California Court Enforces Waivers of Class and PAGA Representative Claims

by Morgan Lewis
Contact

Recent court decision represents significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

On June 4, a unanimous panel of the California Court of Appeal for the Second District upheld a lower court's ruling compelling individual arbitration of a plaintiff's wage and hour claims and dismissing both class and representative claims under the California Labor Code Private Attorneys General Act (PAGA). Iskanian v. CLS Trans. Los Angeles, LLC, — Cal. Rptr. 3d —, No. B235158, 2012 WL 1979266 (Cal. Ct. App. 2d Dist. June 4, 2012). In so ruling, the court (i) held that the U.S. Supreme Court's opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (Concepcion), preempted any California law prohibiting arbitration of certain claims; (ii) rejected a recent decision from the National Labor Relations Board (NLRB); and (iii) held that employees may validly waive their right to bring PAGA claims on behalf of others as part of an arbitration agreement.

Background

As a driver for defendant CLS Transportation, LLC (CLS), plaintiff Arshavir Iskanian signed a "Proprietary Information and Arbitration Policy/Agreement" providing that any and all employment-related disputes would be submitted to binding arbitration. The arbitration agreement contained a waiver of the right to bring claims on behalf of a class or as a representative of others.

Notwithstanding this arbitration agreement, Iskanian filed a putative class action complaint against CLS, alleging that the company failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. CLS moved to compel arbitration, which the trial court initially granted. Shortly after the trial court issued its order, the California Supreme Court issued its opinion in Gentry v. Superior Court (Circuit City Stores), 42 Cal. 4th 443 (2007), holding that class action waivers in employment arbitration agreements were unenforceable as contrary to public policy. On appeal, CLS's initial motion to compel arbitration was reversed, and the case proceeded to litigation in Superior Court.

Soon after the U.S. Supreme Court issued its opinion in Concepcion, which overruled California law in regards to class action waivers in commercial contracts, CLS renewed its motion to compel arbitration. The trial court granted the motion, and a second appeal followed.

Gentry Overruled

On appeal, the court affirmed, holding that Concepcion overruled Gentry and rejecting the plaintiff's "vindication of statutory rights" argument. Finding that a purported intent to vindicate statutory rights "is irrelevant in the wake of Concepcion," the court held that "[t]he sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the [Federal Arbitration Act (FAA)]." Iskanian, 2012 WL 1979266 at *5. Thus, the court held that any California statute or policy prohibiting arbitration of certain claims is invalid, and that under the FAA, class and representative waivers should be enforced according to their terms "so as to facilitate streamlined proceedings." Id.

Rejection of D.R. Horton

The court also rejected the plaintiff's argument that a recent decision by two members of the NLRB in D.R. Horton, Inc., 357 NLRB No. 184 (2012), barred enforcement of class and representative waivers in employment arbitration agreements as a violation of Section 7 of the National Labor Relations Act (NLRA).

Finding several faults with the D.R. Horton decision, the Iskanian court declined to give any deference to the NLRB, noting that "the FAA is not a statute the NLRB is charged with interpreting." Iskanian, 2012 WL 1979266, at *6. The court instead followed the Supreme Court's binding authority in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), that, unless the FAA is "overridden by a contrary congressional command," then "agreements to arbitrate must be enforced according to their terms." Iskanian, 2012 WL 1979266, at *7. Finding no such "congressional command" in the NLRA, the court rejected D.R. Horton. Id.

PAGA Waivers Enforceable

Departing from two prior decisions issued by other California Courts of Appeal, the Iskanian court held that the representative action waiver of PAGA claims in the parties' arbitration agreement was enforceable under Concepcion. The court compelled individual arbitration of the plaintiff's PAGA claim, holding that "any state rule prohibiting the arbitration of a PAGA claim is displaced by the FAA." Id. at *9. The court further held that California's "Broughton-Cruz rule"—which bars arbitration of public injunctive relief actions—has been overruled by Concepcion. Accordingly, "the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular claim from arbitration." Id. The court concluded that the plaintiff could not pursue representative claims against CLS.

Implications

The Iskanian decision, when coupled with another recent California opinion, Kinecta Alternative Financial Solutions, Inc. v. Superior Court (Malone), 205 Cal. App. 4th 506 (2012), which held that class allegations may be dismissed when a court compels individual arbitration, represents a significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

The Iskanian decision, however, creates a clear split in authority among California Courts of Appeal regarding the enforceability of PAGA representative action waivers. See, e.g., Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2d Dist. 2011) (holding that PAGA waivers were not enforceable); Reyes v. Macy's, Inc., 202 Cal. App. 4th 1119 (1st Dist. 2011) (following Brown and refusing to compel individual arbitration of PAGA claims). This split may lead to California Supreme Court review, which means that the issue may not be resolved anytime soon.

While awaiting a final outcome, employers should carefully consider enforcement of arbitration agreements and the scope of waivers contained in such agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis
Contact
more
less

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.