U.S. Supreme Court Declines to Hear Appeal of California Ruling that Arbitration Agreements Cannot Waive Claims Under the State’s Private Attorneys General Act

March 09, 2015

On January 20, 2015, the U.S. Supreme Court declined to hear a challenge to a California Supreme Court ruling that employees could not, through arbitration agreements, waive representative claims under the state’s Private Attorneys General Act (PAGA). PAGA allows private citizens to step into the shoes of the government and sue for workplace violations on behalf of California’s Labor and Workforce Development Agency. Such plaintiffs can recover a share of any penalties recovered by the state. Workers can sue on behalf of themselves and other current and former employees in representative suits.

In Iskanian v. CLS Transportation Los Angeles LLC, the California Supreme Court held that arbitration agreements with mandatory class waivers are generally enforceable in light of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which established that the Federal Arbitration Act (FAA) preempted state laws finding such waivers unenforceable. However, in Iskanian, the California Supreme Court reasoned that agreements waiving workers’ rights to bring PAGA actions undermined the purpose of the statute and disabled a key enforcement mechanism for the state’s labor code.

The decision in Iskanian stemmed from a 2006 suit filed by former CLS Transportation limousine driver Arshavir Iskanian. Iskanian, who had signed an arbitration agreement with the company, brought a proposed wage class action under PAGA against CLS.

The California Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. For that reason, the court found that the arbitration agreements signed by the employees did not preempt state law.

After the California Supreme Court ruled in Iskanian’s favor on June 23, 2014, CLS filed a petition for certiorari on September 22, 2014, asking the U.S. Supreme Court to review the decision. CLS argued that California’s courts and legislature had a history of ignoring the preemptive effect of the Federal Arbitration Act.

The U.S. Supreme Court’s decision to decline CLS’s petition is expected to increase the number of representative claims under PAGA and to incentivize defendants to remove such actions to federal courts. Law 360 quoted Nicholas Woodfield, Principal and General Counsel of The Employment Law Group, P.C., in a story about the implications of the Iskanian ruling:

Several federal district courts recently have refused to apply Iskanian, instead requiring the employees to arbitrate their PAGA claims, . . . As such, it is almost certain that we will see more employers trying to remove PAGA cases to federal court, as the federal courts are not bound by the California Supreme Court’s decision.

Illustrating this point, on October 17, 2014, the U.S. District Court for the Central District of California granted a defendant’s motion to compel arbitration in Langston v. 20/20 Cos. Inc., holding that the FAA preempts California’s rule against arbitration agreements in which the right to bring representative PAGA claims is waived.

However, in March 2014, the U.S. Court of Appeals for the Ninth Circuit determined that Chase Investment Services Corporation could not remove a PAGA suit to federal court. In Bauman v. Chase Investment Services Corp., the Ninth Circuit concluded that PAGA actions are not similar enough to class actions under Rule 23 of the Federal Rules of Civil Procedure to warrant removal from state court.

The California Supreme Court, on the same day it decided Iskanian, also held in Bridgestone Retail Operations LLC v. Milton Brown that representative claims under PAGA cannot be waived. Bridgestone has petitioned for certiorari as well, although the chances of the Court granting that petition now appear slim.

The state Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. Therefore, the court found that the arbitration agreements signed by the employees did not preempt state law.

City of Sacramento to Set up Anonymous Whistleblower Hotline

February 13, 2013

The City of Sacramento, California has announced that within the next two months it will adopt a toll-free anonymous whistleblower hotline. The hotline will cost about $200,000 to fund and will be staffed by a live person twenty-four hours a day, seven days a week, every day of the year.

This hotline is in response to a January 2013 council meeting in which City Auditor Jorge Oseguera presented a report showing that a hotline Sacramento had established in March 2012 and which did not offer callers anonymity had proven ineffective, receiving only nineteen calls since its inception. The City Council hopes that by accepting anonymous reports from callers, city employees and other members of the public will report concerns about fraud, waste, and abuse.

The Employment Law Group® law firm has an extensive nationwide whistleblower practice representing employees who have been victims of retaliation

TELG Principals Publish Article in California Lawyer

October 14, 2011

The Employment Law Group® principal attorneys David Scher and R. Scott Oswald wrote an article entitled “Blowing the Whistle,”  which appeared in the October 2011 edition of California Lawyer.  In the article, Scher and Oswald discuss the California Whistleblower Protection Act (CWPA), referring to it as a “robust law that…has limitations and administrative hurdles.” They explain how the CWPA is widely respected, but cluttered with restrictive policies.  Although the CWPA does provide robust protection for employees and whistleblowers, its technical requirements can make the filing of a claim somewhat complicated. By far, the biggest restriction is the fact that CWPA only covers those employed by the state and not those employed by the local government.

Under the CWPA, a state employee must file an administrative claim with the State Personnel Board (SPB), which would then investigate the claim. For state university employees, they must file their claims either to their supervisor or to an internal staff member before they take the matter to a civil court.

If the claimant is seeking damages, the CWPA stipulates that after the State Personnel Board investigates, the employee must bring the matter to the Victim Compensation and Government Claims Board. The board has 45 days to respond to a claim and if it the board rejects the claim, the claimant (employee) has six months to file a lawsuit.  If the board denies the claim because there was no timely response, the claimant has two years to bring the issue before a court.

Oswald and Scher recommend that employees and whistleblowers file their complaints with both the SPB and the claims board. They also recommend that due to the complexities involved, only attorneys with strong knowledge of the administrative requirements of the CWPA handle these cases.

California Governor Signs into Law New Whistleblower Protections for City and County Employees

October 03, 2008

On September 26, 2008, California Governor Arnold Schwarzenegger signed into law a new whistleblower protection bill to extend whistleblower protections to city and county employees who report waste, fraud and abuse of government funds.  The new law authorizes cities and counties to create and maintain whistleblower hotlines to receive calls from employees who have information regarding possible violations of state, federal or local statutes, rules or regulations.  The new law also requires city and county auditors and controllers to maintain the confidentiality of a whistleblower’s identity throughout the investigation process.