Iskanian v. CLS Transp. L. A., LLC
| Decision Date | 26 June 2014 |
| Docket Number | S204032 |
| Court | California Supreme Court |
| Parties | ARSHAVIR ISKANIAN, Plaintiff and Appellant, v. CLS TRANSPORTATION LOS ANGELES, LLC, Defendant and Respondent. |
ARSHAVIR ISKANIAN, Plaintiff and Appellant,
v.
CLS TRANSPORTATION LOS ANGELES, LLC, Defendant and Respondent.
S204032
SUPREME COURT OF CALIFORNIA
Filed: June 23, 2014
Received: June 26, 2014
In this case, we again address whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. 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. 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. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) 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
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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 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. As explained below, we 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. 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.
Finally, we hold that the PAGA does not violate the principle of separation of powers under the California Constitution.
Plaintiff Arshavir Iskanian worked as a driver for defendant CLS Transportation Los Angeles, LLC (CLS) from March 2004 to August 2005. In December 2004, Iskanian signed a "Proprietary Information and Arbitration Policy/Agreement" providing that "any and all claims" arising out of his employment were to be submitted to binding arbitration before a neutral arbitrator. The arbitration agreement provided for reasonable discovery, a written award, and judicial review of the award; costs unique to arbitration, such as the arbitrator's fee, would be paid by CLS. The arbitration agreement also contained a class and representative action waiver that said: "[E]xcept as otherwise required under
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applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person."
On August 4, 2006, Iskanian filed a class action complaint against CLS, alleging that 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. In its answer to the complaint, CLS asserted among other defenses that all of plaintiff's claims were subject to binding arbitration. 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, we decided in Gentry that class action waivers in employment arbitration agreements are invalid under certain circumstances. (Gentry, supra, 42 Cal.4th at pp. 463-464.) 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 September 15, 2008, Iskanian filed a consolidated first amended complaint, alleging seven causes of action for Labor Code violations and an unfair competition law (UCL) claim (Bus. & Prof. Code, § 17200 et seq.). Iskanian brought his claims as an individual and putative class representative seeking damages, and also in a representative capacity under the PAGA seeking civil penalties for Labor Code violations. After conducting discovery, Iskanian moved to certify the class, and CLS opposed the motion. On October 29, 2009, the trial court granted Iskanian's motion.
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On April 27, 2011, the United States Supreme Court issued AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion). Concepcion invalidated our decision in Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank), which had restricted consumer class action waivers in arbitration agreements. Soon after, in May 2011, CLS renewed its motion to compel arbitration and dismiss the class claims, arguing that Concepcion also 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. We granted review.
We first address the validity of the class action waiver at issue here and the viability of Gentry in light of Concepcion.
In Discover Bank, we held that when a class arbitration waiver "is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is
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alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party 'from responsibility for [its] own fraud, or willful injury to the person or property of another.' (Civ. Code, § 1668.) Under these circumstances, such waivers are unconscionable under California law and should not be enforced." (Discover Bank, supra, 36 Cal.4th at pp. 162-163.)
The high court in Concepcion invalidated Discover Bank and held that "[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA." (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1748].) According to Concepcion, classwide arbitration "sacrifices the principal advantage of arbitration — its informality — and makes the process slower, more costly, and more likely to generate procedural morass than final judgment." (Id. at p. __ [131 S.Ct. at p. 1751].) Class arbitration also "greatly increases risks to defendants" and "is poorly suited to the higher stakes of class litigation" because of the lack of judicial review, "thus rendering arbitration unattractive" to defendants. (Id. at p. __ & fn. 8 [131 S.Ct. at p. 1752 & fn. 8].) The court concluded that "[b]ecause it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,' [citation], California's Discover Bank rule is preempted by the FAA." (Id. at p. __ [131 S.Ct. at p. 1753].)
In Gentry, we considered a class action waiver and an arbitration agreement in an employment contract. The complaint in Gentry alleged that the defendant employer had systematically failed to pay overtime wages to a class of employees. Whereas Discover Bank concerned the application of the doctrine of unconscionability, Gentry focused on whether the class action waiver would "undermine the vindication of the employees' unwaivable statutory rights" to
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overtime pay. (Gentry, supra, 42 Cal.4th at p. 450.) We concluded that a class action waiver may be unenforceable in some circumstances: "...
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