California Supreme Court Rules in Iskanian: Class Action Waivers In Employment Arbitration Agreements Are Valid

June 23, 2014

Last updated on January 12, 2015

The California Supreme Court issued its long awaited ruling today in Iskanian v. CLS Transportation holding its prior ruling in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent and that class action waivers in employment arbitration agreements are valid and a state‘s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the Federal Arbitration Agreement. (“FAA”).  To see the opinion, click here.

In Iskanian, the employee brought a class action lawsuit for his employer‘s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The question presented was whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA.   The Supreme Court answered that question in the affirmative, holding that the US Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) invalidates Gentry.

However, in the same decision, the California Supreme Court held that a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.) may not be denied class action status by a class waiver in an arbitration agreement.   The PAGA statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state.   The Court held that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy and that the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing California employees to prosecute Labor Code violations on the state‘s behalf.  Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

What does this mean to enforcement of employment rights?   It means class actions in the employment context have a new hurdle and the US Supreme Court’s ruling in Concepcion is still reverberating through our society.  The California Supreme Court’s ruling that PAGA claims may not be waived means employee rights attorneys will likely further utilize the PAGA statute to enforce California law.       

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