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Despite high-profile cases, class-action waivers still aren’t silver bullets in California

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in Employment Law,Human Resources

California courts do not like class-action waivers. For years, many California courts refused to enforce them, exposing California businesses to class-action liability regardless of any agreement with employees or customers to forgo class litigation.

The Supreme Court of the United States’ decision in AT&T Mobility v. Concepcion, was supposed to change all that. It didn’t.

In the seminal case on the enforceability of class action waivers in California, Discover Bank v. Superior Court, the California Supreme Court ruled class-action waivers “unconscionable” when included in consumer contracts. Subsequent cases extended this rule to employment agreements. These cases rendered class-action waivers in California superfluous.

Enter Concepcion, the Supreme Court’s decision that directly overturned Discover Bank.

Class-action waivers are typically included in arbitration agreements, which many businesses favor because arbitration is often quicker and less expensive than litigation. By invalidating arbitration agreements that included class-action waivers, state courts denied businesses these benefits. Concepcion essentially said that state courts can’t do that anymore.  

Since Concepcion, a number of California courts have found ways to limit or avoid its impact.   

Recent case: Auto mechanics employed by Morgan Tire & Auto, filed a class-action complaint against Morgan Tire in California state court, claiming wage-and-hour law violations. They also claimed violations of California’s Unfair Competition Law, and sought civil penalties under California’s Private Attorneys General Act (PAGA).

Morgan Tire moved to compel arbitration on the basis of an agreement to submit all employment-related disputes to arbitration. The agreement also included a class-action waiver, requiring any claims to “be mediated and arbitrated as individual claims.” The trial court granted Morgan Tire’s motion and the employees appealed.

The appeals court vacated the trial court’s order compelling arbitration, holding the waiver to pursue claims on a representative basis unenforceable as applied to the PAGA claim.

The appeals court held that a PAGA action “is necessarily a representative action” because PAGA claims are brought on behalf of, not only the individual plaintiff, but also “other current and former employees.” The court explained that a plaintiff suing under PAGA acts—at least in theory—not for himself or herself, but “as a proxy or agent of the state’s labor law enforcement agencies.”

The court held that the class-action waiver could not be enforced for the PAGA claim because it “wholly prevents the exercise of a [state] statutory right intended for a predominantly public purpose.” Yet neither federal law nor Concepcion includes an exception for state statutes “intended for a predominantly public purpose.” Whether by accident or design, the court is paving new ground.

The practical impact of the decision is that, for now, employees may be able to get around class-action waivers by asserting a PAGA claim.

However, given that this same issue is pending before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles (S204032) and the U.S. Supreme Court’s recent focus on class-action issues, the lasting impact of this case remains to be seen. (Brown v. The Superior Court of Santa Clara County, No. H037271, Court of Appeal of California, 6th Appellate District, 2013)

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