Employees: Watch Out For Class Action Waivers In Arbitration Agreements

Recently, the California Supreme Court rendered an opinion in Iskanian v. CLS Transportation Los Angeles,LLC.¹ The facts in the case involved Mr. Iskanian who worked as a driver for CLS Transportation Los Angeles, LLC (“CLS”).² Nine months into his employment, Mr. Iskanian signed an arbitration agreement which provided that all claims arising out of his employment with CLS had to be submitted to binding arbitration.³ Additionally, the agreement contained a waiver in which Mr. Iskanian agreed not to assert class action and representative action claims against CLS in arbitration or otherwise (i.e. in court).⁴ In effect, Mr. Iskanian signed away his rights to bring a class action suit against CLS.⁵

Notwithstanding the agreement, Mr. Iskanian filed a class action suit on August 4, 2006 against CLS, claiming that CLS “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.”⁶ In reply, CLS argued that all of Mr. Iskanian’s claims were subject to binding arbitration, per the arbitration agreement Mr. Iskanian had signed.⁷

On June 23, 2014, the California Supreme Court mostly agreed with CLS.⁸ The Court found that Mr. Iskanian could not bring a class action because the class action arbitration provision was enforceable against him.⁹ The Court reasoned that even if employees argue that the class action waiver is unconscionable or violates public policy, the Federal Arbitration Act’s (“FAA”) goal of promoting arbitration must be followed.¹⁰

However, the California Supreme Court found that Mr. Iskanian could still bring a representative action on behalf of the state of California for violations committed against himself and his fellow employees under California Labor Code Private Attorneys General Act of 2004 (“PAGA”), which he did.¹¹

Under PAGA, when an employee “bring[s] an action for civil penalties… most of the proceeds of that litigation go[] to the state.”¹² In fact, 75 percent of the award must go to the Labor and Workforce Development Agency, while the employees only receive 25 percent.¹³

Now, more than ever, employees should be more aware of what they are signing.

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¹ Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129 (Cal. 2014).

² Id. at 133.

³ Id.

⁴ Id.

⁵ Id.

⁶ Id.

⁷ Iskanian v. CLS Transp. L.A., LLC, 327 P.3d at 133.

⁸ Id.

⁹ Id. at 136 (In its reasoning, the Court relied on United States Supreme Court decision AT & T Mobility LLC v. Concepcion, and stated that “because class proceedings interfere with fundamental attributes of arbitration, a class waiver is not invalid even if an individual proceeding would be an ineffective means to prosecute certain claims.); see AT & T Mobility LLC v. Concepcion, 563 U.S. 923 (2011).

¹⁰ Iskanian v. CLS Transp. L.A., LLC, 327 P.3d at 133.

¹¹ Id.; Cal. Lab. Code § 2698-2699.5 (2014).

¹² Iskanian v. CLS Transp. L.A., LLC, 327 P.3d at 133.

¹³ Cal. Lab. Code § 2699(i) (2014).