Why it matters: In the latest interpretation of the California Supreme Court’s decision in Iskanian v. CLS Transportation Services, an appellate panel in the state sided with an employer and sent a case to arbitration. The instant case involved an employee who filed a state court lawsuit alleging Ralphs Grocery Company violated California labor laws by not providing meal or rest breaks for its workers. When Ralphs filed a motion to compel arbitration based on an employment agreement, a trial court judge held that the agreement was unenforceable and denied the motion. The appellate court reversed, relying upon Iskanian and finding that the agreement was not unconscionable. The decision keeps the Iskanian decision in the headlines following recent federal court rulings declining to follow Iskanian’s prohibition on employee waivers of Private Attorney General Act claims in the state, prompting speculation that the California Supreme Court decision is on its way to a review by the United States Supreme Court.

Detailed Discussion

When Stephanie Mahmud applied for a job with Ralphs Grocery Company in February 2008, her signed application stated that she “acknowledge[d] and underst[ood]” Ralphs had a dispute resolution program that included a Mediation & Binding Arbitration Policy.

The policy applied to “all employees and applicants for employment” and to “any employment-related disputes that exist or arise between employees and [Ralphs] that would constitute cognizable claims or causes of action in a court or government agency under applicable law including individual statutory claims or disputes.”

In addition, the arbitration policy provided that “there is no right or authority for any covered disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, or other Ralphs employees (or any of them), or of other persons alleged to be similarly situated.”

Mahmud filed a lawsuit in California state court in 2009, alleging that Ralphs violated multiple provisions of the state’s Labor Code by failing to provide meal and rest breaks, among other claims. Based on the arbitration agreement, Ralphs moved to compel arbitration.

A trial court judge refused, relying on a 2007 California Supreme Court decision in Gentry v. Superior Court, which established a four-factor test to determine whether a class action waiver should be enforced.

Ralphs appealed and in the interim, the California Supreme Court decided Iskanian v. CLS Transportation, where the court upheld the general enforceability of class waivers in mandatory employment arbitration agreements.

The decision explicitly stated that it abrogated Gentry.

In light of the new decision, Mahmud told the court that Ralphs was collaterally estopped from litigating the enforceability of the agreement based on an earlier case that found it to be both procedurally and substantively unconscionable. As a fallback position, she added that the policy was unconscionable and should not be enforced against her.

But the appellate panel wasted little time on either contention.

Mahmud failed to raise the estoppel argument in the trial court, the panel wrote, and therefore waived it. And while she wanted to rely upon a ruling that found the policy unconscionable, a second court had considered the same policy and found it enforceable in a separate case, the court added.

Even if the court overlooked the waiver and considered the merits of Mahmoud’s unconscionability argument, she “presented no evidence of the circumstances surrounding her application for employment or her decision to sign the agreement,” the panel wrote.

“Even after the United States Supreme Court’s decision in [AT&T v. Concepcion] called Gentry into question and led Ralphs to renew its petition to compel arbitration, Mahmud chose to base her opposition entirely on the four Gentry factors, providing neither a declaration nor other evidence to support unconscionability on any other ground. In the absence of such evidence, we will not presume procedural unconscionability.”

To read the opinion in Mahmud v. Ralphs Grocery Company, click here.