Despite Epic, California Court Denies Motion to Compel Arbitration

Employment Law
 

In the latest arbitration battle involving Private Attorneys General Act (PAGA) claims, a California federal court denied an employer’s motion to compel despite recent U.S. Supreme Court precedent in Epic Systems Corp. v. Lewis.

After approximately one week of employment by Aerotek, a temporary staffing agency, Jaime Echevarria sued the company in California state court. He asserted putative class action claims on behalf of current and former employees for violations of state labor laws and unfair competition laws, along with a representative claim under the Private Attorneys General Act (PAGA).

Aerotek responded with a motion to compel individual arbitration. Before Echevarria began his employment, he electronically signed an arbitration agreement that covered “all disputes, claims, complaints or controversies” against the company and prohibited “class action, collective action or representative action” claims.

The district court denied the motion to compel, and Aerotek appealed. While the case was pending before the U.S. Court of Appeals for the Ninth Circuit, the U.S. Supreme Court issued its decision in Epic, holding that employers may require employees—as a condition of employment—to enter into arbitration agreements that contain class or collective action waivers.

In light of that decision, the Ninth Circuit vacated and remanded the case back to the district court.

Echevarria argued that the arbitration agreement was still unenforceable under the Ninth Circuit’s decision in Sakkab v. Luxottica Retail North America, Inc. , where the panel held that an arbitration agreement’s waiver of representative actions is not enforceable to bar PAGA claims.

Aerotek countered that Epic abrogated Sakkab, leaving the arbitration agreement enforceable.

U.S. District Judge Beth Labson Freeman disagreed. She began with the Sakkab decision, where the Ninth Circuit considered whether the Federal Arbitration Act (FAA) pre-empted the California rule announced in Iskanian v. CLS Transportation Los Angeles , under which waivers of representative PAGA claims are unenforceable.

The Ninth Circuit held that the Iskanian rule was not pre-empted by the FAA. It was a “generally applicable contract defense,” the court said, and did not conflict with the FAA’s purposes. Emphasizing “the fundamental differences between PAGA actions and class actions,” the Sakkab court found concerns about making the arbitration process slower, more costly and more likely to generate procedural morass were unfounded.

Epic neither overruled Sakkab nor undercut its reasoning in such a way as to render the two cases irreconcilable, Judge Freeman wrote.

“In Epic, the Supreme Court held that the National Labor Relations Act does not bar the enforcement of class action waivers or collective action waivers in arbitration agreements between employers and employees,” the court said. “Epic did not address the issues before the Sakkab court related to the arbitrability of a claim for civil penalties brought on behalf of the government or the enforceability of an agreement barring such a claim in any forum.”

Judge Freeman acknowledged that “aspects of Epic … may foreshadow a reversal of Sakkab were the Supreme Court to take up the interplay between the FAA and Iskanian at some future date.” But the justices have refused to weigh in on whether the FAA pre-empts Iskanian, “on many occasions,” she noted.

Sakkab remains good law, the court said—a conclusion reached by several other federal court judges in the state. Only one court has determined that Epic overruled Sakkab, but failed to “engage with the reasoning or holding of Sakkab in any meaningful fashion.”

Having concluded that Sakkab remains good law, the court denied Aerotek’s motion to compel. Judge Freeman then remanded the action—consisting of only Echevarria’s PAGA claim—to state court, declining to exercise supplemental jurisdiction over a claim based on “a purely state law creature.”

To read the opinion in Echevarria v. Aerotek, Inc., click here.

Why it matters: The battle over arbitration—and particularly, arbitration of PAGA claims—yielded another win for employees, as the California federal court found that the Supreme Court’s Epic decision did not abrogate the Ninth Circuit’s opinion in Sakkab, which found that the FAA did not pre-empt the Iskanian rule. The decision is the latest in the line of cases providing a way for California plaintiffs to remain in court and avoid arbitration by filing a PAGA claim.