Macy’s Case Brings PAGA Arbitration Issue Back to Ninth Circuit

A federal appeals court is continuing to grapple with what happens when an employee must arbitrate their individual claims brought under a unique California law that allows workers to sue on the state’s behalf.

A Macy’s Inc. subsidiary is challenging a lower court order sending both individual and representative claims for unpaid overtime and other alleged wage law violations that a former worker brought under California’s Private Attorneys General Act to arbitration. Attorneys for the company and the worker will appear at oral argument Friday at the US Court of Appeals for the Ninth Circuit.

The Ninth Circuit heard debate last month in a similar case involving a former Lowe’s Home Centers LLC worker whose individual claims were sent to arbitration and her representative claims dismissed.

Both cases have the potential to provide clarity on a crucial unresolved issue surrounding arbitration of PAGA claims that has divided the courts despite previous decisions from the US and California justices. The Ninth Circuit’s answers could settle whether PAGA gives workers a way to litigate class-like representative claims against employers in court despite valid agreements to arbitrate individual workplace disputes.

PAGA allows workers to step into the state’s shoes to enforce California’s Labor Code, which includes bringing representative claims on behalf of other workers harmed by the alleged violations.

The US Supreme Court ruled in 2022’s Viking River Cruises, Inc. v. Moriana that employers can force arbitration of workers’ individual PAGA claims. The majority opinion dismissed the representative claims in that case, saying a worker loses standing to pursue them once a court determines that they must arbitrate their own claims.

But Justice Sonia Sotomayor in her concurrence said that California’s top court should have the final say because the question is one purely about state law.

State, Federal Conflict

Many California state courts refused to follow the US Supreme Court majority’s view that representative PAGA claims should be tossed when individual claims go to arbitration. A state appeals court even gave Angie Moriana the chance to revive the claims against Viking River Cruises that the justices threw out.

The California Supreme Court weighed in with its July decision in Adolph v. Uber Technologies, Inc., ruling that workers don’t lose their standing to litigate representative claims just because their individual claims were sent to arbitration.

In the case set for oral argument Friday, Macy’s said in its brief that a federal district court’s decision sending former employee Yuriria Diaz’s individual and representative claims to arbitration conflicts with Viking River.

But that arbitration order isn’t immediately appealable, Diaz asserted in her brief.

Both Macy’s and Diaz filed their briefs before the California Supreme Court ruled in Adolph. The Ninth Circuit didn’t order additional briefing on the impact of the decision, instead telling parties to “be prepared to discuss” it during oral argument.

The case will be heard by Ninth Circuit Judges Jay Bybee, a George W. Bush appointee, and Kenneth Lee, an Trump appointee, as well as Third Circuit Judge Michael Fisher, a George W. Bush appointee. Lee also was a member of the three-judge panel handling the Lowe’s case that deals with similar issues about PAGA and arbitration.

Diaz’s lawyer, Ryan Wu of Capstone Law APC, declined to comment. Macy’s attorney, Felix Shafir of Horvitz & Levy LLP, didn’t respond to requests for comment.

The case is Diaz v. Macy’s West Stores, Inc., 9th Cir., No. 22-56209, oral argument scheduled 11/17/23.