Metropolitan News-Enterprise


Tuesday, September 29, 2015


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Ninth Circuit Says Federal Law Does Not Preempt Iskanian Rule

Employee May Litigate PAGA Claim Alleging Misclassification of Workers, Court Says




A California worker cannot be barred by contract from litigating a representative claim under the Private Attorneys Generals Act, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

Allowing a former LensCrafters employee to sue for civil penalties under the Labor Code Private Attorney General Act, the panel said, in a 2-1 decision, that federal law does not preempt a state Supreme Court ruling that agreements waiving PAGA claims are unenforceable as contrary to California public policy.

Shukri Sakkab filed a class-action complaint in San Diego Superior Court against Luxottica Retail North America, the eyeglass retailer’s parent company, saying it misclassified employees as supervisors so that they would be exempt from laws guaranteeing overtime pay and rest and meal breaks.

Luxottica removed the case to federal court, where Sakkah amended his complaint to add a representative claim under PAGA. The defendant then moved to compel arbitration, citing Sakkah’s agreement to arbitrate any employment-related disputes, and to forego filing or joining any “class-based lawsuit…or arbitration (including any collective or representative arbitration claim.)”

Case Dismissed

U.S. District Judge Gonzalo Curiel granted the motion and dismissed the lawsuit, noting that the plaintiff did not dispute that his non-PAGA claims were subject to arbitration and ruling that PAGA claims were waivable. The judge concluded that any rule barring PAGA waivers would be preempted under AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

While Sakkab’s appeal from that ruling was pending, California’s high court ruled in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348, that contractual waivers of PAGA claims are contrary to state law and that Concepcion does not bar the state from enforcing that policy.

The Iskanian court said an employee cannot contract away the right to bring a PAGA action because the action is brought on behalf of the state, which is not a party to the contract.

Judge Milan Smith, writing for the Ninth Circuit yesterday, said the state high court was correct in its interpretation of the FAA. The Iskanian rule, he said, is a “generally applicable” state contract defense, and thus not preempted under Concepcion.

“In exercising our judgment, we do not write on a blank slate, for the Supreme Court has repeatedly identified the purposes of the FAA and defined the scope of FAA preemption,” Smith said.

“Read broadly,” Smith said, the statements of the FAA’s purposes “would require strict enforcement of all terms contained in an arbitration agreement, including terms that are unenforceable under generally applicable state law.”

“Such a broad construction of the FAA’s purposes is untenable, of course,” he said. “Congress plainly did not intend to preempt all generally applicable state contract defenses, only those that interfere with arbitration,” he said.

Senior District Judge Joan H. Lefkow of the Northern District of Illinois, sitting by designation, joined Smith’s opinion.

Dissenting Opinion

Judge N. Randy Smith wrote in dissent that the majority’s holding “essentially ignores” Concepcion, and “interferes with the parties’ freedom to craft arbitration in a way that preserves the informal procedures and simplicity of arbitration.”

“The Iskanian rule interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA,” he said, adding that the rule makes the arbitration “slower, more costly, and more likely to generate procedural morass.”

It requires, he said, “more formal and complex procedure,” exposes defendants to “substantial unanticipated risk” and cannot be justified on state policy grounds.

“A state may not insulate causes of action from arbitration by declaring that the purposes of the statute can only be satisfied via class, representative or collective action,” he insisted.

Majority’s Response

Responding to the dissent, Judge Milan Smith wrote that the majority did not read Concepcion to require the enforcement of all waivers of representative claims in arbitration agreements, but to examine whether the waived claims mandate procedures that interfere with arbitration.

“Here, they do not,” he said.

He also said that the FAA’s saving clause “clearly indicates that Congress did not intend for the parties’ expectations to trump any and all other interests.” He said that the dissent’s concerns over the Iskanian rule’s procedural difficulties were without record support.

“In sum, the Iskanian rule does not conflict with the FAA, because it leaves parties free to adopt the kinds of informal procedures normally available in arbitration,” he wrote.

“It only prohibits them from opting out of the central feature of the PAGA’s private enforcement scheme - the right to act as a private attorney general to recover the full measure of penalties the state should recover,” he added.

He emphasized that PAGA plays a “central role in enforcing California labor laws” and cautioned:

“That qui tam actions can be difficult to arbitrate does not mean that the FAA requires courts to enforce private agreements opting out of the state’s chosen method of enforcing its labor laws.”

The case is Sakkab v. Luxottica Retail North America, Inc., 13-55184.


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