On June 23, 2014, the U.S. Court of Appeals for the Ninth Circuit issued two decisions upholding class action waivers in employers’ arbitration agreements. The decisions in Davis v. Nordstrom, Inc., --- F.3d ---, 2014 WL 2808139 (9th Cir. Jun. 23, 2014) and Johnmohammadi v. Bloomingdale’s Inc. --- F.3d ---, 2014 WL 2808135 (9th Cir. Jun. 23, 2014) (which were decided by the same panel of Circuit Judges) continue the Ninth Circuit’s recent trend of upholding class action waivers in arbitration agreements in the wake of AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011). They also provide employers with useful guidance in crafting arbitration agreements and class action waivers. However, the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles LLC, --- P.3d ---, 2014 WL 2808963 (Cal. Jun. 23, 2014), issued the same day, ensures continued uncertainty for employers seeking to draft and enforce arbitration agreements containing class action waivers under California law.
Davis v. Nordstrom, Inc.: Failure to Object After Reasonable Notice Equals Acceptance
In Davis, the plaintiff’s employer, Nordstrom, moved to compel individual arbitration of the plaintiff’s claims under various state and federal employment laws. Nordstrom sought to enforce recent amendments to its arbitration program implementing class action waivers. Nordstrom made these modifications subject to a provision of the program permitting it to unilaterally modify the terms of the arbitration agreement, provided that it gave employees 30 days’ notice. The plaintiff did not dispute receiving Nordstrom’s dispute resolution agreement when she was hired or that Nordstrom had unilaterally modified the agreement several times during her employment and had always provided her notice.
Nevertheless, Davis argued that Nordstrom was precluded from enforcing the amended arbitration agreement against her because (1) Nordstrom failed to follow the 30-day notice requirement when it implemented the class action waiver and (2) Nordstrom did not inform her that her continued employment constituted acceptance of the modified agreement. Although the District Court agreed with Davis, the Ninth Circuit rejected both arguments.
As to the notice requirement, the court found that, while Nordstrom’s notice documents “were not the model of clarity,” Nordstrom nevertheless satisfied the minimal notice requirements under California law. Specifically, the Court noted that Nordstrom did not enforce the modified agreement against Davis or any other employee for 30 days after the notice, and Davis neither objected to the revisions nor resigned her employment during the notice period. As to the second argument, the Ninth Circuit held that California law simply does not require employers to inform employees that their continued employment constitutes acceptance of a modified agreement. Instead, employers need only provide reasonable notice and refrain from interfering with vested rights. The Ninth Circuit reversed the District Court’s decision and remanded for further proceedings.
Johnmohammadi v. Bloomingdale’s Inc.: Failure to Opt Out Constitutes Knowing and Voluntary Agreement.
In Johnmohammadi, the Ninth Circuit addressed the validity of class action waivers from a different angle. As in Davis, the parties in Johnmohammadi did not dispute that the plaintiff had entered into an arbitration agreement. Bloomingdale’s agreement, which the plaintiff received when she was hired, gave plaintiff the express option of opting out of the agreement within 30 days. The plaintiff, however, never returned the opt-out form.
The plaintiff did not dispute that she knowingly and voluntarily entered into an arbitration agreement or that Bloomindale’s never threatened her with termination or retaliation if she did not agree, Instead, she argued that the class action waiver was unenforceable under the Norris-LaGuardia Act and the National Labor Relations Act (“NLRA”). Specifically, she contended that class actions were “concerted action” protected by these statutes and that the class action waiver in Bloomingdale’s arbitration agreement unlawfully interfered with her right to engage in such concerted action.
In rejecting the plaintiff’s arguments, the Ninth Circuit found it unnecessary to address the thorny issue of whether class actions constitute “concerted action” protected by the Norris-LaGuardia Act and the NLRA. To prove a violation of either statute, plaintiff would need to show that Bloomingdale’s coerced, restrained, or otherwise interfered with her right to pursue a class action. Plaintiff’s failure to opt out of the arbitration agreement, however, rendered her consent to that agreement (including the class action waivers) entirely voluntary, and there was no allegation that Bloomingdale’s coerced her agreement. Accordingly, the plaintiff was bound by her voluntary agreement to individual arbitration.
Interplay with Iskanian
Both Davis and Johnmohammadi continue the Ninth Circuit’s trend of upholding arbitration agreements, including class action waivers, in the wake of Concepcion. (But see Chavarria v. Ralph’s Grocery Co., 733 F.3d 916 (9th Cir. 2013) (invalidating employer’s arbitration agreement as unconscionable)). However, the California Supreme Court’s decision in Iskanian indicates that employers seeking to use arbitration agreements to limit or avoid class or representative actions still have some substantial obstacles to navigate.
In Iskanian, the California Supreme Court overruled its prior decision in Gentry v. Superior Court, 42 Cal.4 th 443 (2007), which directed trial courts invalidate class action waivers if they found that a class arbitration would be a significantly more effective forum for vindicating employee rights than an individual arbitration or litigation, and if disallowing class arbitration would likely lead to less effective enforcement of overtime laws. The court found that its holdings in Gentry had been abrogated by recent decisions by the U.S. Supreme Court, including Concepcion. The court nevertheless held that, while class action waivers were enforceable, waivers of the right to bring representative actions under California’s Private Attorneys General Act (Ca. Lab. Code § 2968, et seq.) (“PAGA”) are not.
Arguably, Iskanian only applies to PAGA actions, which permit employees to act as private attorneys general to enforce the California Labor Code, and to waivers of the right to bring such actions that are imposed as a condition of employment (unlike, for example, the Bloomingdale’s agreement). Its reasoning, however, may extend to other actions in which citizens serve as private attorneys general under California law. As a result, Iskanian is in tension with the Ninth Circuit’s decision in Ferguson v. Corinthian Colleges, 733 F.3d 928 (9th Cir. 2013), which enforced class action waivers against plaintiffs bringing private attorneys general claims seeking “public injunctions” under California’s consumer protection laws.
While the Iskanian holding may make its way to the U.S. Supreme Court eventually, in the meantime, employers and others must take care in crafting arbitration programs to navigate the issues left open by these recent decisions.