Guest Commentary

Katie Owens, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

On June 4, 2012, the California Court of Appeal for the Second District issued a decision of great interest to businesses, upholding the use of class action waivers in employment arbitration agreements.

In Iskanian v. CLS Transportation Los Angeles, LLC the plaintiff, Arshavir Iskanian, was a driver for defendant CLS from March 2004 to August 2005. As part of his employment, Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement,” an arbitration agreement providing that “any and all claims” arising from his employment be submitted to binding arbitration before a neutral arbitrator. In August 2006, Iskanian filed a class action complaint against CLS alleging several causes of action under California’s Labor Code and Unfair Competition Law, including failure to pay overtime, provide meal and rest breaks, and reimburse business expenses. CLS filed a motion to compel arbitration under the agreement signed by Iskanian, but then later withdrew it. The parties then proceeded to litigate the case.

Applying the California Supreme Court’s standard from Gentry v. Superior Court, where under certain circumstances a class waiver “would impermissibly interfere with employees’ ability to vindicate unwaivable rights and to enforce the overtime laws,” the trial court granted Iskanian’s motion to certify the case as a class action.

Subsequent to the trial court’s ruling, the United States Supreme Court decided AT&T Mobility v. Concepcion. The decision prompted CLS to file a renewed motion to compel arbitration. Concepcion held that the Federal Arbitration Act preempts state laws that prohibit or disfavor arbitration. The trial court then granted CLS’s motion to compel and Iskanian appealed. The Court of Appeals held that Concepcion “conclusively invalidates” the California Supreme Court decision in Gentry.

Iskanian addresses an issue under California law that has been a focal point of plaintiffs’ lawyers’ efforts to undermine Concepcion: does Concepcion apply in situations where a plaintiff is challenging a class action waiver under the state’s Private Attorney General Act (PAGA)? The speakers at Washington Legal Foundation’s May 8 Web Seminar program on Concepcion (view program here) flagged this as one of several unresolved issues. The Iskanian court noted that another appeals court, the Fifth District, ruled that despite Concepcion, class waivers were unenforceable when challenged under PAGA (Brown v. Ralph’s Grocery Co.). Iskanian’s author, Judge Boren, “respectfully disagreed” with the Brown holding, writing that plaintiffs cannot circumvent Concepcion by bringing claims under PAGA.

Iskanian positively reinforces the Supreme Court’s decision in Concepcion. Practically speaking, this decision provides an excellent roadmap for employers seeking to avoid class action certification for future employment disputes. However, because of the conflicting Ralph’s Grocery decision, trial courts in at least one district in California are free to reject Iskanian and hold class waivers unenforceable when plaintiffs sue under PAGA. Expect to see a review of this topic by the California Supreme Court in the near future. But until then, Iskanian certainly provides strong appellate-level law supporting the validity and enforcement of class action waivers for labor and employment claims, including wage and hour claims under federal and state law.