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Employment Law eAlert
Newsletter
June 30, 2014

"GOOD AND BAD NEWS" FOR CALIFORNIA EMPLOYERS WHO HAVE ARBITRATION AGREEMENTS WITH THEIR EMPLOYEES -  

 

CLASS ACTION WAIVER IS ENFORCEABLE BUT PRIVATE ATTORNEY GENERAL ACTION WAIVER CANNOT BE ENFORCED

 

On Monday, June 23, 2014, the California Supreme Court issued its long awaited decision in Iskanian v. Cls Transp. L.A. (Case No. S204032).  The employee in Iskanian filed a class action lawsuit on behalf of himself and similarly situated employees against his employer alleging wage and hour violations.

 

In addition, the employee filed a representative action under the Labor Code Private Attorney General Act of 2004 ("PAGA"). The PAGA 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.  By statute, 75 percent of the penalties recovered by employees in a PAGA action go to the California Workforce Development Agency and the remaining 25 percent is awarded to the employees. The Court held that the PAGA waiver is contrary to public policy and unenforceable under California law. 

Prior to the Court's decision in Iskanian, most California practitioners believed it was a foregone conclusion that the Court would uphold class action waivers in employment agreements because a series of U.S. Supreme Court opinions literally compelled the California court to do so. Because the PAGA action is based on a California (not federal) statute and is not procedurally the same as a class action, there was less certainty about how the Court would rule when several California courts of appeal decisions had found PAGA waivers enforceable. Many California employers have therefore included both a class action waiver and representative action (PAGA) waiver in their arbitration agreements.

 

In light of Iskanian, if your company does not have an arbitration agreement with employees, now that the Court has ruled class action waivers are enforceable, your company may want to seriously consider implementing a mandatory arbitration agreement. Of course, there are many factors to consider before adopting a policy of mandatory arbitration but Iskanian certainly makes it more appealing as it "shields" employers from potential class actions filed by employees.

 

In light of Iskanian, if your company currently has a mandatory arbitration agreement with employees, consider taking the following action:

 

  1. Revise the agreement to include a class action waiver, if there is no waiver in your current agreement.   

     
  2. If your agreement has a PAGA waiver, revise the agreement to remove the PAGA waiver. In Iskanian, the Supreme Court enforced the employer's arbitration agreement as it applied to the employee's class action waiver and individual claims. In other words, the PAGA waiver did not void the entire agreement or make it unenforceable. HOWEVER, if the employer's arbitration agreement had other invalid provisions, in addition to the PAGA waiver, the Court could have refused to enforce the entire agreement. Your company can minimize the risk that the agreement would be found to be unenforceable by a court if the PAGA waiver is deleted. 

     
  3. Include a provision in your agreement which makes it clear that in the event the employee brings a representative action under PAGA, the PAGA action will be heard in an arbitration proceeding and not by a judge or jury in court.

The employment law group at Rynn & Janowsky, LLP is available to advise you on any and all aspects of employee arbitration agreements. The decision to implement an agreement should be carefully considered with advice of counsel and in the event your company decides to go forward with adopting an arbitration agreement or revising an agreement, counsel should be involved in the process. 

 


Employment Law Legal Team
Rynn & Janowsky, LLP | rj@rjlaw.com | http://www.rjlaw.com
This article is published as a service to our clients and friends. The material contained herein is provided for informational purposes only and is not intended to constitute advertising, a solicitation or legal advice. 

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