by Sayema Hameed
In the ever changing legal landscape of employee arbitration agreements, there has been a lot of tension between federal law and California law concerning the enforcement of such agreements.
California case law previously prohibited class action waivers in arbitration agreements when included in consumer contracts of adhesion (known as the “Discover Bank Rule” from Discover Bank v. Superior Court (Boehr) (2005) 36 Cal. 4th 148, 153). Then in April 2011, the United States Supreme Court decided AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___ [131 S.Ct. 1740] (“Concepcion“), holding that the Federal Arbitration Act preempts the Discover Bank Rule and upholding the enforceability of class action waivers in arbitration agreements.
But even after Concepcion, the question remained whether another California Supreme Court case, Gentry v. Superior Court (2007) 42 Cal. 4th 443 (“Gentry“), survived Concepcion. Gentry specifically concerned class action waivers of unwaivable statutory rights (Labor Code claims including overtime) in employee arbitration agreements. Gentry held that a class action waiver in an employee arbitration agreement should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” Because the U.S. Supreme Court in Concepcion did not specifically address Gentry , there was a question whether Gentry still applied to the analysis of class action waivers in employee arbitration agreements in California.
Now the California Court of Appeal has answered the question as follows: “Now, we find that the Concepcion decision conclusively invalidates the Gentry test.” In a new decision, Iskanian v. CLS Transportation Los Angeles, LLC (Second District, Div. Two, Case No. B235158; filed 6/4/12), the Court of Appeal has found that Concepcion invalidates Gentry and that a class action waiver in an employee arbitration agreement is enforceable under the Federal Arbitration Act.
The plaintiff, Arshavir Iskanian, worked as a chauffeur for defendant CLS Transportation Los Angeles, LLC (“CLS”), from March 2004 to August 2005. During his employment, Iskanian signed an employee arbitration agreement that included a class action waiver.
On August 4, 2006, Iskanian filed a class action complaint against CLS, alleging various Labor Code claims including failure to pay overtime and failure to provide meal and rest breaks. In March 2007, the trial court granted CLS’s motion to compel arbitration and dismiss class claims. The trial court found that the arbitration agreement was not unconscionable. Iskanian appealed the trial court’s order.
Soon after, the California Supreme Court decided Gentry. In light of Gentry, the Court of Appeal instructed the trial court to reconsider its order granting CLS’s motion to compel arbitration and dismissing the plaintiff’s class claims. CLS then withdrew its motion to compel arbitration and proceeded to litigate the case.
In April 2011, the U.S. Supreme Court decided Concepcion, upholding the enforceability of class action waivers in consumer arbitration agreements. Following Concepcion, CLS renewed its motion to dismiss Iskanian’s class claims and to compel arbitration, which the trial court granted. In the second appeal, the Court of Appeal reviewed the trial court’s order granting CLS’s renewed motion. Applying the binding authority of Concepcion, the Court of Appeal concluded that the trial court properly ordered this case to arbitration and dismissed the employee’s class claims. The Court held that Concepcion‘s “unequivocal rejection of court-imposed class arbitration” conclusively invalidates Gentry.
This decision gives employers clear authority to include class action waivers in employee arbitration agreements and will no doubt limit the ability of employees to pursue class action claims. Nevertheless, employers still must be conscious that their arbitration agreements are not so unfair or one-sided as to be deemed “unconscionable” under California contract law. Several California cases decided after Concepcion have found arbitration agreements unconscionable under California law. For examples of agreements found to be unconscionable, see Samaniego v. Empire Today LLC and Mayers v. Volt Management Corp.