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Ninth Circuit Holds that Waivers of PAGA Claims Cannot be Enforced

This week, a federal appeals court dealt another blow to California employers. 

In Shukri Sakkab v. Luxottica Retail North America, Inc., a divided U.S. Court of Appeals for the Ninth Circuit ruled that the Federal Arbitration Act (FAA) does not preempt a California court-created rule that an employee's right to bring representative wage and hour claims under California’s “Private Attorneys General Act” (PAGA) cannot be waived by a private arbitration agreement. In PAGA claims, the employee acts as the “state's representative” to seek redress for alleged California Labor Code violations.  PAGA claims and traditional “wage and hour” class action claims are very similar in nature – only the remedy is different.  In PAGA claims, the state of California is entitled to 75% of the recovery, and the employees receive the remaining 25%. In class actions, the employees receive 100% of the recovery.

In so ruling, the federal appeals court has declared that freely negotiated arbitration agreements to submit all disputes between the employer and employee to arbitration cannot be enforced, even by the employee. As such, the ruling means that all PAGA claims must be resolved in a court, and not in arbitration. 

The decision is a victory for employees seeking to press California state law wage claims, despite being covered by arbitration agreements that preclude class actions.

As a result of this most recent ruling, California employers need to exercise even greater vigilance to comply with the state’s complex employment laws; and cannot rely on an arbitration agreement with its employees to quickly, efficiently and privately resolve all disputes.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.