U.S. Supreme Court Action May Muddle California Employment Law, Warn Attorneys

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Decision to decline Iskanian v. CLS Transportation Los Angeles, LLC rulingsends conflicting messages, say LeClairRyan lawyers

The effect of the ruling may be muddled, since California state courts are bound by the Iskanian decision, but federal district courts are not.

The recent U.S. Supreme Court decision to decline a review of the California Supreme Court’s Iskanian v. CLS Transportation Los Angeles, LLC ruling sets up a split between state and federal courts in California and delivers a mixed message to Golden State employers, according to Philip J. Bonoli, Brian S. Inamine, and Clint Robison, shareholders in national law firm LeClairRyan's Los Angeles office.

The closely watched Iskanian case (California Supreme Court Case: S204032) involved a limousine driver who wanted to bring a class action lawsuit on behalf of him and similarly situated employees for his employer’s alleged failure to compensate the employees for overtime, meal, rest and other periods. But the driver had previously signed an arbitration agreement that waived his right to bring a class and representative action suit against his then-employer.

In the summer of 2014, the California Supreme Court held that Federal Arbitration Act (FAA) preempted California’s policy against enforcement of class action waivers in arbitration agreements. The ruling “was a victory for California employers, because it meant that class action waivers in employment arbitration agreements were generally enforceable,” notes Bonoli. “The victory, however, was only partial; in the same case, the California Supreme Court ruled that a certain kind of class action claim – namely, representative collective action claims brought pursuant to California’s Private Attorneys General Act of 2004 (PAGA) – could not be waived in arbitration agreements.”

“CLS Transportation appealed the PAGA arbitration waiver issue to the U.S. Supreme Court, which announced on January 20, 2015 that it would not hear the case,” reports Inamine. “By denying CLS Transportation’s petition for review, the California Supreme Court’s Iskanian ruling remains in effect, and it is binding on California state courts and, by extension, on California employers.”

But the effect of the ruling may be muddled, since California state courts are bound by the Iskanian decision, but federal district courts are not, Robison adds.

“Some California federal judges have generally been loath to follow the Iskanian ruling, finding that it is incongruent with the FAA and inconsistent with the U.S. Supreme Court’s 2011 opinion in AT&T Mobility v. Concepcion (U.S. Supreme Court Case: No. 09-893), which held that the FAA preempts any state laws that invalidate class action waivers,” says Robison. “The split between state and federal courts in California means that, for the time being, the enforceability of representative class action waivers in employment arbitration agreements will depend in large part on whether a state or federal court is hearing the case. In the short term, we may see an uptick in the number of representative class action claims brought under PAGA, as well as increased efforts by employers to transfer PAGA cases filed in state courts to federal courts, which are viewed as more employer-friendly venues. In the longer term, conflicting decisions between California state and federal courts make it likely that the question will eventually make its way again to the U.S. Supreme Court for review.”

Despite the continued uncertainty over the enforceability of representative class action waivers, arbitration agreements remain an important tool for limiting and preventing class action employment litigation, advises Bonoli.

“It is as important as ever for California employers that use employment arbitration agreements to make sure those agreements are properly drafted,” he explains. “For example, arbitration agreements should always contain severability clauses stating that if any portion of the agreement is deemed unenforceable (such as a class action waiver), the remainder of the agreement will remain in effect and enforceable to the full extent allowed by law. Agreements should also indicate what steps will be taken if some employee claims are found to be arbitrable (such as FLSA claims), but others are found to be exempt from arbitration (such as collective action claims under PAGA). Consulting with employment counsel is the best way to ensure that the language in an arbitration agreement maximizes the chance of withstanding legal challenges to enforceability.”

About LeClairRyan
As a trusted advisor, LeClairRyan provides business counsel and client representation in corporate law and litigation. In this role, the firm applies its knowledge, insight and skill to help clients achieve their business objectives while managing and minimizing their legal risks, difficulties and expenses. With offices in California, Colorado, Connecticut, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, Pennsylvania, Texas, Virginia and Washington, D.C., the firm has approximately 380 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit http://www.leclairryan.com

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Press Contacts: At Parness & Associates Public Relations, Bill Parness, (732) 290-0121, bparness(at)parnesspr.com, or Marty Gitlin (631) 765-8519, durangitlin(at)optonline.net

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