A recent Court of Appeal decision underscores the importance of reviewing severability provisions in arbitration agreements.
In Kec V. Superior Court, Plaintiff Nichole Kec brought individual, class, and Private Attorneys General Act (“PAGA”) claims against her former employer, defendants R.J. Reynolds Tobacco Company and Reynolds American, Inc. (“Reynolds”), as well as three individual employees at R.J. Reynolds Tobacco Company. Plaintiff alleged that Reynolds misclassified her as well as other employees as exempt employees, which resulted in various violations of the Labor Code. Reynolds moved to compel Plaintiff’s individual claims to arbitration, pursuant to the arbitration agreement she signed, and to stay Plaintiff’s PAGA claim until the arbitration concluded.
Section 5 of the arbitration agreement contained the following representative waiver provision: “The Parties waive the right to bring, join, participate in, or opt into, a class action, collective action, or other representative action whether in court or in arbitration. This Section (Section 5) may not be modified or severed from this Agreement for any reason.”
The Court granted Reynolds’ Motion and Plaintiff appealed.
The Court of Appeal reversed the trial Court’s ruling and determined the representative waiver in Section 5 was invalid. In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 378, the California Supreme Court held that an “employee’s right to bring a PAGA action is unwaivable.” Thus, because the Reynold’s agreement contained a representative waiver, the Court found it invalid. Typically, where one contract provision is invalid, but the remaining provisions are lawful, the invalid provision is removed. However, the Reynold’s agreement specifically provided that the section containing the class action and representative waiver was not modifiable or severable.
The Court found that Reynolds was trying to selectively enforce the arbitration agreement. By specifically making Section 5 not severable, the Court stated, the agreement demonstrated an “intent not to allow Reynold’s to selectively enforce the arbitration agreement.” The agreement here specifically prohibited a modification of Section 5 “for any reason;” therefore, the representative waiver could not be severed.
You can read the Court’s opinion in Kec here.