As this blog recently covered, in September the California Supreme Court granted review in Iskanian v. CLS Transportation Los Angeles, LLC to decide whether class action waivers in employment arbitration agreements are enforceable under California law. This week, another Court of Appeal added its opinion on this issue, holding that despite the United States Supreme Court’s broad ruling in AT&T Mobility v. Concepcion upholding class action waivers in arbitration agreements, courts may still find such waivers unenforceable under a case-by-case approach. Specifically, unlike at least one of its sister Courts of Appeal and a number of federal district courts, the California Court of Appeal in Franco v. Arakelian Enterprises, Inc. concluded that the California Supreme Court’s decision in Gentry v. Superior Court remains enforceable despite the United States Supreme Court’s decision in Concepcion.
The Franco decision is significant because it is the clearest expression yet from an appellate court in California that Gentry remains good law after Concepcion. While other courts have implicitly reaffirmed Gentry or avoided directly addressing the question, the Franco court is the first to go this far and develop a new theory as to why Gentry survives despite Concepcion.
In Franco, a waste hauling 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 “Employee Agreement to Arbitrate,” expressly waiving his rights to bring claims on a representative or class basis. The trial court denied the employer’s motion to compel arbitration, and the employer appealed. Siding with the employee and affirming the trial court, the Court of Appeal held that California courts could still decide, on a case-by-case basis, whether a representative or class action waiver in an arbitration agreement was valid or unenforceable.
The Court of Appeal relied heavily on its assertion that Concepcion only condemned a “categorical rule that invalidates class action waivers.” It reasoned that the California Supreme Court’s decision in Gentry set forth a multifactor test for determining the enforceability of such a waiver, not a categorical rule, and therefore, was not overruled by Concepcion. In particular, the Franco court held that Gentry was distinguishable from Conception because it does not invalidate a class action waiver unless (1) a class action is a more effective means of vindicating employee rights; and (2) disallowance of the class action will likely lead to less comprehensive enforcement.
When the California Supreme Court decides Iskanian, we expect the 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. Until then, California employers must wait to see whether the Supreme Court will take the path that the Appellate Court took in Franco to chart a course around Concepcion or whether the Court will hold that Concepcion invalidates Gentry and a rule prohibiting class action waivers in employment arbitration agreements.
The potential peril in attempting to navigate around Concepcion was demonstrated the very same day that Franco was decided when the United States Supreme Court vacated a decision of the Supreme Court of Oklahoma that invalidated an employee arbitration clause. In Nitro-Lift Technologies v. Howard, the Supreme Court, citing Concepcion, held that “the FAA forecloses precisely this type of judicial hostility towards arbitration.” As this development demonstrates, ultimately the U.S. Supreme Court may have the final word on whether California’s rule prohibiting class action waivers in employment arbitration agreements can survive Concepcion and FAA preemption.