The U.S. Supreme Court heard arguments over whether a unique California law that allows employees to bring actions on behalf of the state overrides a federal preference for arbitration, as the justices weigh the power of class actions asserting labor code violations.
The court appeared divided Wednesday on whether the Federal Arbitration Act, which governs pacts involving private dispute resolution, preempts California’s Private Attorneys General Act.
At stake is whether the thousands of cases brought under PAGA each year can allow employees to circumvent arbitration and force a slew of labor claims into court, including in myriad cases filed against gig economy employers and big box retailers.
The U.S. Chamber of Commerce, Uber Technologies Inc., Postmates, and other business groups asked the high court to curb PAGA, saying that it doesn’t jibe with the FAA. Proponents, including the California Attorney General, say the law is an important tool for workers to hold employers accountable.
Wednesday’s argument also drew a demonstration from a California business coalition in front of the Supreme Court. Small business owners are at risk of being sued under PAGA for technicalities, the coalition says, with some members calling the law “draconian.”
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