The U.S. Court of Appeals for the Ninth Circuit recently held in a 2-1 decision that the Federal Arbitration Act (FAA) does not preempt the rule announced by the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC that representative claims brought under California’s Private Attorney General Act (PAGA) cannot be waived.  The Ninth Circuit found that the Iskanian rule did conflict with FAA’s purposes and that PAGA claims cannot be waived under California law.  The court reversed a district court’s decision compelling arbitration of an employee’s PAGA claim.  (Sakkab v. Luxottica Retail North America, Inc.)

Shukri Sakkab had been employed by Lenscrafters, a Luxottica company.  He brought a wage and hour class action against Luxottica and a non-class, representative claim seeking civil penalties under PAGA.  The district court granted Luxottica’s motion to compel arbitration and to dismiss all of Sakkab’s claims, including the PAGA claim, based on an alternative dispute resolution (ADR) agreement that Sakkab signed during his employment that included a waiver of all employment-related, class-based and representative claims.  Sakkab argued that his PAGA claim could not be waived, but the district court ruled that the FAA would preempt any state rule that held waivers of PAGA claims to be unenforceable.

Following the district court’s decision, the California Supreme Court held in Iskanian v. CLS Transp. Los Angeles, LLC that waivers of PAGA claims are unenforceable.  Sakkab appealed the district court’s dismissal of his PAGA claim to the Ninth Circuit, relying on Iskanian.  On appeal, Luxottica argued that the FAA preempted the Iskanian rule.  The Ninth Circuit reversed the district court’s order to compel arbitration of Sakkab’s PAGA claim, holding that the FAA did not preempt the California Supreme Court’s ruling in Iskanian that PAGA waivers are unenforceable.  The court further held that Sakkab’s PAGA waiver in the ADR agreement was unenforceable and Sakkab’s PAGA claim could proceed.

The Ninth Circuit’s decision confirms that Iskanian prohibits an employer from requiring employees to enter into an arbitration agreement that waives representative PAGA actions.  California employers now cannot enforce waivers of representative PAGA claims in state or federal court.  Employers should review their arbitration agreements to ensure they comply with Iskanian and Sakkab.