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EmploymentUpdates and News

August 2012

Employment Arbitration Agreements Containing Class Action Waivers Are Enforceable

By Amanda F. Benedict, Esq.

Arbitration agreements have long been favored by both federal and California law. The FAA has a liberal policy of favoring arbitration agreements unless the agreement was obtained through fraud, duress or is unconscionable. (9 U.S.C. § 2). Likewise, in California an arbitration agreement will be upheld unless there are grounds at law or equity to invalidate the agreement (Code Civ. Proc., § 1281.)

Despite the generally accepted policy favoring arbitration agreements, in 2005 the California Supreme Court in Discovery Bank v. Superior Court (2005) 36 Cal.4th 148, placed limits on the enforceability of arbitration agreements and class action waivers in consumer adhesion contracts. In Discovery, the California Supreme Court held that class action arbitration waivers are unconscionable in class actions involving consumer adhesion contracts where the disputes involve small amounts of damages and it is alleged 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.” (Id. at pp. 162-163.)

In 2007, the California Supreme Court addressed whether class action waivers in arbitration agreements are enforceable. In Gentry v. Superior Court, (2007) 42 Cal.4th 442 the California Supreme Court established a four-factor test for determining whether a class action waiver in an arbitration agreement should be upheld.

The holding in Discovery was subsequently overruled by the United States Supreme Court in 2011 in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 [179 L.Ed.2d 742]. In Concepcion, the Supreme Court concluded that the rule pronounced by California in Discovery interfered with the overall purpose of the FAA which is “to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” The United States Supreme Court’s invalidation of the rule in Discovery, cast a doubt as to the continued validity of the Gentry-test.

The recent ruling by the Second District Court of Appeal, Division Two, in Iskanian v. CLS Transportation Los Angeles, LLC (2012) 206 Cal.App.4th 949, answers the question regarding the continued validity of the Gentry-test.

In Iskanian, the plaintiff was a driver for CLS Transportation Los Angeles. Several months into his employment, the Plaintiff 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 also contained a class and representative action waiver providing that only individual claims could be pursued in arbitration.

Despite signing the arbitration agreement, Iskanian subsequently filed a class action complaint against CLS, alleging that it failed to pay overtime, provide meal and read breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner.

While the matter was pending, the United States Supreme Court decided Concepcion. Following the USSC ruling, CLS moved to compel arbitration and dismiss the class claims. CLS argued at the United States Supreme Court’s overruling of Discovery, invalidated the four part test detailed in Gentry. Accordingly, CLS argued that the enforcement of the arbitration agreement, with the waiver, is required. Iskanian argued that the Gentry test remained valid as the test is based on a public policy rationale and validates statutory rights. The trial court ruled in favor of CLS and enforced the terms of the arbitration agreement waiver.

The Second Appellate District Court of Appeal agreed with the trial court in holding that the ruling in Concepcion “conclusively invalidates the Gentry test.” (Id. at p. 959.) The fact that Gentry was based on a public policy rationale, rather than the unconscionability rationale as in Discovery, did not save the test. Gentry essentially required the courts to determine whether to impose class arbitration on parties who contractually rejected it. The reviewing court held that such a rule “cannot be considered consistent with the objective of enforcing arbitration agreements according to their terms.” (Id. at p. 960.)

In sum, the Second District Court of Appeal held that the arbitration agreement with the class action waiver were effective and enforceable. The rule to be taken from this case is that arbitration agreements must be enforced according to their terms. No exceptions will be made for employment related disputes.


Next: Attorneys’ Fees Not Recoverable for Rest Period Claims




The opinions expressed in this employment update are general in nature, and are not meant to provide specific legal advice. For more information, please contact a Klinedinst attorney. No attorney/client privilege is created or assumed by reading this newsletter.








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