LEGAL NEWSLINE

LOS ANGELES (Legal Newsline) - The Supreme Court of California has ruled that the Private Attorneys General Act of 2004 does not violate the principle of separation of powers under the California Constitution and that the Federal Arbitration Act does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

The arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA action in any forum is contrary to public policy, the June 23 opinion states.

Justices Goodwin Liu, Tani Cantil-Sakauye, Carol Corrigan and former Justice Joyce L. Kennard voted in the majority, with Liu authoring the opinion.

Justices Ming Chin and Marvin Baxter concurred, with Chin authoring a concurring opinion.

Justice Kathryn Werdegar authored a concurring and dissenting opinion.

"In this case, we again address whether the Federal Arbitration Act...preempts a state law rule that restricts enforcement of terms in arbitration agreements," the majority opinion states. "Here, an employee seeks to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer's alleged failure to compensate its employees for, among other things, overtime and meal and rest periods."

The employee had entered into an arbitration agreement that waived the right to class proceedings, according to the opinion.

"The question is whether a state's refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA," the opinion states. "We conclude that it is and that our holding to the contrary in Gentry v. Superior Court...has been abrogated by recent United States Supreme Court precedent. We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry."

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004.

Arshavir Iskanian worked as a driver for the defendant from March 2004 until August 2005. He signed a "Propriety Information and Arbitration Policy/Agreement" in December 2004. However, on Aug. 4, 2006, he filed a class action complaint against CLS alleging it failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements or pay final wages in a timely manner.

CLS moved to compel arbitration, and in March 2007, the trial court granted CLS's motion.

Shortly after the trial court's order but before the Court of Appeal's decision in this matter, the Supreme Court of California decided in Gentry that class action waivers in employment arbitration agreements are invalid under certain circumstances.

The Court of Appeal issued a writ of mandate directing the superior court to reconsider its ruling in light of Gentry.

On remand, CLS voluntarily withdrew its motion to compel arbitration, and the parties proceeded to litigate the case.

On Sept. 15, 2008, Iskanian filed a consolidated first amended complaint, alleging seven causes of action for Labor Code violations and an unfair competition law claim.

After conducting discovery, Iskanian moved to certify the class, and CLS opposed the motion. On Oct. 29, 2009, the trial court granted Iskanian's motion.

In May 2011, CLS renewed its motion to compel arbitration and dismiss the class claims, arguing that an April 2011 decision known as Concepcion invalidated Gentry.

Iskanian opposed the motion, arguing among other things that Gentry was still good law and, in any event, that CLS had waived its right to seek arbitration by withdrawing the original motion to compel arbitration.

The trial court ruled in favor of CLS, ordering the case into individual arbitration and dismissing the class claims with prejudice.

The Court of Appeal affirmed, concluding that Concepcion invalidated Gentry. The court also declined to follow a National Labor Relations Board ruling that class action waivers in adhesive employment contracts violate the National Labor Relations Act.

With respect to the PAGA claim, the court understood Iskanian to be arguing that the PAGA does not allow representative claims to be arbitrated, and it concluded that the FAA precludes states from withdrawing claims from arbitration and that PAGA claims must be argued individually, not in a representative action, according to the terms of the arbitration agreement.

Finally, the court upheld the trial court's finding that CLS had not waived its right to compel arbitration and the Supreme Court of California granted review.

"(W)e conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy," the opinion states. "In addition, we conclude that the FAA's goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state's behalf."

"Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract," the opinion states. "Finally, we hold that the PAGA does not violate the principle of separation of powers under the California Constitution."

In his concurring opinion, Chin stated he agreed that the rule of Gentry is inconsistent with and invalid under the decisions of the U.S. Supreme Court interpreting the FAA.

"I also agree that the class action waiver in this case is not unlawful under the National Labor Relations Act, that defendant CLS Transportation Los Angeles LLC, did not waive its right to arbitrate, that the arbitration agreement is invalid insofar as it purports to preclude plaintiff Arshavir Iskanian from bringing in any forum a representative action under the Private Attorneys General Act of 2004...and that this conclusion is not inconsistent with the FAA," he wrote.

In her concurring and dissenting opinion, Werdegar stated that she joined the court's conclusions as to Iskanian's PAGA claims, but not with the claims pertaining to his employment contract

"I disagree with the separate holding that the mandatory class action and class arbitration waivers in Iskanian's employment contract are lawful," Werdegar's opinion states.

"Eight decades ago, Congress made clear that employees have a right to engage in collective action and that contractual clauses purporting to strip them of those rights as a condition of employment are illegal. What was true then is true today. I would reverse the Court of Appeal's decision in its entirety."

CLS Transportation's argument rests on the notion that the FAA should be interpreted to operate as a super-statute, limiting the application of both past and future enactments in every particular, according to her opinion.

"The text and legislative history of the Norris-LaGuardia and Wagner Acts, passed by legislators far closer in time to the FAA than our current vantage point, show no such deference," her opinion states. "The right of collective action they codify need not yield. I respectfully dissent."

Supreme Court of California case number: S204032

From Legal Newsline: Kyla Asbury can be reached at classactions@legalnewsline.com.