In Iskanian v. CLS Transportation Los Angeles, LLC, (Cal. Ct. App. June 4, 2012), the California Court of Appeal for the Second Appellate District affirmed a decision to compel individual arbitration of wage-and-hour claims pursuant to an employment agreement that contained class and representative action waivers, holding that the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion was controlling.

Plaintiff Iskanian filed a class and representative action alleging wage-and-hour violations, including meal and rest and overtime violations, and he asserted claims under the California Labor Code, the Private Attorney General Act (“PAGA”) and the California unfair competition law (“UCL”). However, plaintiff had signed an arbitration agreement waiving his right to bring class or representative claims. In 2007, defendant CLS filed its initial motion to compel arbitration. The trial court granted the initial motion, but the California Court of Appeal ordered the trial court to reconsider its decision in light of the California Supreme Court’s intervening decision in Gentry v. Superior Court, 165 P.3d 556 (Cal. 2007), which held that a class action waiver provision in an arbitration agreement should not be enforced if class arbitration “would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” CLS then voluntarily withdrew its arbitration motion in light of Gentry. But, CLS’s position gained new strength after the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which directly overruled the California Supreme Court’s holding in Discover Bank and held that the Federal Arbitration Act (“FAA”) preempts any state law prohibition against arbitration of a particular type of claim. CLS promptly revived its motion to compel arbitration which was granted by the trial court. Plaintiff then appealed.

On appeal, the California Court of Appeal for the Second Appellate District held that Concepcion invalidated Gentry and that the policy reasons Gentry cited for invalidating class action waivers “are insufficient to trump the far-reaching effect of the FAA, as expressed in Concepcion.” Specifically, the court explained that “Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them” and “[a] rule like the one in Gentry…cannot be considered consistent with the objective of enforcing arbitration agreements according to their terms.”

The court also declined to defer to the decision in D.R. Horton, Inc., 357 NLRB 184 (Jan. 3, 2012), in which the NLRB held that requiring individual arbitrations of employment-related claims violated employees’ statutory right to collective action. Rather, the court held that the NLRB had no power to interpret the FAA and that “the NLRB’s attempt to read into the NLRA a prohibition of class waivers is contrary to another recent United States Supreme Court decision [CompuCredit Corp v. Greenwood, 132 S. Ct. 665 (2012)].”

Finally, the court held that plaintiff’s waiver of representative claims is enforceable as to his PAGA and UCL claims. It declined to follow the decision of the Fifth Appellate District in Brown v. Ralphs Grocery Co., 128 Cal. Rptr. 3d 85 (2011), which held that Concepcion does not apply to representative actions under the PAGA. Rather, the court concluded that under the rationale of Concepcion, the FAA “preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration,” including PAGA and UCL claims. Accordingly, the court concluded that plaintiff’s waiver of class and representative claims was enforceable, and it ordered plaintiff’s individual claims to arbitration and dismissed the class and representative claims.

Notably, in another decision certified for publication on June 13, 2012, Hoover v. American Income Life Insurance Co., (Cal. Ct. App. June 13, 2012), the California Court of Appeal for the Fourth District affirmed an order denying a petition to compel arbitration of a terminated insurance agent’s statutory state labor claims.  The court held that the FAA was inapplicable because there was no evidence that the contract at issue involved interstate commerce, and also found that where the defendant waited “almost a full year” before moving to compel arbitration and actively litigated the case during that time, the right to arbitration was waived.