The California Supreme Court recently issued a decision with widespread ramifications for employers. Previously, the Court determined that class action waivers in employment contracts may be enforceable as long as they were not unconscionable or violative of public policy. The California Supreme Court, following intervening U.S. Supreme Court precedent, determined that its prior decision was abrogated and reversed itself. Class action waivers in employment contracts are enforceable in California notwithstanding unconscionability or State public policy to the contrary.

In Iskanian v. CLS Transp. Los Angeles, LLC, 2014 WL 2808963 (June 23, 2014), an employee brought a wage and hour class action lawsuit. The employer sought to enforce an arbitration agreement whereby the employee had waived the right to proceed by class and representative proceedings. The lower courts ordered individual arbitration and dismissed the class claims with prejudice. Similarly, the California Supreme Court determined that the class action wavier was enforceable because the Federal Arbitration Act (“FAA”) does not permit States to refuse to enforce class action waivers on public policy or unconscionability grounds.

On the other hand, the California Supreme Court determined that representative actions under the Labor Code Private Attorneys General Act of 2004 (“PAGA”) cannot be waived. PAGA allows employees to bring claims on behalf of the State of California against their employers, and seek statutory penalties for violations of the California Labor Code, such as overtime and meal and rest period violations. The FAA did not require a contrary result because the FAA seeks to ensure a forum for resolution of private disputes (e.g., disputes between an employer and employee relating to their employment contract), but PAGA actions are not private disputes. PAGA disputes are disputes between the State and the employer concerning violations of the Labor Code.

Individual arbitration of employee claims can be advantageous for employers. For example, it can prevent employees from aggregating otherwise small dollar claims that may not otherwise be economically feasible for an employee to bring as an individual claim. Employers will want to make sure their arbitration agreements do not contain overbroad language that could invalidate otherwise enforceable class action waivers (e.g. waivers of representative actions). PAGA representative actions cannot be waived as a condition of employment in any forum, including arbitration and state and federal court.
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DID YOU KNOW…
The Equal Employment Opportunity Commission (“EEOC”) issued new guidance on the application of federal employment discrimination law under Title VII to religious dress and grooming practices, and what steps employers can take to meet their legal responsibilities in this area. The guidance can be viewed at:http://www.eeoc.gov/eeoc/publications/qa_religious_garb_grooming.cfm