|July 7, 2014|
Previously published on June 23, 2014
Today, the California Supreme Court issued its long-awaited decision in Iskanian v. CLS Transportation Los Angeles, LLC, regarding the enforceability of class-action waivers in arbitration agreements. The Court finally acknowledged precedent from the United States Supreme Court and held that the Federal Arbitration Act (FAA) preempts any state law that would preclude an employee from waiving the right to bring a class-action proceeding in arbitration. As a result, employers can require employees to individually arbitrate any claims that are typically asserted on a class-wide basis, such as relief for alleged wage and hour violations. The Court also rejected the argument that the type of class-action waiver at issue in Iskanian was unlawful under the National Labor Relations Act because that statute’s general protection of concerted activity does not bar class-action waivers.
Despite ruling that class-action waivers are enforceable, the Court did hold that employees cannot be required to waive the right to bring representative actions under the Private Attorneys General Act of 2004 (PAGA). Under PAGA, employees can seek civil penalties from the employer for certain Labor Code violations, although the majority of proceeds are paid to the state. However, PAGA actions may still be arbitrable where the parties express a preference to resolve such claims through arbitration, and other approaches may exist to lessen the significance of the Court’s PAGA holding.
On balance, the Iskanian decision is welcome news for the state's employers, which have been beleaguered in recent years by costly and disruptive class-action litigation. In light of the Court's ruling, we strongly recommend that employers with arbitration policies have counsel review them immediately to confirm that they are governed by the FAA, and that they are drafted to maximize the potential benefits afforded under applicable law. Any employers considering whether to implement arbitration policies should recognize the benefits of doing so, especially now that class-action waivers are enforceable.