California Court of Appeal Upholds the Use of Class Action Waivers in Employment Arbitration Agreements

Summary of Decision

In Iskanian v. CLS Transp. Los Angeles, LLC, 2012 WL 1979266 (Cal. Ct. App. June 5, 2012), the California Court of Appeal upheld the use of class action waivers in employment arbitration agreements. Such provisions require employees to arbitrate disputes with their employers individually and not on a class or representative basis.

In Iskanian, the plaintiff employee had signed an agreement requiring him to arbitrate all disputes arising out of his employment with the defendant employer. The agreement prohibited class arbitration. After the plaintiff filed a wage-and-hour class action in court, the defendant moved to compel arbitration and dismiss the class claim. The trial court granted the motion and the plaintiff appealed.

The court of appeal held that the U.S. Supreme Court’s interpretation of the Federal Arbitration Act (“FAA”) in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), broadly overrules state laws that obstruct the enforcement of arbitration agreements, including a California Supreme Court decision – Gentry v. Superior Court, 42 Cal. 4th 443 (2007) – that had invalidated class action waivers in most cases. Disagreeing with a prior court of appeal decision, the appellate court also found that the representative action brought by the plaintiff under the Labor Code’s Private Attorneys General Act (“PAGA”) could not proceed in arbitration. Accordingly, the court of appeal affirmed the trial court order compelling arbitration and dismissing the class claims.

Practical Implications for Employers

Faced with an explosion of class action wage-and-hour cases in recent years, California employers have been waiting for an appellate decision applying Concepcion’s broad enforcement of arbitration agreements to employment disputes, specifically arbitration agreements that prohibit the parties from proceeding on a class or representative basis. While there is a significant likelihood that the California Supreme Court could grant review of the Iskanian decision, employers with California employees should consider amending their employment arbitration agreements to include a provision that bars employees from arbitrating disputes on a class or representative basis. For employers that do not have employment arbitration agreements in place, the Iskanian case provides another reason for doing so.