Welcome News for Employers on Arbitration

CA Supreme CourtThe long-awaited decision from the California Supreme Court in Iskanian v. CLS Transportation is in, and it’s generally good for employers. The court ruled that a class action waiver in an arbitration agreement is enforceable. Unfortunately, it held that plaintiffs can still pursue Private Attorneys General Act (PAGA) claims despite an arbitration agreement with a collective action waiver. Several other decisions were handed down yesterday building on the favorable momentum for arbitration agreements. We have included brief summaries of the cases below with links to the full opinions for those interested. If you want to know how these developments impact your existing arbitration agreement, let us know. Iskanian v. CLS Transportation (CA Supreme Ct S204032 6/23/14) The California Supreme court addressed whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. In the case an employee initiated a class action lawsuit alleging multiple wage and hour claims such as failure to pay overtime and failure to provide meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The question was whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. The court concluded that it is and that the court’s prior holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) had been abrogated by recent United States Supreme Court precedent. The court further rejected the plaintiff’s arguments that the class action waiver at issue here is unlawful under the National Labor Relations 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. http://www.courts.ca.gov/opinions/documents/S204032.PDF Johnmohammadi v. Bloomingdale’s (9th Cir. 12-55578 6/23/14) The panel affirmed the district court’s order granting the motion of Bloomingdale’s, Inc. to compel arbitration under the Federal Arbitration Act, and dismissing without prejudice the putative class action brought by a former employee to recover unpaid overtime wages. The arbitration agreement contained in Bloomingdale’s employment documents provided that employees who fail to opt out waive their right to pursue employment-related claims on a collective basis in any forum, judicial or arbitral. The panel held that the district court correctly held that the arbitration agreement was valid, and under the Federal Arbitration Act it must be enforced according to its terms. The panel held that the employee had the right to opt out of the arbitration agreement, and had she done so she would be free to pursue this class action in court. The panel further held that having freely elected to arbitrate employment- related disputes on an individual basis, without interference from Bloomingdale’s, the employee could not claim that enforcement of the arbitration agreement violated either the Norris-LaGuardia Act or the National Labor Relations Act. http://cdn.ca9.uscourts.gov/datastore/opinions/2014/06/23/12-55578.pdf Davis v. Nordstrom, Inc. (9th Cir. 12-17403 6/23/14) The panel reversed the district court’s order denying Nordstrom, Inc.’s motion to compel arbitration of an employee’s claims that were brought as a putative class action alleging violations of state and federal employment laws, and remanded for further proceedings. Following the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), Nordstrom made revisions to the employee arbitration policy, contained in its employee handbook, which precluded employees from bringing most class action lawsuits. The panel held that Nordstrom and the employee entered into a valid agreement to arbitrate disputes on an individual basis. The panel found that Nordstrom satisfied the minimal requirements under California law for providing employees with reasonable notice of a change to its employee handbook by sending a letter to the employees informing them of the modification, and not seeking to enforce the arbitration provision during the 30 day notice period. The panel also held that Nordstrom was not bound to inform the employee that her continued employment after receiving the letter constituted acceptance on new terms of employment. Finally, the panel declined to address in the first instance the issue whether the arbitration agreement was unconscionable under California law. http://cdn.ca9.uscourts.gov/datastore/opinions/2014/06/23/12-17403.pdf