Today, in a highly-anticipated decision, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, Inc. (Case No. S204032), resolved several long-standing questions regarding the impact of class and representative action waivers under California law. The Court’s prior Discovery Bank v. Superior Court (2005),decision was invalidated by the U.S. Supreme Court in AT&T Mobility v.Concepcion.
The 48-page majority opinion in Iskanian found that after Concepcion, class action waivers in arbitration agreements are generally enforceable—thus overturning Gentry v. Superior Court, 42 Cal.4th 443 (2007). The Iskanian court also affirmed the appeals court holding that plaintiffs cannot rely on the NLRB’s decision in D.R. Horton (2012) 357 NLRB No. 184, to sidestep agreements requiring individual arbitration. But the California Supreme Court reversed the Court of Appeal on the issue of California Private Attorney General Act (“PAGA”) claims and representative action waivers. It found that the Federal Arbitration Act (“FAA”) “does not preempt a state law that prohibits waiver of PAGA representative action in an employment context.”
In Iskanian, plaintiff Arshavir Iskanian signed a mandatory arbitration agreement that contained a class and representative action waiver providing: “[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.” As a private litigant, the California Supreme Court held that Iskanian is bound to that agreement by Concepcion. But as a PAGA representative, suing on behalf of the state to enforce California labor law, the Iskanian decision limits the impact of waivers barring representative actions.
BOTTOM LINE: Although the California Supreme Court affirmed the validity of class-action waivers in arbitration agreements, the Court found an exception for representative actions as a matter of public policy. Whether that exception will withstand FAA preemption analysis in federal courts remains to be seen.