SCOTUS Arbitration Decisions Playing out in Lower Courts SCOTUS Arbitration Decisions Playing out in Lower Courts

SCOTUS Arbitration Decisions Playing out in Lower Courts

Over the past several years, the United States Supreme Court has been resolute in upholding the validity of employment arbitration agreements. The effects of SCOTUS’ arbitration decisions are now playing out in lower federal courts and in state courts across the country.

Of course, class action attorneys have attempted to find loopholes enabling them to avoid arbitration.  One example is the Iskanian litigation in California.  On June 24, 2014, the California Supreme Court decided Iskanian v. CLS Transportation Los Angeles, LLC.  Mr. Iskanian was a truck driver employed by CLS who asserted claims for unpaid overtime and failure to provide meal and rest breaks as required under California law.

The Iskanian court held that an express class action waiver in an employment arbitration agreement is enforceable pursuant to the Federal Arbitration Act, which preempts state law.  However, the court also held that an arbitration agreement provision requiring arbitration of representative private attorney general claims (“PAGA”) claims was invalid because PAGA claims are outside of the scope of the FAA. 

Iskanian produced a cumbersome result, which was the potential of split claims between two forums.  Under Iskanian, employers could be required to litigate PAGA claims in court, while arbitrating the balance of an employee’s claims.  Thus, Iskanian gave rise to a whole host of questions as to how this claim splitting would play out.  

The United States Supreme Court denied CLS Transportation’s petition for writ of certiorari on January 20, 2015.  As a result, the Superior Court of California was faced with sorting out these sticky questions on remand. 

On November 25, 2015, the Circuit Court issued an order addressing these questions.  The Court noted that it was faced with two sets of claims.  The first was Mr. Iskanian’s individual claim based on California labor code violations, which the Court noted was subject to arbitration.  The second was the representative PAGA claim on behalf of other workers, which was to be heard in court. 

Plaintiff’s counsel urged that the PAGA claims be tried first.  Plaintiff’s counsel argued that “arbitrating Mr. Iskanian’s claim first ‘would improperly elevate private disputes over civil law enforcement actions.’”  Plaintiff thus claimed that the arbitration must be stayed pending trial of the PAGA claims.  His employer disagreed, arguing that the arbitration had priority. 

The Court’s order explained some of its concerns, which were explored with counsel at oral argument.   The Court considered the extent to which discovery had been completed on each of the claims.  Counsel agreed that significantly more discovery would be necessary to prepare the PAGA claims for trial than to prepare Plaintiff’s wage claims for arbitration.   The Court also addressed whether a PAGA judgment, if rendered first, might impact defendant’s vindication of its right to have Plaintiff’s individual claim heard in the arbitration forum.   

Balancing all of these concerns, the Court concluded that proceeding first with arbitration was the proper approach.  The Court ordered the parties to arbitration on Plaintiff’s individual claims, and further ordered that the parties could proceed with discovery on the PAGA claims.  Finally, the Court explained:  “In the event of conflicts between the arbitration and the court action, the arbitration shall have priority.” 

Notably, federal courts are not bound by Iskanian. Several federal district courts have refused to apply Iskanian, requiring employees to arbitrate their PAGA claims on an individual basis.  Employers with arbitration agreements that are faced with state law wage claims, as well as PAGA claims, must carefully evaluate these claims to determine whether there is a legitimate, good faith basis for removal to federal court.

Employers who do not use arbitration agreements should continue to rely on their counsel to monitor the decisions in the jurisdiction in which they do business.  A periodic assessment of the benefits and burdens of arbitration provisions may be worthwhile especially if the employer is conducting business in states with significant class action activity. 

For more information, contact James Davidson or any member of Ice Miller's Labor, Employment, and Immigration Group. 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances. 

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