In a significant reversal of prior precedent, the California Supreme Court ruled on June 23, 2014, in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, that employment arbitration agreements with mandatory class action waivers are generally enforceable in light of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Prior to the Iskanian decision, class waivers in employment arbitration agreements were regularly invalidated under prior California Supreme Court precedent as set forth in Gentry v. Superior Court, 42 Cal. 4th 443 (2007). (In Gentry, the court held that class waivers in employment arbitration agreements may be unenforceable where a trial court concluded that class arbitration would be a more effective means of vindicating the employees’ rights than individual litigation and arbitration.) In last week’s Iskanian decision, the court concluded that, in light of Concepcion, its ruling in Gentry was abrogated by the Federal Arbitration Act (“FAA”), and accordingly, class waivers in employment arbitration agreements are generally enforceable.

While ruling that class waivers in arbitration agreements are generally enforceable, the California Supreme Court carved out an exception for waivers of representative actions brought under the California Private Attorneys General Act of 2004 (“PAGA”). PAGA authorizes an employee to bring an action for civil penalties on behalf of the state of California against his or her employer for Labor Code violations committed against the employee and other aggrieved employees. The court concluded in Iskanian that an employment agreement that compels the waiver of representative actions under PAGA is contrary to public policy, and unenforceable. The court reasoned that, because a PAGA litigant enforces labor laws on behalf of the state of California, California’s public policy prohibiting PAGA waivers is not preempted by the FAA, as it does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.

Implications and Recommendations

Iskanian gives employers yet another reason to consider using arbitration agreements that include class action waivers as a means of avoiding class action employment claims. With very few exceptions, a properly drafted arbitration agreement can eliminate the costs and risks of defending against employment claims brought on a class-wide basis.

For more information, please contact any attorney in Schiff Hardin’s Labor and Employment Group.

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