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Class Action Waivers In California: New Pro-Employer Appellate Court Decision Generates Shock Waves

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Class Action Waivers In California: New Pro-Employer Appellate Court Decision Generates Shock Waves

The California Court of Appeal recently issued a decision which opens the door to class-action waivers in employment arbitration agreements in California.  Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. Rptr. 3d ___,  (Cal. Ct. App. June 4, 2012)—is a putative class action alleging, among other things, that the defendant failed to pay overtime and provide required meal and rest breaks. The named plaintiff, Iskanian, signed an arbitration agreement containing a class and representative action waiver, which read:

[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.

On June 4, 2012, the California Court of Appeal in Iskanian upheld the terms of the arbitration agreement, including the class action waiver, affirming the order of the trial court compelling arbitration and dismissing the (previously-certified) class claims.  In so doing, the Court rejected 10 years of California anti-arbitration rulings that discouraged class action waivers and invalidated arbitration agreements as unconscionable for failure to follow certain rigid requirements.

In a prior 2007 case, Gentry v. Superior Court , the California Supreme Court held that a class waiver should not be enforced if class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration, thereby endorsing class arbitration. Last year the U.S. Supreme Court's 2011 landmark decision in AT&T Mobility LLC v. Concepcion held that mandating class arbitration in cases involving consumer contracts violated a central goal of the Federal Arbitration Act (FAA) – streamlining proceedings. The Concepcion Court further held that state laws invalidating arbitration agreements containing class action waivers as unconscionable were preempted by the FAA. The Iskanian court, dealing with an employment agreement, reasoned that in effect, the Gentry decision mandating class arbitration was overruled by the US Supreme Court’s Conception decision.

The Iskanian Court went further, addressing the effect of the NLRB’s recent controversial D.R. Horton decision, 357 NLRB No. 184 (January 2012) (currently on appeal in the 5th Circuit).  In D.R. Horton, the NLRB found that arbitration agreements with class waivers violated the NLRA as the NLRA precludes mandatory individual arbitration of employment claims. According to the NLRB, asserting class actions is a form of concerted activity protected by the NLRA. The Iskanian Court held that it did not have to defer to the NLRB's interpretation of the Federal Arbitration Act or the Concepcion decision, because the NLRB had no responsibility for administration of that statute.

Finally, the Iskanian Court upheld the waiver of the right to bring representative actions under the state's Private Attorneys General Act (PAGA) contained in the employer’s arbitration agreement with Iskanian. This holding is contrary to a recent 2011 ruling in Brown v. Ralphs Grocery Co. issued by a different California Appellate panel, thereby creating a split in authority.

Don’t Celebrate Yet

The Iskanian case may have a very short shelf life-- only about 120 days until an appeal is filed and the California Supreme Court grants review to resolve the split of appellate authority between Iskanian and the earlier Gentryand Brown decisions. Should that happen, Iskanian will be depublished and cannot be relied upon.   It may take one to two years for the California Supreme Court to address issues raised in the Iskanian case and the viability of its decision in the Gentry.When two appellate courts disagree, trial courts are free to pick and choose which one to follow. However, the decision inIskanian is nonetheless an important indicator of California courts’ willingness to rule in favor of employers where there is a strong legal basis for doing so.