California Supreme Court to Decide Whether Class Action Waivers in Arbitration Agreements Are Enforceable Under California Law
Last week, the California Supreme Court agreed to decide whether class action waivers in employment arbitration agreements are enforceable under California law. In Iskanian v. CLS Transportation Los Angeles, LLC, the Court of Appeal held that a class action waiver in an employment arbitration agreement was enforceable and that the plaintiffs could proceed only with their individual claims and not on behalf of a class. See Opinion The Court of Appeal held that the United State Supreme Court’s decision in AT&T v. Concepcion invalidated the California Supreme Court’s decision in Gentry v. Superior Court, which allowed class waivers to be held unenforceable in certain situations. By granting review of the Iskanian decision, the California Supreme Court has signaled its willingness to decide whether Gentry continues to be viable after Concepcion and to resolve a split among California appellate courts on the enforceability of class action waivers in employment arbitration agreements.
In Iskanian, a limousine driver filed a class action and a Private Attorneys General Act (“PAGA”) representative action, alleging wage-hour violations against his employer. As a condition of his employment, the driver had signed an arbitration agreement expressly waiving the right to pursue a class or representative action. Siding with the employer, the Court of Appeal held that the arbitration agreement mandated individual arbitration and that the driver could not bring his claims as either a class or representative action. The Court of Appeal held that, in light of Concepcion, the Federal Arbitration Act (“FAA”) preempts all state rules that disregard the terms of an arbitration agreement, and thus, the agreement’s express waiver of class arbitration must be honored.
The Court of Appeal in Iskanian held that Concepcion “conclusively invalidates” Gentry, which held that class waivers in arbitration agreements are unenforceable if certain factors indicate that class arbitration is a more effective means of redressing the alleged wrong. Other California appellate courts, however, have been unwilling to recognize that Concepcion invalidates Gentry, absent an express directive from the California or United States Supreme Court. (See Truly Nolen of America v. Superior Court, Reyes v. Liberman Broadcasting, Inc., Kinecta Alternative Financial Solutions, Inc. v. Superior Court, and Nelson v. Legacy Partners Residential, Inc.).
The Court of Appeal’s decision in Iskanian was also significant because it rejected the employee’s argument that his right to pursue a PAGA representative claim could proceed despite the express terms of the arbitration agreement. The Iskanian court acknowledged that its opinion conflicts with its sister appellate court’s decision in Brown v. Ralphs Grocery Store. The Iskanian court explained that Concepcion’s broad holding that the FAA preempts any state law that “prohibits outright the arbitration of a particular type of claim” removes from courts the power to disregard an arbitration agreement’s express terms, even those terms that waive a public right.
The California Supreme Court’s decision to review Iskanian is significant. Iskanian was the first California decision to conclude that Concepcion overruled Gentry. It was also the first to apply Concepcion to representative actions under PAGA. We expect the Supreme Court to address whether the holding in Gentry survived Concepcion and to clarify the enforceability of class action and representative action waivers in California employment arbitration agreements.