Calif. Supreme Court Sides Against NLRB, Finds Class Action Waivers in Arbitration Agreements Enforceable

by Ballard Spahr LLP
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The Supreme Court of California recently found an employee’s waiver of the right to bring a class action against his former employer enforceable under state law. In the process, the court reversed its 2007 decision in Gentry v. Superior Court and joined a growing list of courts that have uniformly rejected the National Labor Relations Board’s (NLRB’s) opinion in D.R. Horton that requiring employees to waive their rights to pursue class or collective actions as part of an employment arbitration agreement violates federal law.

In 2006, limousine driver Arshavir Iskanian filed a class action complaint against CLS Transportation Los Angeles, LLC, alleging that CLS committed numerous violations of California’s wage and hour laws. However, Mr. Iskanian earlier had signed an employment arbitration agreement, which contained a class action waiver. The trial court granted CLS’s motion to compel arbitration, but an appellate court reversed based on Gentry, which deemed class action waivers in the employment context unenforceable as a matter of public policy.

In 2011, the U.S. Supreme Court decided AT&T Mobility v. Concepcion, finding consumer class action waivers enforceable under the Federal Arbitration Act (FAA) and specifically overruling a California decision that relied upon Gentry. Based on that opinion, the Supreme Court of California found for CLS, holding that the FAA preempted the court’s earlier decisions regarding class action waivers.

The court specifically addressed Mr. Iskanian’s argument that the arbitration agreement he signed was invalid under the National Labor Relations Act (NLRA). It reviewed both the D.R. Horton opinion and the decision of the Fifth Circuit Court of Appeals rejecting the NLRB’s analysis. The court ultimately agreed with the Fifth Circuit that the NLRA does not create a congressional command that overrides the FAA and that nothing in the NLRA’s text or legislative history shows a congressional intent to disavow arbitration.

Importantly for state law purposes, the court also ruled that the arbitration agreement’s waiver of both class and “representative actions” could not be enforced for claims under the California Private Attorney General Act (PAGA). That statute permits employees to sue their employers for certain violations of the California Labor Code on behalf of the state government. The court reasoned that PAGA claims may not be waived, because the law allows the individual to step into the shoes of the state to seek redress of a public dispute. Further, the court held that the FAA’s preemption of the state’s public policy against class action waivers does not extend to the rights of a public agency, in whose place employees act under PAGA.

The court’s decision to enforce the class action waiver adds to the overwhelming majority of precedents lining up against the NLRB’s anti-waiver position. As the court noted, every federal circuit court of appeals and almost every federal district court have declined to adopt the NLRB’s theory. And it appears likely that the U.S. Supreme Court will follow suit when it rules on D.R. Horton later this year, clearing the way for more employers to use class action waivers to require their employees to arbitrate any employment claims that may arise.

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