California Supreme Court Pushes Workers to Arbitrate

In Iskanian v. CLS Transportation Los Angeles, LLC, California’s high court followed an unfortunate trend from federal case law that requires employees who sign mandatory arbitration agreements to arbitrate wage and hour claims, regardless of the terms of the agreement.   

In following this trend, the Court nullified the Gentry rule that provided an exception to arbitration if the agreement violated California public policy or was unconscionable.  The Court also found the arbitration agreement at issue did not violate the National Labor Relations Act (NLRA) by infringing upon the rights of employees to engage in protected concerted activity (See D.R. Horton, Inc., 357 NLRB No. 184).  Instead, it found the NLRA does not provide contrary direction to the Federal Arbitration Act (FAA), meaning, a class action waiver in an arbitration agreement does not make that agreement unenforceable.  Nonetheless, D.R. Horton remains valid for all NLRB proceedings unless and until it is overruled by the U.S. Supreme Court. 

The Court did carve out one exception to the general strength of the FAA: California’s Private Attorney General Act (PAGA).  Under PAGA, the aggrieved employee brings a representative action in lieu of action by the state agency.  As there is no contractual agreement to arbitrate between the state and the employer, an employer cannot require PAGA claims to be arbitrated under the employee’s arbitration agreement.

As a result of this decision, expect employers who require their employees to sign mandatory arbitration agreements to force all claims covered by the agreement, except Labor Code claims under PAGA, to be heard in arbitration.  Expect employers to limit those arbitrations to individual or consolidated arbitrations where each individual has to affirmatively file a claim.   Whether or not forcing workers to go to arbitration, rather than bringing a class action in court, will actually save money or time for employers in the long run is still an open question. 

For more information, contact your labor law counsel.

By Caren Sencer | June 25, 2014

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