Employees Must Live With Their Agreements; California Court of Appeal Affirms Class Action Waivers In Employment Arbitration Contracts

[author: Laura Reathaford]

The California Court of Appeal has confirmed that class action waivers are enforceable in California employment arbitration agreements.

The plaintiff in Iskanian v. CLS Transportion 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 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 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 appellate 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 California appellate Court decisions which held that because PAGA promotes an important public policy concerning wage law enforcement, PAGA claims are 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 public policy.

Iskanian represents a 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.

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

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.

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