Why it matters

Finding that neither a California Supreme Court decision nor the Federal Arbitration Act (FAA) applied to the claims alleged in a wage class action filed by a truck driver, a California appellate panel denied a motion to compel arbitration and allowed the suit to move forward at the trial court. A truck driver sued his former employer seeking back wages for himself and other employees. Pursuant to an arbitration agreement, the employer moved to compel arbitration. But the appellate panel ruled that the FAA exempts transportation workers engaged in interstate commerce, a category the plaintiff clearly fell into. As the FAA didn't apply to the arbitration agreement, the court said neither did Iskanian v. CLS Transportation Los Angeles, a 2014 decision from the state's highest court that would have eliminated the truck driver's group claims. Instead, the court said that the 2007 opinion in Gentry v. Superior Court governed, where the California Supreme Court ruled that the state's interest in classwide resolution can take precedence over a class action waiver in an arbitration agreement. "In Iskanian, our Supreme Court had the opportunity to find Gentry comprehensively invalidated," the panel wrote. "It did not do so." The decision adds to the long and complicated history of arbitration and employment disputes in California and puts employers on notice that even after Iskanian, courts will not hesitate to reject arbitration agreements.

Detailed discussion

Mario Garrido was hired as a truck driver for Air Liquide in 2009, transporting the company's industrial gases to locations in California and neighboring states from a production and distribution center. When he was hired, Garrido entered into an Alternative Dispute Resolution (ADR) Agreement with the employer, which stated that all disputes arising out of his employment would be resolved through alternative dispute resolution, including arbitration. The agreement, governed by the Federal Arbitration Act (FAA), also prohibited arbitration on a class, collective, and representative basis.

Garrido was terminated in 2011 and filed suit against Air Liquide. Seeking class action status, he claimed the employer violated various provisions of the Labor Code and unfair business practices. Air Liquide responded with a motion to compel arbitration. Finding that the agreement's class waiver provision was improper under the four-part test laid out in a 2007 California Supreme Court decision, Gentry v. Superior Court, the trial court denied the motion.

The employer appealed and while the case was pending, the California Supreme Court decided Iskanian v. CLS Transportation Los Angeles, holding that Gentry's rule against employment class waivers was preempted by the FAA.

Despite the Iskanian decision, the appellate panel affirmed the trial court, finding that Gentry's holding was not overturned under California law in situations where the FAA does not apply. "We accordingly find that the agreement's class waiver provision is unenforceable," the court said.

The panel first determined that the FAA did not apply to the dispute. Section 1 of the FAA exempts from coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," which has been interpreted by the U.S. Supreme Court to include "transportation workers."

Just because an employment agreement declares that it is subject to the FAA does not mean a transportation worker's agreement is therefore subject to the statute, the court said. "By stating that it is subject to and governed by the FAA, the agreement necessarily incorporates Section 1 of the FAA, which includes the exemption for transportation workers," the court said. "Accordingly, courts have found transportation workers' employment agreements exempt from the FAA, even when the agreements purport to be governed by the FAA."

As Garrido worked as a truck driver transporting Air Liquide gases across state lines, he was clearly a "transportation worker" under Section 1 of the FAA, the panel determined, rejecting the employer's contention that its primary business did not involve the transportation of third parties' goods. "A significant portion of Air Liquide's business involves the transportation of its gases across state lines," the court said. "Thus, it must be said that Air Liquide is at least somewhat involved in the transportation industry," and "Garrido's duty as a truck driver was the transportation of goods."

With the FAA out of play, the court said the California Arbitration Act (CAA) applied. Nothing in the state law requires that an arbitration agreement explicitly reference the CAA to be enforceable under California law and the state has a strong public policy in favor of arbitration, the panel said.

But what about Iskanian? The California Supreme Court declared, among other holdings, that the prior rule laid out in Gentry was preempted by the FAA. "In light of Iskanian, if this matter were governed by the FAA, arbitration (on an individual basis) would likely be required," the court said. But since the CAA applied instead, the Gentry rule remained in effect.

The Iskanian court found that Gentry's holding was abrogated by the U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion. "Iskanian's focus, however was whether the FAA preempted the Gentry rule," the court said. "Iskanian did not discuss whether Gentry could apply in a case not governed by the FAA."

Gentry's holding was based on public policy grounds, the panel noted, adding that it was unaware of any post-Gentry authority determining that public policy no longer remains a valid defense to enforcement of an arbitration agreement governed by the CAA.

"We believe that the Gentry rule … may be asserted in matters governed by the CAA and not the FAA," the court explained. "In Iskanian, our Supreme Court had the opportunity to find Gentry comprehensively invalidated. It did not do so. While Iskanian made clear that the Gentryrule is preempted by the FAA, it did not go beyond that finding. Therefore, the Gentry rule remains valid under the CAA."

The court then applied the four factors of Gentry's test to the ADR agreement at issue. Considering "(1) the modest size of the potential individual recovery, (2) the potential for retaliation against members of the class, (3) the fact that absent members of the class may be ill informed about their rights, and (4) other real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration," the trial court invalidated the class arbitration waiver.

Finding that the trial court's determinations were supported by substantial evidence, the appellate panel affirmed. Garrido's likely recovery was approximately $11,000 and he submitted evidence about the risk of retaliation that Air Liquide made its truck drivers frequently feel as if their jobs were in jeopardy. Garrido was unaware of his rights under the Labor Code, the trial court found, and he faced real world obstacles to the vindication of his rights if forced to conduct individual arbitration.

"In light of these determinations, the trial court correctly found that a class proceeding here would be a significantly more effective way of allowing employees to vindicate their statutory rights," the panel concluded. "Air Liquide moved exclusively for individual, not class arbitration, and neither party has indicated an intent or willingness to engage in class arbitration. For these reasons, based on its finding that the class waiver constituted an unlawful exculpatory clause, the trial court properly denied the motion to compel arbitration."

To read the decision in Garrido v. Air Liquide Industrial, click here.