arbitration Act.
The FAA and Supreme Court precedent require enforcement of arbitration agreements that waive representation PAGA claims, Heather Wallace, California Chamber of Commerce vice president of legal affairs, said in an email response to the Northern California Record.
“If California’s rule refusing to enforce such arbitration agreements is permitted to stand, it will open the door to the broad invalidation of arbitration agreements by states,” Wallace said.
CalChamber, the U.S. Chamber, and the National Federation of Independent Business (NFIB) filed the amicus brief with the high court on Feb. 7.
“PAGA claims are being used to circumvent lawful arbitration agreements,” Wallace said. “PAGA’s unique procedural mechanism allows private attorneys to use these lawsuits to extort large settlements from businesses, even where the claims are for technical violations or are not meritorious. Attorneys then keep on average 33% of the settlement while workers get very little.
“The state recognizes this abuse, stating that ‘the substantial majority of proposed private court settlements in PAGA cases reviewed by the [state] fell short of protecting the interests of the state workers . . . .seventy-five percent of the 1,546 settlement agreements reviewed by the PAGA Unit in fiscal years 2016/17 and 2017/18 received a grade of fail or marginal pass, reflecting the failure of many private plaintiffs’ attorneys to fully protect the interests of the aggrieved employees and the state.”
The Supreme Court is being asked to review lower court rulings in Iskanian v. CLS Transportation Los Angeles, LLC and Sakkab v. Luxottica Retail N. Am., Inc.
The California Supreme Court handed down its Iskanian decision in 2014, and the U.S. Court of Appeals for the Ninth Circuit issued its 2-1 decision in Sakkab in 2015.
“The decisions have prevented the enforcement of millions of arbitration agreements, significantly eroding the benefits of bilateral arbitration as an alternative to litigation,” Wallace said.
The amicus brief states that Iskanian’s rationale for bypassing the FAA is unsupportable.
“Iskanian’s rationale for circumventing the FAA relied on an analogy of PAGA lawsuits to government enforcement claims,” Wallace said. “In fact, the Court stated that ‘the FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement. It does not aim to promote arbitration of claims belonging to a government agency, and that is no less true when such a claim is brought by a statutorily designated proxy for the agency as when the claim is brought by the agency itself.’
“In support, the Court pointed to EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, 122 S.Ct. 754, in which the high court held that an employment arbitration agreement governed by the FAA does not prevent the EEOC from suing the employer on behalf of the employee and pursuing victim-specific relief. However, in the Waffle House case, the defining characteristic of a government enforcement action is that it is brought and controlled by government officials. PAGA lawsuits, in contrast, are initiated and controlled by the private party and private attorneys. The State does not provide any oversight nor can the State exercise any control once the State fails to exercise jurisdiction over the claim within the required notice and review period.”
Arbitration allows employees and employers to resolve disputes promptly and efficiently, Wallace said.
“The arbitration process is speedy, fair, inexpensive, and less adversarial than litigation in court,” Wallace said. “In fact, a study released by the US Chamber’s Institute for Legal Reform found that employees were three times more likely to win in arbitration than in court. If the California rule is upheld, California employees and businesses will be permanently deprived of the benefits of arbitration.
Oral arguments in Viking v. Moriana are scheduled before the SCOTUS on March 30.
(Editor's note: The Northern California Record is owned by the U.S. Chamber Institute for Legal Reform).