Today, the California Supreme Court issued its much anticipated Iskanian v. CLS Transportation Los Angeles, LLC decision on the enforceability of class/representative action waivers in employment arbitration agreements. In a decision authored by Justice Liu, the Court upheld the enforceability of class action waivers, determining that: (1) Gentry v. Superior Court, which held that class action waivers are unenforceable in certain circumstances, was abrogated by the United States Supreme Court holding in AT&T Mobility LLC v. Concepcion; and (2) the class action waiver at issue did not violate the National Labor Relations Act (“NLRA”). However, the Court also determined that California Labor Code Private Attorneys General Act (“PAGA”) representative action waivers are not enforceable. Justices Chin and Baxter concurred in a separate opinion, and Justice Werdegar dissented.
Plaintiff Iskanian signed an arbitration employment agreement with Defendant CLS that contained a class/representative action waiver. He subsequently sued CLS as an individual and putative class representative and in a representative capacity under the PAGA. The trial court granted Defendant CLS’s motion to compel arbitration and to dismiss the class claims. The Court of Appeal affirmed the trial court’s decision and held that the entire arbitration agreement and waiver was enforceable. The California Supreme Court affirmed in part, holding that the test set forth in Gentry was preempted by the Federal Arbitration Act (“FAA”) pursuant to the United States Supreme Court’s holding in Concepcion. Specifically, the Court recognized that the FAA prevents states from mandating or promoting procedures incompatible with arbitration. The Supreme Court also held that the waiver at issue did not violate the NLRA, rejecting D.R. Horton Inc. & Cuda, 357 NLRB No. 184 (2012) (holding that the NLRA generally prohibits contracts that compel employees to waive their right to participate in employment class actions).
With respect to the representative action waiver, the Supreme Court held that the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in the employment context. The Court reasoned that the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state, albeit one that may be brought by aggrieved employees as representative actions. In addition, the Court held that the representative action waiver was contrary to public policy.
Finally, the Court held that CLS had not waived its right to compel arbitration by withdrawing its petition when the Gentry decision was issued. The Court stated that, in light of the “policy in favor of arbitration,” the party asserting a waiver bears a “heavy burden,” which Iskanian failed to carry.
In her dissent, Justice Werdegar agreed with the Court’s conclusion as to the PAGA waiver and disagreed with its holding as to the class action waiver.
A copy of the full decision is available here.
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