California Court Issues Employee Friendly Decision on Unenforceability of Class Action Waivers
The debate among California courts rages on concerning the enforceability of class action waivers in employment arbitration agreements. 2012 has brought many employer-friendly decisions on this subject, with several courts enforcing class action waivers and compelling individual claims to arbitration and effectively precluding classwide relief. However, most courts have been reluctant to directly answer the question everyone really wants to know—does the United States Supreme Court opinion in AT&T v. Concepcion preempt California decisions limiting the enforceability of class action waivers in employment arbitration agreements and instead compel that these waivers be categorically enforced? One California court answered that question in the affirmative in Iskanian v. CLS Transportation—a very favorable opinion for California employers. Our prior posts on the Iskanian case are here.
Yesterday, another California court disagreed with Iskanian and expressly held that Concepcion does not preempt California law on enforceability of class action waivers in the employment context, specifically the California Supreme Court's decision in Gentry v. Superior Court. The court held that Gentry is not preempted because it does not categorically preclude enforcement of class action waivers in employment arbitration agreements, but rather sets forth a multi-factor test for determining whether such waivers are enforceable as still permitting unwaivable statutory rights to be vindicated. The court also held that a waiver of the right to seek representative relief under PAGA was unenforceable to the extent tied to the same Gentry analysis. This newest decision is Franco v. Arakelian and the decision is here. (For employers who closely follow developments in this area, this case is actually a reincarnation of a prior case, Franco v. Athens Disposal Co., which resulted in a prior unfriendly published decision on the same subject).
Notably, the California Supreme Court recently granted review of the Iskanian case (along with a couple of other similar arbitration cases dealing with the scope of Concepcion preemption). It seems likely that the Court will also grant any petition for review in this newest case. The bottom line is that employers should expect guidance from the California Supreme Court in 2013 on the continued validity and enforceability of class action waivers in employment arbitration agreements so stay tuned.