In 2007, the California Supreme Court ruled in Gentry v. Superior Court that class action waivers in employment arbitration agreements are invalid under certain circumstances. Four years later, however, the United States Supreme Court reached a seemingly opposite conclusion in AT&T Mobility LLC v. Concepcion, holding that “requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the [Federal Arbitration Act].”
As a result of these two decisions, employment lawyers across California have been asking since 2011 — does the Gentry ruling and rationale survive in light of Concepcion? That is, are employment arbitration agreements that contain mandatory class action waivers still illegal in California, or do they fundamentally interfere with the Federal Arbitration Act (“FAA”) such that they must be enforced?
Yesterday, the California Supreme Court answered that question in Iskanian v. CLS Transportation.
In Iskanian, the California Supreme Court ruled that its prior decision in Gentry does not survive the United States Supreme Court’s ruling in Concepcion. The Court based its decision on the rationale from Concepcion, which held that class action waivers in employment arbitration are pre-empted by the FAA because they interfere with the “fundamental attributes of arbitration.” Thus, class action waivers in employment arbitration agreements are now enforceable in California under the FAA.
However, the Iskanian decision was not entirely pro-employer. In the latter part of its decision, the Iskanian Court ruled that employers cannot use employment arbitration agreements to compel employees to give up their representative rights under California’s Private Attorney General Act (“PAGA”). Any purported waiver of an employee’s right to bring a representative PAGA claim that is contained in an employment arbitration agreement is against California public policy and is, therefore, void. Analyzing the purpose and goals of PAGA, the Iskanian Court focused on the fact that a representative PAGA action is not a dispute between an employer and an employee. Instead, it is a dispute between an employer and the state. The employee is merely standing in the shoes of the State to attempt to recover monies allegedly owed to many others, and neither the State nor those other third parties have agreed to waive any of their rights. Accordingly, the Iskanian Court concluded that any waiver of the right to bring a representative PAGA action contained in an employment arbitration agreement is void as against California public policy.
You can find the full decision in Iskanian v. CLS Transportation here.
Employers who utilize mandatory employment arbitration agreements — and specifically those with class action waiver clauses — should review those policies to ensure compliance with the new rationale and ruling from Iskanian.