The recent decision by the 9th Circuit Court of Appeals in Johnson v. Lowes marks a significant moment in California employment law against the backdrop of federal arbitration laws and the potential for their preclusive effect on representative Private Attorney General Act (“PAGA”) actions. At the heart of this case is the California Supreme Court’s precedent, which the 9th Circuit upheld, allowing workers to pursue representative claims under the PAGA despite arbitration agreements governing their individual claims.
As an employment mediator who specializes in PAGA and class actions, many of my cases include situations where arbitration agreements exist, and their potential impact on PAGA claims are a big part of the settlement calculus. PAGA is a crucial piece of legislation in California labor law, empowering employees to file lawsuits against their employers on behalf of themselves and other employees to address labor code violations, with the provision that 25% of the recovered penalties go to the employees and 75% to the state labor agency. This case involved a former Lowe’s worker, Maria Johnson, who brought a PAGA suit for labor code violations. While the U.S. Supreme Court’s Viking River decision mandated that individual claims covered by arbitration agreements must be arbitrated, it left open some questions regarding how representative PAGA claims should be handled when individual claims are arbitrable.
The California Supreme Court’s ruling in Adolph v. Uber provided that an employee’s representative PAGA claim can proceed in court while their individual claims are arbitrated. This ruling was seen as a setback for employers that sought to bypass representative actions by use of arbitration agreements. Lowe’s attempt to challenge this interpretation in Johnson v. Lowes was rebuffed by the 9th Circuit, which found the California Supreme Court’s decision in Adolph to be in harmony with federal law and the Federal Arbitration Act (FAA).
The 9th Circuit decision is pivotal for several reasons:
- Affirmation that representative PAGA actions can be pursued even if the plaintiff bringing the action signed a valid arbitration agreement: It reaffirms the role of PAGA in California labor law, enabling workers to sue for systemic labor code violations beyond individual grievances, even in instances when the plaintiff pursuing the representative PAGA claim has signed a valid arbitration agreement.
- Federal vs. State Law Dynamics: It highlights the ongoing tension between state laws aimed at protecting workers and federal policies favoring arbitration, underscoring the autonomy of state courts to interpret and apply state laws in a way that complements federal directives.
- Justice Lee’s concurring opinion suggests that an arbitrator’s decision in the individual case will have no preclusive effect on the representative PAGA case: In a thought-provoking concurrence, Justice Kenneth Lee raised important questions regarding the impact of arbitration outcomes on representative PAGA actions. His concurrence highlighted potential concerns about defendants using arbitration losses by named PAGA representatives to evade the larger non-individual PAGA claims. Judge Lee asserted that determinations made during the individual arbitration are unlikely to carry preclusive weight because issue preclusion doesn’t apply if the party in question lacked motivation to pursue a thorough and equitable resolution during the initial proceedings. This exception, known as the “complete and equitable chance to litigate,” is firmly established in federal law, according to Judge Lee. He highlights the distinction between arbitration, typically involving low-stakes matters with minimal financial risk for defendants, and non-individual PAGA claims, which present high stakes for defendant employers to explain that bestowing issue-preclusive status on arbitration rulings might contradict the objectives of the Federal Arbitration Act (FAA) because employers would be compelled to deploy extensive legal resources to individual PAGA arbitration proceedings, undermining the efficiency of arbitration.