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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