Today, the California Supreme Court issued its long-awaited decision in Iskanian v. CLS on whether employees signing arbitration agreements can be required to waive participation in class actions.
The California Supreme Court acquiesced in recent U.S. Supreme Court precedents and declared that its prior decisions refusing to enforce class action waivers were no longer operative law. The Court found that the Federal Arbitration Act (“FAA”) preempts the subject matter, and that federal law requires the enforcement of class action waivers. Thus, Mr. Iskanian must bring his case in arbitration, and only on behalf of himself. This is a clear win for the employer. The Court also held that the National Labor Relations Act’s protection of “concerted activity” does not prohibit class action waivers. Another good result.
In a curious twist, however, the Supreme Court refused to dismiss the companion “representative action” under the California Private Attorney General Act (“PAGA”), holding that asking an employee to waive the right to participate in such a case was against California “public policy.” The employer had argued that there was no principled difference between a class action and a PAGA representative action, and that both should be subject to federal preemption.
Justice Liu, writing for the majority, disagreed: “We conclude that the rule against PAGA waivers does not frustrate the FAA’s objective because…the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the Labor Workplace Development Agency.” Such reasoning may be vulnerable on appeal to the U.S. Supreme Court. In the meantime, what the PAGA action will look like upon remand remains quite a procedural muddle, which the California Court did not really try to resolve. It will take a little while to sort this out, but for now employers should continue to seek waivers of class and representative actions in their arbitration agreements.