The Supreme Court of California recently found an employee’s waiver of the right to bring a class action against his former employer enforceable under state law. In the process, the court reversed its 2007 decision in Gentry v. Superior Court and joined a growing list of courts that have uniformly rejected the National Labor Relations Board’s (NLRB’s) opinion in D.R. Horton that requiring employees to waive their rights to pursue class or collective actions as part of an employment arbitration agreement violates federal law.

In 2006, limousine driver Arshavir Iskanian filed a class action complaint against CLS Transportation Los Angeles, LLC, alleging that CLS committed numerous violations of California’s wage and hour laws. However, Mr. Iskanian earlier had signed an employment arbitration agreement, which contained a class action waiver. The trial court granted CLS’s motion to compel arbitration, but an appellate court reversed based on Gentry, which deemed class action waivers in the employment context unenforceable as a matter of public policy.

In 2011, the U.S. Supreme Court decided AT&T Mobility v. Concepcion, finding consumer class action waivers enforceable under the Federal Arbitration Act (FAA) and specifically overruling a California decision that relied upon Gentry. Based on that opinion, the Supreme Court of California found for CLS, holding that the FAA preempted the court’s earlier decisions regarding class action waivers.

The court specifically addressed Mr. Iskanian’s argument that the arbitration agreement he signed was invalid under the National Labor Relations Act (NLRA). It reviewed both the D.R. Horton opinion and the decision of the Fifth Circuit Court of Appeals rejecting the NLRB’s analysis. The court ultimately agreed with the Fifth Circuit that the NLRA does not create a congressional command that overrides the FAA and that nothing in the NLRA’s text or legislative history shows a congressional intent to disavow arbitration.

Importantly for state law purposes, the court also ruled that the arbitration agreement’s waiver of both class and “representative actions” could not be enforced for claims under the California Private Attorney General Act (PAGA). That statute permits employees to sue their employers for certain violations of the California Labor Code on behalf of the state government. The court reasoned that PAGA claims may not be waived, because the law allows the individual to step into the shoes of the state to seek redress of a public dispute. Further, the court held that the FAA’s preemption of the state’s public policy against class action waivers does not extend to the rights of a public agency, in whose place employees act under PAGA.

The court’s decision to enforce the class action waiver adds to the overwhelming majority of precedents lining up against the NLRB’s anti-waiver position. As the court noted, every federal circuit court of appeals and almost every federal district court have declined to adopt the NLRB’s theory. And it appears likely that the U.S. Supreme Court will follow suit when it rules on D.R. Horton later this year, clearing the way for more employers to use class action waivers to require their employees to arbitrate any employment claims that may arise.

Ballard Spahr’s Labor and Employment Group has substantial experience in designing employment arbitration programs and in both compelling arbitration and enforcing class action waivers in individual and class action lawsuits. The firm’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

If you have any questions on the Iskanian decision or on the use of arbitration agreements, please contact Steven W. Suflas at 856.761.3466 or, Christopher T. Cognato at 215.864.8612 or, CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, Mark J. Levin at 215.864.8235 or, or the Ballard Spahr attorney with whom you work.

Copyright © 2014 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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