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California Supreme Court Authorizes Class Action Waivers In Arbitration Agreements

6/24/2014 Articles

On June 23, 2014, the California Supreme Court held that employees may expressly waive their ability to bring class actions when agreeing to arbitrate disputes with their employer.  In Iskanian v. CLS Transportation Los Angeles, LLC, Case Number S204032, the Court held that the Federal Arbitration Act (FAA) preempts state law objections to waivers of representative class actions in arbitration agreements.  On the other hand, the Court held that employees may not waive their right to bring a civil action on behalf of the State for statutory penalties under the Private Attorney General Act (PAGA).  Relying on recent United States Supreme Court precedent, Iskanian reverses a 2007 opinion of the California Supreme Court. 

This new 6-1 decision relies upon the United States Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), holding that the FAA requires states to enforce arbitration agreements, even where the agreements insist that signatories may not pursue representative collective claims in arbitration.  The Iskanian Court adopts the view expressed in the Concepcion opinion that the informality and efficiency of arbitrations would be undermined if employers were required to defend representative class actions in arbitration.  The Court also rejected arguments that representative class action waivers violate collective action rights under Section 7 of the National Labor Relations Act.  The Iskanian Court reserved decision on whether an arbitration agreement could preclude employees from joining their individual claims into a group arbitration or otherwise pooling resources in arbitration. 

In a partial blow to employers, the Court held that employees may not waive their right to bring a court lawsuit for penalties under PAGA.  The court reasoned that such actions are brought on behalf of the State rather than the individual employee.  Moreover, the PAGA statute provides for a civil suit rather than arbitration.  Thus, employees have no contractual ability to waive the court claim.

So, as the Court recognized, although employers can now require employees to waive their rights to bring collective actions in arbitration, those employers could still find themselves defending concurrent separate court actions under PAGA.  The Court even suggested that such individual arbitrations might be stayed pending resolution of the PAGA claims.  Of course, the opposite might occur as well, with a court staying a PAGA action pending resolution of arbitrated individual claims.  The Court expressly declined to provide guidance on these practical questions, instead directing the trial court to resolve these issues.

Following the Iskanian decision, employers without arbitration agreements will want to re-evaluate whether to begin requiring employees to sign arbitration agreements with class action waivers as a condition of employment.  Employers with arbitration agreements will want to examine their current language to ensure that it includes a waiver of representative class actions.  Any such arbitration agreements, of course, must remain in compliance with the conscionability guidelines set forth by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000).

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