One step closer to enforceable, mandatory pre-dispute arbitration agreements in employment

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Yesterday morning, the California Supreme Court heard Oral Argument in Iskanian v. CLS Transportation Los Angeles, LLC (“Iskanian”), a case that will determine whether impediments to arbitration of class wage and hour and other employment claims continue to be viable after the United States Supreme Court’s decision in AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740. The Supreme Court’s ruling in Iskanian will have far-reaching implications for California dealers; it will either remove the impediment to arbitration that Gentry v. Superior Court (2007) 42 Cal.4th 443 and the prosecution of Labor Code Private Attorney General Act (PAGA) claims potentially represent, or it will decide that such impediments are viable justifications to deny enforcement of an otherwise valid arbitration agreement. Individual arbitration of employment disputes allows the dealer and its employee to resolve any wage and hour claims through arbitration and effectively nullify the risk of class proceedings.

The California Supreme Court addressed three issues in the briefing; only two of which were addressed in oral argument. The third issue, whether CLS Transportation waived the right to enforce its arbitration agreement, was not argued. But it appeared that the court assumed that right was not waived. As to the other issues, the argument was as follows:

Did AT&T Mobility LLC v. Concepcion impliedly overrule Gentry v. Superior Court with respect to contractual class action waivers in the context of non-waivable labor law rights?

Paraphrasing the very first question asked of Plaintiff, “Doesn’t Concepcion draw a line, which preempts Gentry?” The Court immediately set the tone for how it would spend the majority of time during Plaintiff’s Oral Argument. Throughout the Court’s intense line of questioning on this one issue, Plaintiff responded with the same reasoning as to why the answer should be “No.” Plaintiff argued that Gentry is not preempted and urged the Court to consider a modified multi-part test when determining the enforceability of a class action waiver. Specifically, Plaintiff consistently argued that there must be a determination as to: 1) whether or not there has been a deprivation of unwaivable statutory rights; and 2) if so, does the employer provide other procedures to ameliorate this loss? If the answer is no, then according to Plaintiff, a mandatory arbitration agreement is unenforceable as unconscionable and as a matter of public policy.

However, it appeared as though the majority of the judicial panel disputed this contention by arguing that Concepcion expressly preempted such questioning. Further, one Justice expressly mentioned that Plaintiff would face an additional hurdle with imposing such an analysis, as this would impinge upon the Federal Arbitration Act. In fact, when Plaintiff argued, “It cannot be the result that claims go nowhere,” one Justice interrupted him and stated, “Under Concepcion, it seems this can very well be the result that claims go nowhere.”

Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act (PAGA) of 2004?

As for PAGA claims, this was more of a defense-focused argument. Defendant unwaveringly held its two-part position as to why arbitration should be allowed: 1) Defendant argued that a PAGA claim is not really the employee’s action or right. PAGA actions belong to the state, not the employee. Therefore, the employee is not being deprived of anything because he/she is merely a proxy on behalf of the State; and 2) Defendant argued that employees can still bring individual PAGA claims via arbitration.

While the panel did not discuss the latter position at depth, Defendant’s first argument was met with some skepticism as one Justice stated, “Because it’s the employee bringing the State’s action, doesn’t that mean the employee cannot waive the State’s claim?” To this question, Defendant argued that the employee could in fact waive the State’s claim by way of assignment.

Overall, based on yesterday’s hearing, we are cautiously optimistic that the arguments in favor of enforcing a mandatory arbitration agreement appeared strong and well-received. On June 4, 2012 the Court of Appeal for the Second Appellate District held that the “order granting defendant’s motion to compel arbitrating and dismissing class claims is affirmed.” Ultimately, it is estimated that the Supreme Court will issue its decision by July, and we are hopeful the Court will come to the same conclusion as the Court of Appeal.