Finally! The California Supreme Court recently fell in line with the United States Supreme Court on the enforceability of class action waivers in arbitration agreements by upholding their enforceability. Previously, the California Supreme Court had held in Gentry v. Superior Court that class action waivers in employment agreements were invalid in certain circumstances. Subsequently, the United States Supreme Court decided the AT&T Mobility v. Concepcion case, which in effect upheld class action waivers, with the Court reasoning that a state procedure that is incompatible with arbitration is preempted by the Federal Arbitration Act (FAA). But now, with its recent ruling in Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court has agreed that class action waivers in arbitration agreements are indeed enforceable.
There’s still a fly in the ointment, however, because the Iskanian Court ruled that a waiver of a Private Attorneys General Act (PAGA) claim in an arbitration agreement is unenforceable in California as a matter of public policy. Under PAGA, employees can seek Labor Code penalties from employers on behalf of other employees as representatives of the of the State of California, with the majority of penalties recovered going to the State of California and the employees retaining 25% for themselves. The Court reasoned that this decision did not violate the FAA, since the FAA is intended to ensure an efficient forum for the resolution of private disputes and a PAGA claim is more like a public dispute, albeit with a private citizen standing in the shoes of the State of California.
What does all this mean to California employers? It means that employers can include class action waivers in arbitration agreements with employees, and employers should review any arbitration agreements with this in mind. Individuals signing such waivers face a substantial obstacle if they bring a class action suit against an employer for alleged violations of such issues as overtime, meal and other breaks, and wage and hour claims, etc. However, considering that the California Supreme Court has deemed any waiver of a PAGA claim in favor of arbitration to be unenforceable, the revised waiver will have to be limited in scope.