Iskanian v. CLS Transportation Los Angeles, LLC

Facts

Arshavir Iskanian drove for CLS Transportation Los Angeles. (59 Cal.4th at pp. 360–361.) He signed an arbitration agreement that required individual arbitration and waived both class and representative claims. (Ibid.) Iskanian later sued CLS on behalf of himself and other drivers for wage-and-hour violations, asserting class claims and a representative claim under the Labor Code Private Attorneys General Act (PAGA), which authorizes an aggrieved employee to recover civil penalties on the state’s behalf for Labor Code violations. (Id. at pp. 361, 378–382.) CLS moved to compel individual arbitration under the waiver. (Id. at p. 361.)

Procedural history

The trial court granted the motion to compel and dismissed the class and representative claims; the Court of Appeal affirmed. (59 Cal.4th at pp. 361–362.) The Supreme Court granted review and affirmed in part and reversed in part — upholding the class-action waiver but holding the PAGA representative waiver unenforceable — and remanded. (Id. at pp. 360, 391–392.)

Issue

After Concepcion, are employment class-action waivers enforceable; is a pre-dispute waiver of an employee’s right to bring a representative PAGA action enforceable; and does the FAA preempt a state rule invalidating PAGA waivers? (59 Cal.4th at pp. 359–360.)

Holding

Reasoning

1. Class waivers after Concepcion. The Court acknowledged that Concepcion invalidated the Gentry rule and rejected the National Labor Relations Board’s contrary view, holding that employment class-action waivers are enforceable under the FAA. (59 Cal.4th at pp. 364–373.) Iskanian’s class claims were therefore subject to individual arbitration. (Ibid.) The Court specifically “declined to follow” the National Labor Relations Board’s decision in D.R. Horton, Inc. (2012) 357 NLRB 2277, which had reasoned that the National Labor Relations Act’s protection of “concerted activity” bars class-waiver enforcement; the Court concluded the NLRA did not override the FAA’s mandate to enforce arbitration agreements according to their terms. (59 Cal.4th at pp. 366–373.) That conclusion was later vindicated federally in Epic Systems Corp. v. Lewis (2018) 584 U.S. 497.

2. PAGA is a qui tam action on the state’s behalf. The Court explained that a PAGA claim is fundamentally different. A PAGA action “is a type of qui tam action” in which the aggrieved employee acts “as the proxy or agent of the state’s labor law enforcement agencies,” recovering civil penalties “previously enforceable only by the state.” (59 Cal.4th at pp. 378–382.) The real party in interest is the state: under the statute as it then stood, “75 percent goes to the Labor and Workforce Development Agency . . . leaving the remaining 25 percent for the aggrieved employees.” (59 Cal.4th at p. 380; see Lab. Code, § 2699, subd. (i).) (The 2024 PAGA reforms later adjusted the split to 65/35.)

2a. PAGA’s enforcement design. The Court situated PAGA in its enactment history. The Legislature passed PAGA in 2004 because state labor-law enforcement agencies lacked the resources to police widespread Labor Code violations, and it chose to “deputize” aggrieved employees to sue for civil penalties on the state’s behalf. (59 Cal.4th at pp. 378–383.) The statute fixes default penalties — generally “$100 [per] aggrieved employee per pay period for the initial violation and $200 per pay period for each subsequent violation” (Lab. Code, § 2699, subd. (f)) — and requires the employee, before suing, to give written notice to the Agency and the employer describing the facts and theories of the violation (§ 2699.3). (Id. at pp. 378–382.) A PAGA judgment binds the state and all non-party aggrieved employees as to the penalty claims. (Id. at pp. 380–382.)

3. A PAGA waiver violates public policy. Because a PAGA action vindicates the public interest in Labor Code enforcement, a pre-dispute agreement compelling an employee to waive the right to bring a representative PAGA action “frustrates the PAGA’s objectives” and is “contrary to public policy and unenforceable.” (59 Cal.4th at pp. 382–384.) An employer and employee cannot, by private agreement, bargain away a law-enforcement mechanism that belongs to the state. (Ibid.; see Civ. Code, § 1668.)

4. No FAA preemption. The Court held the FAA does not preempt the PAGA rule because the FAA governs private disputes, and “a PAGA claim lies outside the FAA’s coverage because it is . . . a dispute between an employer and the state,” which has not agreed to arbitrate. (59 Cal.4th at pp. 386–389.) Refusing to enforce a PAGA waiver therefore does not interfere with arbitration of any matter the parties agreed to arbitrate. (Ibid.) Justice Chin, joined by Justice Baxter, concurred and dissented, agreeing on the class-waiver point but disputing aspects of the PAGA analysis and its reconciliation with the FAA. (Id. at pp. 392 et seq. (conc. & dis. opn. of Chin, J.).)

Significance

Iskanian is the cornerstone of California’s PAGA jurisprudence and the principal state-law counterweight to Concepcion. By holding that representative PAGA waivers are unenforceable and not preempted, it preserved PAGA as a powerful enforcement tool even as class waivers became routinely enforceable — making PAGA the dominant vehicle for aggregate wage litigation in California for nearly a decade. The United States Supreme Court partly limited it in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 (the FAA permits compelling the individual PAGA claim to arbitration), and the California Supreme Court restored much of PAGA’s force in Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104 (the plaintiff retains standing to pursue the representative claims in court). Iskanian must now be read together with that trilogy. It also confirms the post-Concepcion enforceability of class waivers, building on Gentry’s abrogation. See the Review’s coverage of the arbitration and PAGA lines.

Key quotes

“[W]here . . . an . . . agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.” (Iskanian, supra, 59 Cal.4th at p. 384.)

A PAGA action “is a type of qui tam action,” in which the employee acts “as the proxy or agent of the state’s labor law enforcement agencies.” (Id. at pp. 380, 382.)

The FAA does not preempt the rule because a PAGA claim “is . . . a dispute between an employer and the state.” (Id. at p. 386.)

Read the full opinion (California Supreme Court — full text) →

Practice pointer

Open questions

The post-Viking River/Adolph landscape remains in flux: how courts manage the stay of non-individual PAGA claims pending individual arbitration, the preclusive effect of arbitration outcomes on standing, the manageability of large representative actions, and the impact of the 2024 PAGA amendments. Whether and how an arbitration agreement may permissibly structure or limit PAGA claims after the trilogy continues to be heavily litigated.