In a significant victory for California employers, a California Court of Appeal recently upheld a ruling that compelled arbitration of an employee's wage and hour claims and dismissed his class and representative claims.  In Iskanian v. CLS Transportation Los Angeles, LLC, plaintiff Archavir Iskanian, a former CLS truck driver, sued CLS for various wage and hour violations, including failure to pay overtime and provide rest and meal breaks, alleging individual and putative class claims.  CLS moved to compel arbitration of the individual claims and to dismiss the class and representative claims consistent with the agreement he signed at the inception of employment, which provided that "any and all claims" arising out of his employment would be subject to mandatory, binding arbitration and that expressly waived each party's right to bring representative and class claims.  The trial court granted the motion, and Iskanian appealed.  Shortly thereafter, the California Supreme Court issued its decision in Gentry v. Superior Court (September 2007 FEB), which held that certain class action waivers in arbitration agreements should not be enforced if class arbitration would more effectively vindicate employee rights.  Accordingly, the appellate court directed the trial court to reconsider its ruling in light of Gentry.  On remand, CLS withdrew its motion, and the lawsuit proceeded.  Iskanian amended his complaint to add representative Private Attorney General Act ("PAGA") claims and certified his other claims for class treatment.

Shortly after the U.S. Supreme Court issued its decision in AT&T Mobility v. Concepcion (Fenwick's April 28, 2011 Litigation Alert) – in which the Court held that "[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA" – CLS renewed its motion and the trial court granted it.  On appeal by Iskanian, the court dealt three major blows to prior challenges to class action waivers in employment arbitration agreements.

First, the court recognized that "the Concepcion decision conclusively invalidates the Gentry test."  A plaintiff who successfully meets the Gentry test would proceed to class arbitration, with the procedure imposed on a party that never agreed to it – a concept "thoroughly rejected" by Concepcion as inconsistent with the FAA.  Further, as recognized by Concepcion, "'[s]tates cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.'  The sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the FAA, as expressed in Concepcion."

Second, the court rejected Iskanian's attempt to invoke the recent decision of the National Labor Relations Board ("NLRB") in D.R. Horton (February 2012 FEB) that found class action waivers in arbitration agreements violate the National Labor Relations Act.  Refusing to give any deference to the decision, the court observed that "the FAA is not a statute the NLRB is charged with interpreting."  It then followed CompuCredit Corporation v. Greenwood, in which the U.S. Supreme Court held that "unless the FAA's mandate has been 'overridden by a contrary congressional command,' agreements to arbitrate must be enforced according to their terms . . . ."  Because D.R. Horton failed to identify such a congressional command, it did "not withstand scrutiny in light of Concepcion and CompuCredit."

Third, the court rejected Iskanian's claim that his representative Private Attorney General Act claims were inarbitrable.  Expressly departing from a prior California appellate decision (August 2011 FEB), the court held that "the public policy reasons underpinning PAGA do not allow a court to disregard a binding arbitration agreement.  The FAA preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration."

This decision represents a significant pro-employer arbitration and class action ruling, at least for now.  It also creates a split among California appellate courts on the enforceability of waivers of PAGA representative claims, such that future California Supreme Court review is likely.  Thus, employers should carefully consider the potential benefits and pitfalls of such waivers, with the guidance of seasoned legal counsel, before implementing class or representative action waivers.