Court of Appeal Invites California Supreme Court Showdown on Arbitration Agreement Class Action Waiver Issue

The California Court of Appeal Second District ruled last week that a class action waiver in an employment contract did not violate the labor and employment laws, precipitating an almost inevitable showdown in the California Supreme Court over the issue.
The court’s decision in Iskanian v. CLS Transportation Los Angeles LLC concerned a trucker at CLS Transportation who signed an arbitration agreement at the outset of his employment that waived his rights to class action or representative action procedures for his arbitration claim. During his time at the company he filed a class action claim in state court alleging the trucking company’s failure to pay overtime, provide meal and rest breaks, reimburse business expenses and process wage statements properly, among other issues at the company. He brought his claims under various provisions of the California Labor Code.
The trial court after much litigation ultimately found that class action certification was not permissible under the arbitration agreement and filed an order to compel individual arbitration under the agreement. The plaintiff appealed to the California Court of Appeals, claiming that the trial court’s decision to compel individual arbitration was inconsistent with the California Supreme Court’s 2007 decision in Gentry v. Superior Court, as well as the California Labor Code’s Private Attorney General Act of 2004 (PAGA).
The California Court of Appeal rejected the plaintiff’s claim this week and affirmed the trial court’s motion to compel individual arbitration, finding that the 2011 U.S. Supreme Court decision in AT & T Mobility LLC v. Concepcion invalidated both Gentry and the plaintiff’s reading of PAGA. This ruling by the Court of Appeal stands in direct contradiction to two other California Court of Appeal decisions in other divisions, Kinecta Alternative Financial Solutions, Inc. v. Superior Court and Brown v. Ralphs Grocery Co., in addition to the National Labor Relation Board’s opinion in D.R. Horton, precipitating a probably inevitable standoff in California Supreme Court regarding the scope of the Supreme Court’s decision in Concepcion.
In making its decision, the California Court of Appeal in this case found that the Supreme Court’s decision in Concepcion, which concerned the validity of the California Supreme Court’s 2005 decision in Discover Bank v Superior Court, prohibits any state court from refusing to enforce a class action waiver in an arbitration agreement. Concepcion as such invalidated the rule in Discover Bank that set out how to determine the validity of a class action waiver in an arbitration contract as preempted by the Federal Arbitration Act. The Supreme Court found that the policy considerations undergirding the Federal Arbitration Act would be confounded by the ability of state courts to invalidate arbitration agreement provisions, such as class action waivers, that were essential to the agreement. As the Federal Arbitration Act affirms that arbitration agreements should be respected to the same degree as contracts and should not be unduly restricted by courts, the California Court’s decision in Discover Bank was found to be preempted by the FAA. The California Court of Appeal found that the Supreme Court’s decision in Concepcion invalidating Discover Bank also invalidated the California Supreme Court’s decision in Gentry, which had addressed similar issues. In finding this, the California Court of Appeal was not convinced by another California Court of Appeal district’s analysis in Kinecta Alternative Financial Solutions, Inc. v. Superior Court , which had found the exact opposite in holding that Gentry was still good law in California.
The California Court of Appeal also found that the U.S. Supreme Court’s decision in Concepcion also invalidated the California Private Attorney General Act of 2004 (PAGA) insofar as it related to arbitration agreements. This act allowed plaintiffs claiming violations of the California Labor Code the right to class action or representative action claims, in an attempt to ensure adherence to the code. District Five of the California Court of Appeal had found in Brown v. Ralphs Grocery Co., that PAGA was not invalidated by Concepcion , as the Supreme Court did not directly address the issue. Again, the California Supreme Court found otherwise, holding that Concepcion also barred any claims brought under PAGA attempting to invalidate a class action waiver in an arbitration agreement.
Finally, the California Court of Appeal even held that a recent National Labor Relations Board decision on the issue of the validity of class action waivers in arbitration agreements was inapplicable to its decision here in Iskanian. Here the California Court of Appeal found that a class action waiver in an arbitration agreement did not violate the National Labor Relations Act as the National Labor Relations Act had held in D.R. Horton. The California Court of Appeal further held that it need not defer to the NLRB in its decision-making as the NLRB deserved deference only on its interpretation of the NLRA, and no other statute.
Overall, the California Court of Appeal in Iskanian has stretched its limits in attempting to protect employer interests at all costs. Ignoring Court of Appeal decisions in other districts, as well as by the NLRB, the court has ensured an almost inevitable showdown in California Supreme Court about the actual scope of the U.S. Supreme Court’s decision in Concepcion. Until then, employees unfortunate enough to be under the jurisdiction of this particular district will remain unprotected from exploitation from those employers who use class action waivers in their arbitration agreements in an attempt to shirk their employment duties.

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