California Court Approves Class Action Waivers In Employment Arbitration Agreements

[author: Laura Reathaford]

The plaintiff in Iskanian v. CLS Transp. Los Angeles, LLC, brought a putative class action and a representative action under California’s Private Attorney General Act (PAGA) for various wage and hour violations. During his employment, Iskanian agreed that he would not assert class action or representative action claims against his employer and, instead, agreed to submit any legal claims he had to binding arbitration.

The California Court of Appeal for the Second District held that the employee was bound by his agreement. Relying on the United States Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, the Court held that the Federal Arbitration Act (FAA) preempts any state law prohibiting class action waivers in arbitration agreements. The Court also found that Concepcion overruled Gentry v. Superior Court – a California Supreme Court decision which held that class action waivers in arbitration agreements are unenforceable if class arbitration would be more efficient than individual litigation. Rejecting this notion, the Court stated, “a rule like Gentry – requiring Courts to determine whether to impose class arbitration on parties who contractually rejected it – cannot be considered consistent with the objective of enforcing arbitration agreements according to their terms.”

The Court also considered whether class action waivers violate section 7 of the National Labor Relations Act which protects the rights of employees to engage in concerted activity. The Court found that Concepcion “made no exception for employment-related disputes” and rejected the argument. 

Finally, the Court addressed whether Iskanian could waive his right to bring a representative action under PAGA. Under PAGA, an aggrieved employee may bring an action to recover civil penalties for Labor Code violations on his or her own behalf and on behalf of current or former employees. The Court considered and rejected other recent California decisions which held that because PAGA promotes an important public policy concerning wage law enforcement, litigation in court of PAGA claims is unwaivable. The Court noted that when state law prohibits outright arbitration of a particular type of claim, the conflicting rule is displaced by the FAA. Since federal preemption requires that state law bend to conflicting federal law, a state cannot avoid preemption simply because it intends to promote a public policy.

Iskanian represents a significant victory for employers wishing to implement employment arbitration agreements. As long as the arbitration agreement is not found to be unconscionable under established contract principles, this ruling should make it easier for employers to compel arbitration when employees have filed class action lawsuits contrary to their written agreements.