California Labor &
Employment Law Blog
Mar 11, 2009

Class Action and PAGA Waiver in Arbitration Agreement Found Unconscionable

Topics: Arbitration Agreements, Court Decisions

In Franco v. Athens Disposal Co., Inc., the court held that an employment arbitration agreement was unconscionable and unenforceable in its entirety, based on the agreement's inclusion of a provision prohibiting the employee from pursuing class relief or representative relief under PAGA in arbitration. The plaintiff in the case filed a class action in state court alleging his former employer violated the Labor Code by, among other things, denying him and the putative class members meal and rest breaks. The employer filed a petition to compel arbitration based on a written arbitration agreement the plaintiff had signed during his employment. The trial court found the arbitration agreement enforceable and granted the petition to compel arbitration. Plaintiff appealed, arguing that the arbitration agreement was unenforceable because the class action and PAGA waiver rendered the agreement unconscionable.

The Court of Appeal agreed with the plaintiff and held that the arbitration agreement was unenforceable in its entirety. Relying heavily on the California Supreme Court's decision in Gentry v. Superior Court, 42 Cal.4th 443 (2007), the court stated: "We conclude that the class arbitration waiver is unconscionable with respect to the alleged violations of the meal and rest period laws given the modest size of the potential individual recovery, the potential for retaliation against members of the class, and the fact that absent members of the class may be ill informed about their rights." The court further concluded that because the agreement prevented the plaintiff from acting as a private attorney general and pursuing penalties on a representative basis, it conflicted with the Private Attorney Generals Act of 2004, which was enacted to further the goal of comprehensive enforcement of state labor laws.

This case is another reminder that California courts continue to closely scrutizine employment arbitration agreements. These agreements must be carefully drafted to ensure enforceability.

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For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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