On Monday, the California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles, LLC that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA). Although the decision was not a surprise to most observers, it does have important implications for California employers who seek to limit wage and hour class litigation through the use of waivers in arbitration agreements.
The Iskanian case involved a class action lawsuit that was originally filed in state court in 2006 by an employee of CLS Transportation. The employee, Arshavir Iskanian, was a driver for CLS Transportation who alleged that his employer failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate wage statements, or pay final wages in a timely manner. CLS Transportation challenged Iskanian’s right to pursue the case, because Iskanian had signed an agreement requiring that any claims related to his employment be arbitrated, and expressly waiving his right to pursue such claims as part of a class or representative action.
A seven-year legal battle ensued, culminating on June 23rd with the California Supreme Court's ruling that the FAA preempts California’s refusal to enforce class action waivers on public policy or unconscionability grounds. The Court also rejected the plaintiff’s contention that the class action waiver in question was invalid under the National Labor Relations Act.
The Iskanian decision brings California law into line with the United States Supreme Court’s 2011 ruling in AT&T Mobility LLC v. Concepcion that the FAA preempts any state laws that invalidate class action waivers. The California Supreme Court also held that its own 2007 decision in Gentry v. Superior Court - which invalidated class action waivers in most employment arbitration agreements - was no longer good law in light of Concepcion.
As a whole, this case strongly favors California employers. But the Court did leave at least one avenue open for employees to assert class-style wage and hour claims: representative actions under California’s Private Attorneys General Act (PAGA).
PAGA authorizes an employee to file a civil action on behalf of the state against an employer for alleged Labor Code violations committed against the employee and other employees. The Iskanian court found that employees cannot be forced to waive PAGA actions by private agreement. It reasoned that PAGA representative actions are not disputes between an employee and employer arising out of a private contractual agreement, but rather are disputes between an employer and the state. Because an employee effectively stands in the shoes of the State’s labor enforcement agency when filing a PAGA complaint, the case becomes a matter of public concern. Any waiver of PAGA claims is therefore contrary to California’s public policy, and cannot be enforced.
Key Takeaways for California Employers
Class action waivers in employment arbitration agreements are enforceable.
California employers may implement arbitration agreements with class action waivers, thereby preventing employees from bringing class actions in court or arbitration. If you don’t already have class action arbitration waivers in your arbitration agreements, now is a good time to consider adding them.
Employment arbitration agreements cannot validly waive "representative" actions under PAGA.
Employees who are prevented from pursuing class actions under the terms of an arbitration agreement can still pursue representative claims on behalf of a group of employees under PAGA. Employers should consider whether they want such claims to be litigated in court or before an arbitrator, and include language in their arbitration agreements specifically stating which venue will be used.
The opinion is available here.