Iskanian v. CLS Transportation

Filed 6/23/14 (Reposted 6/26/14 to augment listing of counsel who argued in Supreme Ct.; no change to opn. text)
IN THE SUPREME COURT OF CALIFORNIA
ARSHAVIR ISKANIAN, )
)
Plaintiff and Appellant, )
) S204032
v. )
) Ct.App. 2/2 B235158
CLS TRANSPORTATION )
LOS ANGELES, LLC, )
) Los Angeles County
Defendant and Respondent. ) Super. Ct. No. BC356521
____________________________________)
In this case, we again address whether the Federal Arbitration Act (FAA)
preempts a state law rule that restricts enforcement of terms in arbitration
agreements. Here, an employee seeks to bring a class action lawsuit on behalf of
himself and similarly situated employees for his employer‘s alleged failure to
compensate its employees for, among other things, overtime and meal and rest
periods. The employee had entered into an arbitration agreement that waived the
right to class proceedings. The question is whether a state‘s refusal to enforce
such a waiver on grounds of public policy or unconscionability is preempted by
the FAA. We conclude that it is and that our holding to the contrary in Gentry v.
Superior Court (2007) 42 Cal. 4th 443 (Gentry) has been abrogated by recent
United States Supreme Court precedent. We further reject the 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.
Finally, we hold that the PAGA does not violate the principle of separation
of powers under the California Constitution.
I.
Plaintiff Arshavir Iskanian worked as a driver for defendant CLS
Transportation Los Angeles, LLC (CLS) from March 2004 to August 2005. In
December 2004, Iskanian 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 provided for reasonable discovery, a written award, and
judicial review of the award; costs unique to arbitration, such as the arbitrator‘s
fee, would be paid by CLS. The arbitration agreement also contained a class and
representative action waiver that said: ―[E]xcept as otherwise required under
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applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that
class action and representative action procedures shall not be asserted, nor will
they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE
and COMPANY agree that each will not assert class action or representative
action claims against the other in arbitration or otherwise; and (3) each of
EMPLOYEE and COMPANY shall only submit their own, individual claims in
arbitration and will not seek to represent the interests of any other person.‖
On August 4, 2006, Iskanian filed a class action complaint against CLS,
alleging that it failed to pay overtime, provide meal and rest breaks, reimburse
business expenses, provide accurate and complete wage statements, or pay final
wages in a timely manner. In its answer to the complaint, CLS asserted among
other defenses that all of plaintiff‘s claims were subject to binding arbitration.
CLS moved to compel arbitration, and in March 2007, the trial court granted
CLS‘s motion. Shortly after the trial court‘s order but before the Court of
Appeal‘s decision in this matter, we decided in Gentry that class action waivers in
employment arbitration agreements are invalid under certain circumstances.
(Gentry, supra, 42 Cal.4th at pp. 463–464.) The Court of Appeal issued a writ of
mandate directing the superior court to reconsider its ruling in light of Gentry.
On remand, CLS voluntarily withdrew its motion to compel arbitration, and
the parties proceeded to litigate the case. On September 15, 2008, Iskanian filed a
consolidated first amended complaint, alleging seven causes of action for Labor
Code violations and an unfair competition law (UCL) claim (Bus. & Prof. Code,
§ 17200 et seq.). Iskanian brought his claims as an individual and putative class
representative seeking damages, and also in a representative capacity under the
PAGA seeking civil penalties for Labor Code violations. After conducting
discovery, Iskanian moved to certify the class, and CLS opposed the motion. On
October 29, 2009, the trial court granted Iskanian‘s motion.
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On April 27, 2011, the United States Supreme Court issued AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740] (Concepcion).
Concepcion invalidated our decision in Discover Bank v. Superior Court (2005)
36 Cal. 4th 148 (Discover Bank), which had restricted consumer class action
waivers in arbitration agreements. Soon after, in May 2011, CLS renewed its
motion to compel arbitration and dismiss the class claims, arguing that
Concepcion also invalidated Gentry. Iskanian opposed the motion, arguing among
other things that Gentry was still good law and, in any event, that CLS had waived
its right to seek arbitration by withdrawing the original motion to compel
arbitration. The trial court ruled in favor of CLS, ordering the case into individual
arbitration and dismissing the class claims with prejudice.
The Court of Appeal affirmed, concluding that Concepcion invalidated
Gentry. The court also declined to follow a National Labor Relations Board ruling
that class action waivers in adhesive employment contracts violate the National
Labor Relations Act. With respect to the PAGA claim, the court understood
Iskanian to be arguing that the PAGA does not allow representative claims to be
arbitrated, and it concluded that the FAA precludes states from withdrawing
claims from arbitration and that PAGA claims must be argued individually, not in
a representative action, according to the terms of the arbitration agreement.
Finally, the court upheld the trial court‘s finding that CLS had not waived its right
to compel arbitration. We granted review.
II.
We first address the validity of the class action waiver at issue here and the
viability of Gentry in light of Concepcion.
In Discover Bank, we held that when a class arbitration waiver ―is found in
a consumer contract of adhesion in a setting in which disputes between the
contracting parties predictably involve small amounts of damages, and when it is
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alleged that 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, then . . . the waiver becomes in practice the exemption of the party ‗from
responsibility for [its] own fraud, or willful injury to the person or property of
another.‘ (Civ. Code, § 1668.) Under these circumstances, such waivers are
unconscionable under California law and should not be enforced.‖ (Discover
Bank, supra, 36 Cal.4th at pp. 162–163.)
The high court in Concepcion invalidated Discover Bank and held that
―[r]equiring the availability of classwide arbitration interferes with fundamental
attributes of arbitration and thus creates a scheme inconsistent with the FAA.‖
(Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1748].) According to
Concepcion, classwide arbitration ―sacrifices the principal advantage of arbitration
— its informality — and makes the process slower, more costly, and more likely
to generate procedural morass than final judgment.‖ (Id. at p. __ [131 S.Ct. at
p. 1751].) Class arbitration also ―greatly increases risks to defendants‖ and ―is
poorly suited to the higher stakes of class litigation‖ because of the lack of judicial
review, ―thus rendering arbitration unattractive‖ to defendants. (Id. at p. __ &
fn. 8 [131 S.Ct. at p. 1752 & fn. 8].) The court concluded that ―[b]ecause it
‗stands as an obstacle to the accomplishment and execution of the full purposes
and objectives of Congress,‘ [citation], California‘s Discover Bank rule is
preempted by the FAA.‖ (Id. at p. __ [131 S.Ct. at p. 1753].)
In Gentry, we considered a class action waiver and an arbitration agreement
in an employment contract. The complaint in Gentry alleged that the defendant
employer had systematically failed to pay overtime wages to a class of employees.
Whereas Discover Bank concerned the application of the doctrine of
unconscionability, Gentry focused on whether the class action waiver would
―undermine the vindication of the employees‘ unwaivable statutory rights‖ to
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overtime pay. (Gentry, supra, 42 Cal.4th at p. 450.) We concluded that a class
action waiver may be unenforceable in some circumstances: ―[W]hen it is alleged
that an employer has systematically denied proper overtime pay to a class of
employees and a class action is requested notwithstanding an arbitration
agreement that contains a class arbitration waiver, the trial court must consider the
factors discussed above: the modest size of the potential individual recovery, the
potential for retaliation against members of the class, the fact that absent members
of the class may be ill informed about their rights, and other real world obstacles
to the vindication of class members‘ right to overtime pay through individual
arbitration. If it concludes, based on these factors, that a class arbitration is likely
to be a significantly more effective practical means of vindicating the rights of the
affected employees than individual litigation or arbitration, and finds that the
disallowance of the class action will likely lead to a less comprehensive
enforcement of overtime laws for the employees alleged to be affected by the
employer‘s violations, it must invalidate the class arbitration waiver to ensure that
these employees can ‗vindicate [their] unwaivable rights in an arbitration forum.‘ ‖
(Id. at pp. 463–464.)
Iskanian contends that Gentry survives Concepcion. In his briefing, he
argues: ―The Missouri Supreme Court has interpreted Concepcion as holding that
Discover Bank was preempted because ‗it required class arbitration even if class
arbitration disadvantaged consumers and was unnecessary for the consumer to
obtain a remedy.‘ (Brewer v. Missouri Title Loans (Mo. 2012) 364 S.W.3d 486,
489, 494.) Similarly, a recent analysis of Concepcion concludes that ‗the
unconscionability defense in Concepcion ―stood as an obstacle,‖ for preemption
purposes, because it was a categorical rule that applied to all consumer cases. The
sin of the Discover Bank rule was that it did not require the claimant to show that
the agreement operated as an exculpatory contract on a case-specific basis.‘
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(Gilles & Friedman, After Class: Aggregate Litigation in the Wake of AT&T
Mobility v. Concepcion (2012) 79 U. Chi. L. Rev. 623, 651.)‖
Iskanian also contends: ―Gentry, by contrast, ‗is not a categorical rule
against class action waivers.‘ [Citation.] Gentry explicitly disclaimed any
categorical rule . . . . Unlike Discover Bank, which held consumer class-action
bans ‗generally unconscionable‘ ([Gentry, supra, 42 Cal.4th] at p. 453), Gentry
held only that when a statutory right is unwaivable because of its ‗public
importance,‘ id. at p. 456, banning class actions would in ‗some circumstances‘
‗lead to a de facto waiver and would impermissibly interfere with employees‘
ability to vindicate unwaivable rights and to enforce the overtime laws.‘ (Id. at
p. 457.)‖ According to Iskanian, ―[t]he Courts of Appeal have interpreted Gentry
to require an evidentiary showing in which a plaintiff bears the burden of
demonstrating, based on the Gentry factors, that enforcing a class-action ban
would result in a waiver of substantive rights.‖
Contrary to these contentions, however, the fact that Gentry‘s rule against
class waiver is stated more narrowly than Discover Bank‘s rule does not save it
from FAA preemption under Concepcion. The high court in Concepcion made
clear that even if a state law rule against consumer class waivers were limited to
―class proceedings [that] are necessary to prosecute small-dollar claims that might
otherwise slip through the legal system,‖ it would still be preempted because states
cannot require a procedure that interferes with fundamental attributes of arbitration
―even if it is desirable for unrelated reasons.‖ (Concepcion, supra, 563 U.S. at
p. __ [131 S.Ct. at p. 1753]; see American Express Co. v. Italian Colors
Restaurant (2013) 570 U.S. __, __ & fn. 5 [133 S. Ct. 2304, 2312 & fn. 5] (Italian
Colors).) It is thus incorrect to say that the infirmity of Discover Bank was that it
did not require a case-specific showing that the class waiver was exculpatory.
Concepcion holds that even if a class waiver is exculpatory in a particular case, it
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is nonetheless preempted by the FAA. Under the logic of Concepcion, the FAA
preempts Gentry‘s rule against employment class waivers.
In his briefing and at oral argument, Iskanian further argued that the Gentry
rule or a modified Gentry rule — whereby a class waiver would be invalid if it
meant a de facto waiver of rights and if the arbitration agreement failed to provide
suitable alternative means for vindicating employee rights — survives Concepcion
under our reasoning in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109
(Sonic II). But the Gentry rule, whether modified or not, is not analogous to the
unconscionability rule set forth in Sonic II.
As noted, Gentry held that the validity of a class waiver turns on whether ―a
class arbitration is likely to be a significantly more effective practical means of
vindicating the rights of the affected employees than individual litigation or
arbitration, and [whether] the disallowance of the class action will likely lead to a
less comprehensive enforcement of [labor or employment] laws for the employees
alleged to be affected by the employer‘s violations.‖ (Gentry, supra, 42 Cal.4th at
p. 463.) In other words, if individual arbitration or litigation cannot be designed to
approximate the advantages of a class proceeding, then a class waiver is invalid.
But Concepcion held that because class proceedings interfere with fundamental
attributes of arbitration, a class waiver is not invalid even if an individual
proceeding would be an ineffective means to prosecute certain claims. (See
Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753].)
The Berman waiver addressed in Sonic II is different from a class waiver.
As Sonic II explained, a Berman waiver implicates a host of statutory protections
designed to benefit employees with wage claims against their employers. (Sonic
II, supra, 57 Cal.4th at pp. 1127–1130.) One of those protections is a special
administrative hearing (a Berman hearing) that we had held unwaivable in Sonic-
Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th 659 (Sonic I). In Sonic II, we
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overruled Sonic I in light of Concepcion, reasoning that ―[b]ecause a Berman
hearing causes arbitration to be substantially delayed, the unwaivability of such a
hearing, even if desirable as a matter of contractual fairness or public policy,
interferes with a fundamental attribute of arbitration — namely, its objective ‗ ―to
achieve ‗streamlined proceedings and expeditious results‘ ‖ ‘ ‖ and ―is thus
preempted by the FAA.‖ (Sonic II, supra, 57 Cal.4th at p. 1141.) Under the logic
of Sonic II, which mirrors the logic applied to the Gentry rule above, it is clear that
because a Berman hearing interferes with fundamental attributes of arbitration, a
Berman waiver is not invalid even if the unavailability of a Berman hearing would
leave employees with ineffective means to pursue wage claims against their
employers.
But Sonic II went on to explain that ―[t]he fact that the FAA preempts Sonic
I‘s rule requiring arbitration of wage disputes to be preceded by a Berman hearing
does not mean that a court applying unconscionability analysis may not consider
the value of benefits provided by the Berman statutes, which go well beyond the
hearing itself.‖ (Sonic II, supra, 57 Cal.4th at p. 1149, italics added.) The Berman
statutes, we observed, provide for fee shifting, mandatory undertaking, and several
other protections to assist wage claimants should the wage dispute proceed to
litigation. (Id. at p. 1146.) ―Many of the Berman protections are situated no
differently than state laws concerning attorney fee shifting, assistance of counsel,
or other rights designed to benefit one or both parties in civil litigation.‖ (Id. at
p. 1150; see, e.g., Lab. Code, § 1194, subd. (a) [one-way fee shifting for plaintiffs
asserting minimum wage and overtime claims].) The value of these protections
does not derive from the fact that they exist in the context of a pre-arbitration
administrative hearing. Instead, as Sonic II made clear, the value of these
protections may be realized in ―potentially many ways‖ through arbitration
designed in a manner ―consistent with its fundamental attributes.‖ (Sonic II, at
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p. 1149; see ibid. [―Our rule contemplates that arbitration, no less than an
administrative hearing, can be designed to achieved speedy, informal, and
affordable resolution of wage claims . . . .‖].)
Sonic II thus established an unconscionability rule that considers whether
arbitration is an effective dispute resolution mechanism for wage claimants
without regard to any advantage inherent to a procedural device (a Berman
hearing) that interferes with fundamental attributes of arbitration. By contrast, the
Gentry rule considers whether individual arbitration is an effective dispute
resolution mechanism for employees by direct comparison to the advantages of a
procedural device (a class action) that interferes with fundamental attributes of
arbitration. Gentry, unlike Sonic II, cannot be squared with Concepcion.
In practice, Gentry‘s rule prohibiting class waivers if ―a class arbitration is
likely to be a significantly more effective practical means of vindicating the rights
of the affected employees than individual litigation or arbitration‖ (Gentry, supra,
42 Cal.4th at p. 463) regularly resulted in invalidation of class waivers, at least
prior to Concepcion. (See, e.g., Olvera v. El Pollo Loco, Inc. (2009) 173
Cal. App. 4th 447, 457; Sanchez v. Western Pizza Enterprises, Inc. (2009) 172
Cal. App. 4th 154, 170–171; Franco v. Athens Disposal Co. (2009) 171
Cal. App. 4th 1277, 1298–1299; Murphy v. Check N’ Go of California, Inc. (2007)
156 Cal. App. 4th 138, 148–149; Jackson v. S.A.W. Entertainment Ltd. (N.D.Cal.
2009) 629 F. Supp. 2d 1018, 1027–1028.) These results are unsurprising since it is
unlikely that an individual action could be designed to approximate the inherent
leverage that a class proceeding provides to employees with claims against a
defendant employer. (See Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at
p. 1752].) By contrast, Sonic II addressed individual wage claims, not class
actions, and there is no reason to think that the value of Berman protections
distinct from a Berman hearing itself cannot be achieved by designing an
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arbitration process that is accessible, affordable, and consistent with fundamental
attributes of arbitration. (See Sonic II, supra, 57 Cal.4th at p. 1147 [―There are
potentially many ways to structure arbitration, without replicating the Berman
protections, so that it facilitates accessible, affordable resolution of wage disputes.
We see no reason to believe that the specific elements of the Berman statutes are
the only way to achieve this goal or that employees will be unable to pursue their
claims effectively without initial resort to an administrative hearing as opposed to
an adequate arbitral forum.‖].)
In sum, Sonic II recognized that the FAA does not prevent states through
legislative or judicial rules from addressing the problems of affordability and
accessibility of arbitration. But Concepcion held that the FAA does prevent states
from mandating or promoting procedures incompatible with arbitration. The
Gentry rule runs afoul of this latter principle. We thus conclude in light of
Concepcion that the FAA preempts the Gentry rule.
III.
Iskanian contends that even if the FAA preempts Gentry, the class action
waiver in this case is invalid under the National Labor Relations Act (NLRA).
Iskanian adopts the position of the National Labor Relations Board (Board) in
D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] (Horton I)
that the NLRA generally prohibits contracts that compel employees to waive their
right to participate in class proceedings to resolve wage claims. The Fifth Circuit
recently refused to enforce that portion of the NLRB‘s opinion. (D.R. Horton, Inc.
v. NLRB (5th Cir. 2013) 737 F.3d 344 (Horton II).) We consider below the
Board‘s position and the Fifth Circuit‘s reasons for rejecting it.
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A.
In Horton I, the employee, Michael Cuda, a superintendent at Horton,
claimed he had been misclassified as exempt from statutory overtime protections
under the Fair Labor Standards Act (FLSA). He sought to initiate a nationwide
class arbitration of similarly situated superintendents working for Horton. Horton
asserted that the mutual arbitration agreement (MAA) barred arbitration of
collective claims. Cuda then filed an unfair labor practice charge, and the Board‘s
general counsel issued a complaint. The complaint alleged that Horton violated
section 8(a)(1) of the NLRA by maintaining the MAA provision that said the
arbitrator ― ‗may hear only Employee‘s individual claims and does not have the
authority to fashion a proceeding as a class or collective action or to award relief
to a group or class of employees in one arbitration proceeding.‘ ‖ (Horton I,
supra, 357 NLRB No. 184, p. 1.) The complaint further alleged that Horton
violated NLRA section 8(a)(1) and (4) by maintaining arbitration agreements that
required employees, as a condition of employment, ― ‗to submit all employment
related disputes and claims to arbitration . . . , thus interfering with employee
access to the [Board].‘ ‖ (Horton I, at p. 2.) An administrative law judge agreed
that the latter but not the former is an unfair labor practice.
On appeal, the Board concluded that (1) the joining together of employees
to bring a class proceeding to address wage violations is a form of concerted
activity under section 7 of the NLRA (29 U.S.C. § 157); (2) an agreement
compelling an employee to waive the right to engage in that activity as a condition
of employment is an unfair labor practice under section 8 of the NLRA (id.,
§ 158); and (3) this rule is not precluded by the FAA because it is consistent with
the FAA‘s savings clause (9 U.S.C. § 2) and because the later enacted NLRA
prevails over the earlier enacted FAA to the extent there is a conflict.
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The Board began its analysis with section 7 of the NLRA, which states that
―[e]mployees shall have the right to self-organization, to form, join, or assist labor
organizations, to bargain collectively through representatives of their own
choosing, and to engage in other concerted activities for the purpose of collective
bargaining or other mutual aid or protection, and shall also have the right to
refrain from any or all of such activities except to the extent that such right may be
affected by an agreement requiring membership in a labor organization as a
condition of employment as authorized in section 158(a)(3) of this title.‖ (29
U.S.C. § 157, italics added.)
The Board commented: ―It is well settled that ‗mutual aid or protection‘
includes employees‘ efforts to ‗improve terms and conditions of employment or
otherwise improve their lot as employees through channels outside the immediate
employee-employer relationship.‘ Eastex, Inc. v. NLRB, 437 U.S. 556, 565–566
(1978). The Supreme Court specifically stated in Eastex that Section 7 ‗protects
employees from retaliation by their employer when they seek to improve their
working conditions through resort to administrative and judicial forums.‘ Id. at
565–566. The same is equally true of resort to arbitration. [¶] The Board has
long held, with uniform judicial approval, that the NLRA protects employees‘
ability to join together to pursue workplace grievances, including through
litigation.‖ (Horton I, supra, 357 NLRB No. 184, p. 2 [2012 WL 36274 at p. *2].)
The Board then turned to section 8(a)(1) of the NLRA, which says it is an
unfair labor practice for an employer ―to interfere with, restrain, or coerce
employees in the exercise of the rights guaranteed in‖ section 7. (29 U.S.C.
§ 158(a)(1).) The Board found, based on the previous discussion, ―that the MAA
expressly restricts protected activity.‖ (Horton I, supra, 357 NLRB No. 184, p. 4
[2012 WL 36274 at p. *5].) ―That this restriction on the exercise of Section 7
rights is imposed in the form of an agreement between the employee and the
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employer makes no difference. From its earliest days, the Board, again with
uniform judicial approval, has found unlawful employer-imposed, individual
agreements that purport to restrict Section 7 rights––including, notably,
agreements that employees will pursue claims against their employer only
individually.‖ (Ibid.)
The Board buttressed this conclusion by reviewing a statute that preceded
the NLRA, the Norris LaGuardia Act, which among other things limited the power
of federal courts to issue injunctions enforcing ―yellow dog‖ contracts prohibiting
employees from joining labor unions. (Horton I, supra, 357 NLRB No. 184, p. 5
[2012 WL 36274 at p. *7].) The types of activity, ―whether undertaken ‗singly or
in concert,‘ ‖ that may not be limited by restraining orders or injunctions include
― ‗aiding any person participating or interested in any labor dispute who . . . is
prosecuting, any action or suit in any court of the United States or of any State.‘
29 U.S.C. § 104(d) (emphasis added).‖ (Id. at pp. 5–6 [2012 WL 36274 at p. *7],
fn. omitted.) ― ‗The law has long been clear that all variations of the venerable
―yellow dog contract‖ are invalid as a matter of law.‘ Barrow Utilities & Electric,
308 N.L.R.B. 4, 11, fn. 5 (1992).‖ (Id. at p. 6 [2012 WL 36274 at p. *8].)
The Board concluded its analysis by finding no conflict between the NLRA
and the FAA. Relying on the FAA‘s savings clause (see 9 U.S.C. § 2 [arbitration
agreements are to be enforced ―save upon such grounds as exist at law or in equity
for the revocation of any contract‖]), the Board explained that ―[t]he purpose of
the FAA was to prevent courts from treating arbitration agreements less favorably
than other private contracts. The Supreme Court . . . has made clear that
‗[w]herever private contracts conflict with [the] functions‘ of the National Labor
Relations Act, ‗they obviously must yield or the Act would be reduced to a
futility.‘ J. I. Case Co. [(1944)] 321 U.S. [332,] 337. To find that an arbitration
agreement must yield to the NLRA is to treat it no worse than any other private
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contract that conflicts with Federal labor law. The MAA would equally violate the
NLRA if it said nothing about arbitration, but merely required employees, as a
condition of employment, to agree to pursue any claims in court against the
Respondent solely on an individual basis.‖ (Horton I, supra, 357 NLRB No. 184,
p. 9 [2012 WL 36274 at p. *11].)
The Board also invoked the principle that arbitration agreements may not
require a party to ― ‗forgo the substantive rights afforded by the statute.‘ ‖
(Horton I, supra, 357 NLRB No. 184, p. 9, quoting Gilmer v. Interstate/Johnson
Lane Corp. (1991) 500 U.S. 20, 26 (Gilmer).) The Board clarified that ―[t]he
question presented in this case is not whether employees can effectively vindicate
their statutory rights under the Fair Labor Standards Act in an arbitral forum.
[Citation.] Rather, the issue here is whether the MAA‘s categorical prohibition of
joint, class, or collective federal, state or employment law claims in any forum
directly violates the substantive rights vested in employees by Section 7 of the
NLRA.‖ (Horton, supra, 357 NLRB No. 184, p. 9, fn. omitted [2012 WL 36274
at p. *11].)
The Board recognized a tension between its ruling and Concepcion‘s
statements that the ―overarching purpose of the FAA . . . is to ensure the
enforcement of arbitration agreements according to their terms so as to facilitate
streamlined proceedings‖ and that the ―switch from bilateral to class arbitration
sacrifices the principal advantage of arbitration—its informality.‖ (Concepcion,
supra, 563 U.S. at pp. __, __ [131 S.Ct. at pp. 1748, 1751].) But in the Board‘s
view, ―the weight of this countervailing consideration was considerably greater in
the context of [Concepcion] than it is here for several reasons. [Concepcion]
involved the claim that a class-action waiver in an arbitration clause of any
contract of adhesion in the State of California was unconscionable. Here, in
contrast, only agreements between employers and their own employees are at
15
stake. As the Court pointed out in [Concepcion], such contracts of adhesion in the
retail and services industries might cover ‗tens of thousands of potential
claimants.‘ Id. at 1752. The average number of employees employed by a single
employer, in contrast, is 20, and most class-wide employment litigation, like the
case at issue here, involves only a specific subset of an employer‘s employees. A
class-wide arbitration is thus far less cumbersome and more akin to an individual
arbitration proceeding along each of the dimensions considered by the Court in
[Concepcion]—speed, cost, informality, and risk—when the class is so limited in
size. 131 S. Ct. at 1751–1752. Moreover, the holding in this case covers only one
type of contract, that between an employer and its covered employees, in contrast
to the broad rule adopted by the California Supreme Court at issue in
[Concepcion]. Accordingly, any intrusion on the policies underlying the FAA is
similarly limited.‖ (Horton I, supra, 357 NLRB No. 184, pp. 11–12, fn. omitted
[2012 WL 36274 at p. *15, fn. omitted].)
―Finally,‖ the Board said, ―even if there were a conflict between the NLRA
and the FAA, there are strong indications that the FAA would have to yield under
the terms of the Norris-LaGuardia Act. As explained above, under the Norris-
LaGuardia Act, a private agreement that seeks to prohibit a ‗lawful means [of]
aiding any person participating or interested in‘ a lawsuit arising out of a labor
dispute (as broadly defined) is unenforceable, as contrary to the public policy
protecting employees‘ ‗concerted activities for . . . mutual aid or protection.‘ To
the extent that the FAA requires giving effect to such an agreement, it would
conflict with the Norris-LaGuardia Act. The Norris-LaGuardia Act, in turn—
passed 7 years after the FAA,—repealed ‗[a]ll acts and parts of acts in conflict‘
with the later statute (Section 15).‖ (Horton I, supra, 357 NLRB No. 184, p. 12,
fn. omitted [2012 WL 36274 at p. *16, fn. omitted].)
16
B.
In Horton II, the Fifth Circuit disagreed with the Board‘s ruling that the
class action waiver in the MAA was an unfair labor practice. The court
recognized precedent holding that ― ‗the filing of a civil action by employees is
protected activity . . . [and] by joining together to file the lawsuit [the employees]
engaged in concerted activity.‘ 127 Rest. Corp., 331 N.L.R.B. 269, 275–76 (2000).
‗[A] lawsuit filed in good faith by a group of employees to achieve more favorable
terms or conditions of employment is ―concerted activity‖ under Section 7‘ of the
NLRA. Brady v. Nat’l Football League, 644 F.3d 661, 673 (8th Cir. 2011).‖
(Horton II, supra, 737 F.3d at p. 356.) However, the Fifth Circuit reasoned, ―The
[FAA] has equal importance in our review. Caselaw under the FAA points us in a
different direction than the course taken by the Board.‖ (Id. at p. 357.)
Relying on Concepcion, the Fifth Circuit rejected the argument that the
Board‘s rule fell within the savings clause of the FAA. A rule that is neutral on its
face but is ―applied in a fashion that disfavors arbitration‖ is not a ground that
exists ―for the revocation of any contract‖ within the meaning of the savings
clause. (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1747].) The Fifth
Circuit concluded that the Board‘s rule, like the rule in Discover Bank, was not
arbitration neutral. Rather, by substituting class proceedings for individual
arbitration, the rule would significantly undermine arbitration‘s fundamental
attributes by requiring procedural formality and complexity, and by creating
greater risks to defendants. (Horton II, supra, 737 F.3d at p. 359, citing
Concepcion, supra, 563 U.S. at pp. __–__ [131 S.Ct. at pp. 1750–1752].)
The court then considered whether ―the FAA‘s mandate has been
‗overridden by a contrary congressional command.‘ ‖ (CompuCredit v.
Greenwood (2012) 565 U.S. __, __ [132 S. Ct. 665, 669]; see Italian Colors,
supra, 570 U.S. at p. __ [133 S.Ct. at p. 2309].) ―If such a command exists, it
17
‗will be discoverable in the text,‘ the statute‘s ‗legislative history,‘ or ‗an ―inherent
conflict‖ between arbitration and the [statute‘s] underlying purposes.‘ . . . ‗[T]he
relevant inquiry [remains] whether Congress . . . precluded ―arbitration or other
nonjudicial resolution‖ of claims.‘ ‖ (Horton II, supra, 737 F.3d at p. 360, quoting
Gilmer, supra, 500 U.S. at pp. 26, 28.) The court found that neither the NLRA‘s
language nor its legislative history showed any indication of prohibiting a class
action waiver in an arbitration agreement. (Horton II, at pp. 360–361.)
Next, the Fifth Circuit considered whether there is ―an inherent conflict‖
between the FAA and the NLRA. (Horton II, supra, 737 F.3d at p. 361.) It noted
that NLRA policy itself ―favors arbitration‖ and permits unions to waive the right
of employees to litigate statutory employment claims in favor of arbitration.
(Ibid.) The court also noted that ―the right to proceed collectively cannot protect
vindication of employees‘ statutory rights under the ADEA or FLSA because a
substantive right to proceed collectively has been foreclosed by prior decisions.‖
(Ibid., citing Gilmer, supra, 500 U.S. at p. 32 and Carter v. Countrywide Credit
Industries, Inc. (5th Cir. 2004) 362 F.3d 294, 298.) ―The right to collective action
also cannot be successfully defended on the policy ground that it provides
employees with greater bargaining power. ‗Mere inequality in bargaining power
. . . is not a sufficient reason to hold that arbitration agreements are never
enforceable in the employment context.‘ Gilmer, 500 U.S. at 33. The end result is
that the Board‘s decision creates either a right that is hollow or one premised on an
already-rejected justification.‖ (Horton II, at p. 361.)
Further, the court observed that ―the NLRA was enacted and reenacted
prior to the advent in 1966 of modern class action practice. [Citation.] We find
limited force to the argument that there is an inherent conflict between the FAA
and NLRA when the NLRA would have to be protecting a right of access to a
procedure that did not exist when the NLRA was (re)enacted.‖ (Horton II, supra,
18
737 F.3d at p. 362, fn. omitted.) For the reasons above, the court held that the
NLRA does not foreclose enforcement of a class action waiver in an arbitration
agreement. (Horton II, at p. 363.)
C.
We agree with the Fifth Circuit that, in light of Concepcion, the Board‘s
rule is not covered by the FAA‘s savings clause. Concepcion makes clear that
even if a rule against class waivers applies equally to arbitration and nonarbitration
agreements, it nonetheless interferes with fundamental attributes of arbitration
and, for that reason, disfavors arbitration in practice. (Concepcion, supra, 563
U.S. at pp. __–__ [131 S.Ct. at pp. 1750–1752].) Thus, if the Board‘s rule is not
precluded by the FAA, it must be because the NLRA conflicts with and takes
precedence over the FAA with respect to the enforceability of class action waivers
in employment arbitration agreements. As the Fifth Circuit explained, neither the
NLRA‘s text nor its legislative history contains a congressional command
prohibiting such waivers. (Horton II, supra, 737 F.3d at pp. 360–361.)
We also agree that there is no inherent conflict between the FAA and the
NLRA as that term is understood by the United States Supreme Court. It is
significant that ―the NLRA was enacted and reenacted prior to the advent in 1966
of modern class action practice.‖ (Horton II, supra, 737 F.3d at p. 362.) To be
sure, ―the task of defining the scope of § 7 ‗is for the Board to perform in the first
instance as it considers the wide variety of cases that come before it‘ ‖ (NLRB v.
City Disposal Systems Inc. (1984) 465 U.S. 822, 829), and the forms of concerted
activity protected by the NLRA are not necessarily limited to those that existed
when the NLRA was enacted in 1935 or reenacted in 1947. However, in Italian
Colors, where the high court held that federal antitrust laws do not preclude
enforcement of a class action waiver in an arbitration agreement, the high court
found it significant that ―[t]he Sherman and Clayton Acts make no mention of
19
class actions. In fact, they were enacted decades before the advent of Federal Rule
of Civil Procedure 23 . . . .‖ (Italian Colors, supra, 570 U.S. at p. __ [133 S.Ct. at
p. 2309].) Here as well, like the Fifth Circuit, ―[w]e find limited force to the
argument that there is an inherent conflict between the FAA and NLRA when the
NLRA would have to be protecting a right of access to a procedure that did not
exist when the NLRA was (re)enacted.‖ (Horton II, at p. 362, fn. omitted.)
Furthermore, as the high court stated in Italian Colors: ―In Gilmer, supra,
we had no qualms in enforcing a class waiver in an arbitration agreement even
though the federal statute at issue, the Age Discrimination in Employment Act,
expressly permitted collective actions. We said that statutory permission did
‗ ―not mean that individual attempts at conciliation were intended to be
barred.‖ ‘ ‖ Italian Colors, supra, 570 U.S. at p. __ [133 S.Ct. at p. 2311].) Thus,
the high court has held that the explicit authorization of class actions in the Age
Discrimination in Employment Act (see 29 U.S.C. § 626(b), referencing, for
purposes of enforcement 29 U.S.C. § 216 [providing for employee class actions as
a remedy for Fair Labor Standard Act violations]) does not bar enforcement of a
class waiver in an arbitration agreement. This holding reinforces our doubt that
the NLRA‘s general protection of concerted activity, which makes no reference to
class actions, may be construed as an implied bar to a class action waiver.
We do not find persuasive the Board‘s attempt to distinguish its rule from
Discover Bank on the basis that employment arbitration class actions tend to be
smaller than consumer class actions and thus ―far less cumbersome and more akin
to an individual arbitration proceeding.‖ (Horton I, supra, 357 NLRB No. 184,
p. 12 [2012 WL 36274 at p. *15].) Nothing in Concepcion suggests that its rule
upholding class action waivers, which relied significantly on the incompatibility
between the formality of class proceedings and the informality of arbitration
(Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1751]), depends on the size
20
of the class involved. Nor does the limitation of a class action waiver to disputes
between employers and employees mitigate the conflict between the Board‘s rule
and the FAA under the reasoning of Concepcion.
We thus conclude, in light of the FAA‘s ― ‗liberal federal policy favoring
arbitration‘ ‖ (Concepcion, supra, 563 U.S. at p.__ [131 S.Ct. at p. 1745]), that
sections 7 and 8 the NLRA do not represent ―a contrary congressional
command‖ ‘ overriding the FAA‘s mandate. (CompuCredit v. Greenwood, supra,
565 U.S. at p. __ [132 S.Ct. at p. 669.) This conclusion is consistent with the
judgment of all the federal circuit courts and most of the federal district courts that
have considered the issue. (See Sutherland v. Ernst & Young, LLP (2d Cir. 2013)
726 F.3d 290, 297 fn. 8; Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050,
1053–1055; Delock v. Securitas Sec. Servs. USA, Inc. (E.D.Ark. 2012) 883
F. Supp. 2d 784, 789–790; Morvant v. P.F. Chang’s China Bistro, Inc. (N.D.Cal.
2012) 870 F. Supp. 2d 831, 844–845; Jasso v. Money Mart Express, Inc. (N.D.Cal.
2012) 879 F. Supp. 2d 1038, 1048–1049; but see Herrington v. Waterstone Mortg.
Corp. (W.D.Wis. Mar. 16, 2012) No. 11-cv-779-bbc [2012 WL 1242318, at p. *5]
[defendant advances no persuasive argument that the Board interpreted the NLRA
incorrectly].)
Our conclusion does not mean that the NLRA imposes no limits on the
enforceability of arbitration agreements. Notably, while upholding the class
waiver in Horton II, the Fifth Circuit affirmed the Board‘s determination that the
arbitration agreement at issue violated section 8(a)(1) and (4) of the NLRA insofar
as it contained language that would lead employees to reasonably believe they
were prohibited from filing unfair labor practice charges with the Board. (Horton
II, supra, 737 F.3d at pp. 363–364.) Moreover, the arbitration agreement in the
present case, apart from the class waiver, still permits a broad range of collective
activity to vindicate wage claims. CLS points out that the agreement here is less
21
restrictive than the one considered in Horton: The arbitration agreement does not
prohibit employees from filing joint claims in arbitration, does not preclude the
arbitrator from consolidating the claims of multiple employees, and does not
prohibit the arbitrator from awarding relief to a group of employees. The
agreement does not restrict the capacity of employees to ―discuss their claims with
one another, pool their resources to hire a lawyer, seek advice and litigation
support from a union, solicit support from other employees, and file similar or
coordinated individual claims.‖ (Horton I, supra, 357 NLRB No. 184, p. 6 [2012
WL 36274 at p. *8]; cf. Italian Colors, supra, 570 U.S. at p. __, fn. 4 [133 S. Ct. at
p. 2311, fn. 4 [making clear that its holding applies only to class action waivers
and not to provisions barring ―other forms of cost sharing‖].) We have no
occasion to decide whether an arbitration agreement that more broadly restricts
collective activity would run afoul of section 7.
IV.
Code of Civil Procedure section 1281.2 provides that one ground for
denying a petition to compel arbitration is that ―[t]he right to compel arbitration
has been waived by the petitioner.‖ Iskanian contends that CLS waived its right to
arbitration by failing to diligently pursue arbitration. We disagree.
―As our decisions explain, the term ‗waiver‘ has a number of meanings in
statute and case law. [Citation.] While ‗waiver‘ generally denotes the voluntary
relinquishment of a known right, it can also refer to the loss of a right as a result of
a party‘s failure to perform an act it is required to perform, regardless of the
party‘s intent to relinquish the right. [Citations.] In the arbitration context, ‗[t]he
term ―waiver‖ has also been used as a shorthand statement for the conclusion that
a contractual right to arbitration has been lost.‘ [Citation.]‖ (St. Agnes Medical
22
Center v. PacifiCare of California (2003) 31 Cal. 4th 1187, 1195, fn. 4 (St. Agnes
Medical Center).)
―California courts have found a waiver of the right to demand arbitration in
a variety of contexts, ranging from situations in which the party seeking to compel
arbitration has previously taken steps inconsistent with an intent to invoke
arbitration [citations] to instances in which the petitioning party has unreasonably
delayed in undertaking the procedure. [Citations.] The decisions likewise hold
that the ‗bad faith‘ or ‗willful misconduct‘ of a party may constitute a waiver and
thus justify a refusal to compel arbitration. [Citation.]‖ (Davis v. Blue Cross of
Northern California (1979) 25 Cal. 3d 418, 425–426.) The fact that the party
petitioning for arbitration has participated in litigation, short of a determination on
the merits, does not by itself constitute a waiver. (St. Agnes Medical Center,
supra, 31 Cal.4th at p. 1203.)
We have said the following factors are relevant to the waiver inquiry:
― ‗ ―(1) whether the party‘s actions are inconsistent with the right to arbitrate;
(2) whether ‗the litigation machinery has been substantially invoked‘ and the
parties ‗were well into preparation of a lawsuit‘ before the party notified the
opposing party of an intent to arbitrate; (3) whether a party either requested
arbitration enforcement close to the trial date or delayed for a long period before
seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim
without asking for a stay of the proceedings; (5) ‗whether important intervening
steps [e.g., taking advantage of judicial discovery procedures not available in
arbitration] had taken place‘; and (6) whether the delay ‗affected, misled, or
prejudiced‘ the opposing party.‖ ‘ ‖ (St. Agnes Medical Center, supra, 31 Cal.4th
at p. 1196.)
In light of the policy in favor of arbitration, ―waivers are not to be lightly
inferred and the party seeking to establish a waiver bears a heavy burden of
23
proof.‖ (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1195.) ―Generally, the
determination of waiver is a question of fact, and the trial court‘s finding, if
supported by sufficient evidence, is binding on the appellate court. [Citation.]
‗When, however, the facts are undisputed and only one inference may reasonably
be drawn, the issue is one of law and the reviewing court is not bound by the trial
court‘s ruling.‘ ‖ (Id.at p. 1196.)
In the present case, CLS initially filed a timely petition to compel
arbitration in response to Iskanian‘s complaint, which included class action claims.
After the trial court granted the petition, this court issued Gentry, which restricted
the enforceability of class waivers, and the Court of Appeal remanded the matter
to the trial court to determine whether Gentry affected the ruling. Rather than
further litigate the petition to compel arbitration, CLS withdrew the petition and
proceeded to litigate the claim and resist Iskanian‘s move to certify a class. The
parties engaged in discovery, both as to the merits and on the class certification
issue. In October of 2009, the trial court granted Iskanian‘s motion to certify the
class. In May of 2011, shortly after the Supreme Court filed Concepcion, which
cast Gentry into doubt, CLS renewed its petition to compel arbitration. The trial
court granted the petition.
CLS contends that it has never acted inconsistently with its right to
arbitrate. It initially petitioned to compel arbitration and then abandoned
arbitration only when Gentry made clear that further petition would be futile. It
moved to compel arbitration again as soon as a change in the law made clear the
motion had a chance of succeeding. In response, Iskanian contends that California
law does not recognize futility as a legitimate ground for delaying the assertion of
the right to arbitration and that even if there were such an exception, it should not
apply here because even after Gentry, CLS‘s petition to compel arbitration had
some chance of success.
24
This court has not explicitly recognized futility as a ground for delaying a
petition to compel arbitration. (Compare Fisher v. A.G. Becker Paribas Inc. (9th
Cir. 1986) 791 F.2d 691, 697 [delay in asserting arbitration rights excusable when
prevailing ―intertwining doctrine‖ made such an assertion futile until Supreme
Court rejected the doctrine].) But futility as grounds for delaying arbitration is
implicit in the general waiver principles we have endorsed. A factor relevant to
the waiver inquiry is whether the party asserting arbitration has acted
inconsistently with the right to arbitrate (see St. Agnes Medical Center, supra, 31
Cal.4th at p. 1196) or whether a delay was ―unreasonable‖ (Lewis v. Fletcher
Jones Motor Cars, Inc. (2012) 205 Cal. App. 4th 436, 446 (Fletcher Jones)). The
fact that a party initially successfully moved to compel arbitration and abandoned
that motion only after a change in the law made the motion highly unlikely to
succeed weighs in favor of finding that the party has not waived its right to
arbitrate.
Iskanian points out that Gentry did not purport to invalidate all class
waivers in wage and hour cases, but only in those instances when a class action or
arbitration ―is likely to be a significantly more effective practical means of
vindicating the rights of the affected employees than individual litigation or
arbitration.‖ (Gentry, supra, 42 Cal.4th at p. 463.) In this case, however, neither
party has ever disputed that the class action waiver at issue would not have
survived Gentry. This case is therefore distinguishable from cases finding
unexcused delay where the party asserting arbitration had some real chance of
succeeding in compelling individual arbitration under extant law applicable to
class waivers. (See Fletcher Jones, supra, 205 Cal.App.4th at p. 448 [Discover
Bank‘s holding that consumer class action waivers are prohibited in the case of
small damages claims did not preclude class waiver where plaintiff sought
$19,000 in damages].)
25
Iskanian contends that because he spent three years attempting to obtain
class certification, including considerable effort and expense on discovery, waiver
should be found on the ground that the delay in the start of arbitration prejudiced
him. We have said that ―prejudice . . . is critical in waiver determinations.‖ (St.
Agnes Medical Center, supra, 31 Cal.4th at p. 1203.) But ―[b]ecause merely
participating in litigation, by itself, does not result in . . . waiver, courts will not
find prejudice where the party opposing arbitration shows only that it incurred
court costs and legal expenses.‖ (Ibid.) ―Prejudice typically is found only where
the petitioning party‘s conduct has substantially undermined this important public
policy or substantially impaired the other side‘s ability to take advantage of the
benefits and efficiencies of arbitration. [¶] For example, courts have found
prejudice where the petitioning party used the judicial discovery processes to gain
information about the other side‘s case that could not have been gained in
arbitration [citations]; where a party unduly delayed and waited until the eve of
trial to seek arbitration [citation]; or where the lengthy nature of the delays
associated with the petitioning party‘s attempts to litigate resulted in lost evidence
[citation].‖ (Id. at p. 1204.)
Some courts have interpreted St. Agnes Medical Center to allow
consideration of the expenditure of time and money in determining prejudice
where the delay is unreasonable. In Burton v. Cruise (2010) 190 Cal. App. 4th 939,
for example, the court reasoned that ―a petitioning party‘s conduct in stretching
out the litigation process itself may cause prejudice by depriving the other party of
the advantages of arbitration as an ‗expedient, efficient and cost-effective method
to resolve disputes.‘ [Citation.] Arbitration loses much, if not all, of its value if
undue time and money is lost in the litigation process preceding a last-minute
petition to compel.‖ (Id. at p. 948.) Other courts have likewise found that
unjustified delay, combined with substantial expenditure of time and money,
26
deprived the parties of the benefits of arbitration and was sufficiently prejudicial to
support a finding of waiver to arbitrate. (See, e.g., Hoover v. American Income
Life Ins. Co. (2012) 206 Cal. App. 4th 1193, 1205; Roberts v. El Cajon Motors, Inc.
(2011) 200 Cal. App. 4th 832, 845–846; Adolph v. Coastal Auto Sales, Inc. (2010)
184 Cal. App. 4th 1443, 1451; Guess? Inc. v. Superior Court (2000) 79 Cal. App. 4th
553, 558; Sobremonte v. Superior Court (1998) 61 Cal. App. 4th 980, 996; but see
Groom v. Health Net (2000) 82 Cal. App. 4th 1189, 1197 [excluding time and
expense from the calculus of prejudice].)
These cases, however, do not support Iskanian‘s position. In each of them,
substantial expense and delay were caused by the unreasonable or unjustified
conduct of the party seeking arbitration. In this case, the delay was reasonable in
light of the state of the law at the time and Iskanian‘s own opposition to
arbitration. Where, as here, a party promptly initiates arbitration and then
abandons arbitration because it is resisted by the opposing party and foreclosed by
existing law, the mere fact that the parties then proceed to engage in various forms
of pretrial litigation does not compel the conclusion that the party has waived its
right to arbitrate when a later change in the law permits arbitration.
Moreover, the case before us is not one where ―the petitioning party used
the judicial discovery processes to gain information about the other side‘s case that
could not have been gained in arbitration‖ or ―where the lengthy nature of the
delays associated with the petitioning party‘s attempts to litigate resulted in lost
evidence.‖ (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1204.) No such
prejudice has been shown here. As CLS points out, without contradiction by
Iskanian, the discovery it obtained while the case was in court consisted of
Iskanian‘s deposition and 77 pages of documents pertaining to his individual wage
claim. Because the arbitration agreement itself provides for ―reasonable
discovery,‖ there is no indication that CLS obtained any material information
27
through pretrial discovery that it could not have obtained through arbitral
discovery.
In sum, Iskanian does not demonstrate that CLS‘s delay in pursuing
arbitration was unreasonable or that pretrial proceedings have resulted in
cognizable prejudice. We conclude that CLS has not waived its right to arbitrate.
V.
As noted, the arbitration agreement requires the waiver not only of class
actions but of ―representative actions.‖ There is no dispute that the contract‘s term
―representative actions‖ covers representative actions brought under the Private
Attorneys General Act. (Lab. Code, § 2968 et seq.; all subsequent undesignated
statutory references are to this code.) We must decide whether such waivers are
permissible under state law and, if not, whether the FAA preempts a state law rule
prohibiting such waivers.
A.
Before enactment of the PAGA in 2004, several statutes provided civil
penalties for violations of the Labor Code. The Labor Commissioner could bring
an action to obtain such penalties, with the money going into the general fund or
into a fund created by the Labor and Workforce Development Agency (Agency)
for educating employers. (See § 210 [civil penalties for violating various statutes
related to the timing and manner in which wages are to be paid]; § 225.5 [civil
penalties for violating various statutes related to withholding wages due]; Stats.
1983, ch. 1096.) Some Labor Code violations were criminal misdemeanors. (See
§§ 215, 216, 218.)
The PAGA addressed two problems. First, the bill sponsors observed that
―many Labor Code provisions are unenforced because they are punishable only as
criminal misdemeanors, with no civil penalty or other sanction attached. Since
district attorneys tend to direct their resources to violent crimes and other public
28
priorities, Labor Code violations rarely result in criminal investigations and
prosecutions.‖ (Sen. Judiciary Com., Analysis of Sen. Bill No. 796 (Reg. Sess.
2003–2004) as amended Apr. 22, 2003, p. 5.) The solution was to enact civil
penalties for Labor Code violations ―significant enough to deter violations.‖
(Ibid.) For Labor Code violations for which no penalty is provided, the PAGA
provides that the penalties are generally $100 for each aggrieved employee per pay
period for the initial violation and $200 per pay period for each subsequent
violation. (§ 2699, subd. (f)(2).)
The second problem was that even when statutes specified civil penalties,
there was a shortage of government resources to pursue enforcement. The
legislative history discussed this problem at length. Evidence gathered by the
Assembly Committee on Labor and Employment indicated that the Department of
Industrial Relations (DIR) ―was failing to effectively enforce labor law violations.
Estimates of the size of California‘s ‗underground economy‘ –– businesses
operating outside the state‘s tax and licensing requirements –– ranged from 60 to
140 billion dollars a year, representing a tax loss to the state of three to six billion
dollars annually. Further, a U.S. Department of Labor study of the garment
industry in Los Angeles, which employs over 100,000 workers, estimated the
existence of over 33,000 serious and ongoing wage violations by the city‘s
garment industry employers, but that DIR was issuing fewer than 100 wage
citations per year for all industries throughout the state. [¶] Moreover, evidence
demonstrates that the resources dedicated to labor law enforcement have not kept
pace with the growth of the economy in California.‖ (Assembly Com. on Labor
and Employment, Analysis of Sen. Bill No. 796 (Reg. Sess. 2003–2004) as
amended July 2, 2003, p. 4.)
We summarized the Legislature‘s response to this problem in Arias v.
Superior Court (2009) 46 Cal. 4th 969, 980–981 (Arias): ―In September 2003, the
29
Legislature enacted the Labor Code Private Attorneys General Act of 2004
[citations]. The Legislature declared that adequate financing of labor law
enforcement was necessary to achieve maximum compliance with state labor laws,
that staffing levels for labor law enforcement agencies had declined and were
unlikely to keep pace with the future growth of the labor market, and that it was
therefore in the public interest to allow aggrieved employees, acting as private
attorneys general, to recover civil penalties for Labor Code violations, with the
understanding that labor law enforcement agencies were to retain primacy over
private enforcement efforts. (Stats. 2003, ch. 906, § 1.)
―Under this legislation, an ‗aggrieved employee‘ may bring a civil action
personally and on behalf of other current or former employees to recover civil
penalties for Labor Code violations. (Lab. Code, § 2699, subd. (a).) Of the civil
penalties recovered, 75 percent goes to the Labor and Workforce Development
Agency, leaving the remaining 25 percent for the ‗aggrieved employees.‘ (Id.,
§ 2699, subd. (i).)
―Before bringing a civil action for statutory penalties, an employee must
comply with Labor Code section 2699.3. (Lab. Code, § 2699, subd. (a).) That
statute requires the employee to give written notice of the alleged Labor Code
violation to both the employer and the Labor and Workforce Development
Agency, and the notice must describe facts and theories supporting the violation.
(Id., § 2699.3, subd. (a).) If the agency notifies the employee and the employer
that it does not intend to investigate . . . , or if the agency fails to respond within
33 days, the employee may then bring a civil action against the employer. (Id.,
§ 2699.3, subd. (a)(2)(A).) If the agency decides to investigate, it then has 120
days to do so. If the agency decides not to issue a citation, or does not issue a
citation within 158 days after the postmark date of the employee‘s notice, the
30
employee may commence a civil action. (Id., § 2699.3, subd. (a)(2)(B).)‖ (Arias,
supra, 46 Cal.4th at pp. 980–981, fn. omitted.)
In Arias, the defendants argued that if the PAGA were not ―construed as
requiring representative actions under the act to be brought as class actions,‖ then
a defendant could be subjected to lawsuits by multiple plaintiffs raising a common
claim, none of whom would be bound by a prior judgment in the defendant‘s favor
because they were not parties to a prior lawsuit. (Arias, supra, 46 Cal.4th at
p. 985.) We rejected this due process concern on the ground that ―the judgment in
[a PAGA representative] action is binding not only on the named employee
plaintiff but also on government agencies and any aggrieved employee not a party
to the proceeding.‖ (Ibid.) We reached this conclusion by elucidating the legal
characteristics of a PAGA representative action: ―An employee plaintiff suing . . .
under the [PAGA] does so as the proxy or agent of the state‘s labor law
enforcement agencies. . . . In a lawsuit brought under the act, the employee
plaintiff represents the same legal right and interest as state labor law enforcement
agencies — namely, recovery of civil penalties that otherwise would have been
assessed and collected by the Labor Workforce Development Agency. [Citations.]
. . . . Because collateral estoppel applies not only against a party to the prior
action in which the issue was determined, but also against those for whom the
party acted as an agent or proxy [citations], a judgment in an employee‘s action
under the act binds not only that employee but also the state labor law enforcement
agencies.
―Because an aggrieved employee‘s action under the [PAGA] functions as a
substitute for an action brought by the government itself, a judgment in that action
binds all those, including nonparty aggrieved employees, who would be bound by
a judgment in an action brought by the government. The act authorizes a
representative action only for the purpose of seeking statutory penalties for Labor
31
Code violations (Lab. Code, § 2699, subds. (a), (g)), and an action to recover civil
penalties ‗is fundamentally a law enforcement action designed to protect the
public and not to benefit private parties‘ (People v. Pacific Land Research Co.
(1977) 20 Cal. 3d 10, 17). When a government agency is authorized to bring an
action on behalf of an individual or in the public interest, and a private person
lacks an independent legal right to bring the action, a person who is not a party but
who is represented by the agency is bound by the judgment as though the person
were a party. (Rest.2d Judgments, § 41, subd. (1)(d), com. d, p. 397.)
Accordingly, with respect to the recovery of civil penalties, nonparty employees as
well as the government are bound by the judgment in an action brought under the
act, and therefore defendants‘ due process concerns are to that extent unfounded.‖
(Arias, supra, 46 Cal.4th at p. 986.)
The civil penalties recovered on behalf of the state under the PAGA are
distinct from the statutory damages to which employees may be entitled in their
individual capacities. Case law has clarified the distinction ―between a request for
statutory penalties provided by the Labor Code for employer wage-and-hour
violations, which were recoverable directly by employees well before the [PAGA]
became part of the Labor Code, and a demand for ‗civil penalties,‘ previously
enforceable only by the state‘s labor law enforcement agencies. An example of
the former is section 203, which obligates an employer that willfully fails to pay
wages due an employee who is discharged or quits to pay the employee, in
addition to the unpaid wages, a penalty equal to the employee‘s daily wages for
each day, not exceeding 30 days, that the wages are unpaid. [Citation.] Examples
of the latter are section 225.5, which provides, in addition to any other penalty that
may be assessed, an employer that unlawfully withholds wages in violation of
certain specified provisions of the Labor Code is subject to a civil penalty in an
enforcement action initiated by the Labor Commissioner in the sum of $100 per
32
employee for the initial violation and $200 per employee for subsequent or willful
violations, and section 256, which authorizes the Labor Commissioner to ‗impose
a civil penalty in an amount not exceeding 30 days [sic] pay as waiting time under
the terms of Section 203.‘ ‖ (Caliber Bodyworks, Inc. v. Superior Court (2005)
134 Cal. App. 4th 365, 377–378, fns. omitted; see Murphy v. Kenneth Cole
Productions, Inc. (2007) 40 Cal. 4th 1094, 1114 [distinguishing premium pay
under section 226.7 from a civil penalty in determining the applicable statute of
limitations].)
A PAGA representative action is therefore a type of qui tam action.
―Traditionally, the requirements for enforcement by a citizen in a qui tam action
have been (1) that the statute exacts a penalty; (2) that part of the penalty be paid
to the informer; and (3) that, in some way, the informer be authorized to bring suit
to recover the penalty.‖ (Sanders v. Pacific Gas & Elec. Co. (1975) 53
Cal. App. 3d 661, 671 (Sanders).) The PAGA conforms to these traditional criteria,
except that a portion of the penalty goes not only to the citizen bringing the suit
but to all employees affected by the Labor Code violation. The government entity
on whose behalf the plaintiff files suit is always the real party in interest in the
suit. (See In re Marriage of Biddle (1997) 52 Cal. App. 4th 396, 399.)
Although the PAGA was enacted relatively recently, the use of qui tam
actions is venerable, dating back to colonial times, and several such statutes were
enacted by the First Congress. (See Vermont Agency of Natural Resources v.
United States ex rel. Stevens (2000) 529 U.S. 765, 776–777.) The Federal False
Claims Act, allowing individuals to share the recovery achieved by the reporting
of false claims, originated during the Civil War. (See United States ex rel. Marcus
v. Hess (1943) 317 U.S. 537, 539–540; 31 U.S.C § 3730.) The qui tam plaintiff
under the Federal False Claims Act has standing in federal court under article III
of the United States Constitution, even though the plaintiff has suffered no injury
33
in fact, because that statute ―can reasonably be regarded as effecting a partial
assignment of the Government‘s damages claim.‖ (Stevens, at p. 773.) California
has more recently authorized qui tam actions for the recovery of false claims
against the state treasury. (Gov. Code, § 12652, subd. (c), added by Stats. 1987,
ch. 1420, § 1, p. 5239.) In addition, there are earlier examples of qui tam actions
under California law. (See, e.g., Sanders, supra, 53 Cal.App.3d at p. 671 [noting
qui tam provision in Political Reform Act of 1974].)
B.
With this background, we first examine whether an employee‘s right to
bring a PAGA action is waivable. The unwaivability of certain statutory rights
―derives from two statutes that are themselves derived from public policy. First,
Civil Code section 1668 states: ‗All contracts which have for their object, directly
or indirectly, to exempt anyone from responsibility for his own fraud, or willful
injury to the person or property of another, or violation of law, whether willful or
negligent, are against the policy of the law.‘ ‗Agreements whose object, directly
or indirectly, is to exempt [their] parties from violation of the law are against
public policy and may not be enforced.‘ (In re Marriage of Fell (1997) 55
Cal. App. 4th 1058, 1065.) Second, Civil Code section 3513 states, ‗Anyone may
waive the advantage of a law intended solely for his benefit. But a law established
for a public reason cannot be contravened by a private agreement.‘ ‖ (Armendariz
v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 100
(Armendariz).)
These statutes compel the conclusion that an employee‘s right to bring a
PAGA action is unwaivable. Section 2699, subdivision (a) states:
―Notwithstanding any other provision of law, any provision of this code that
provides for a civil penalty to be assessed and collected by the Labor and
34
Workforce Development Agency . . . for a violation of this code, may, as an
alternative, be recovered through a civil action brought by an aggrieved employee
on behalf of himself or herself and other current or former employees pursuant to
the procedures specified in Section 2699.3.‖ As noted, the Legislature‘s purpose
in enacting the PAGA was to augment the limited enforcement capability of the
Labor and Workforce Development Agency by empowering employees to enforce
the Labor Code as representatives of the Agency. Thus, an agreement by
employees to waive their right to bring a PAGA action serves to disable one of the
primary mechanisms for enforcing the Labor Code. Because such an agreement
has as its ―object, . . . indirectly, to exempt [the employer] from responsibility for
[its] own . . . violation of law,‖ it is against public policy and may not be enforced.
(Civ. Code, § 1668.).)
Such an agreement also violates Civil Code section 3513‘s injunction that
―a law established for a public reason cannot be contravened by a private
agreement.‖ The PAGA was clearly established for a public reason, and
agreements requiring the waiver of PAGA rights would harm the state‘s interests
in enforcing the Labor Code and in receiving the proceeds of civil penalties used
to deter violations. Of course, employees are free to choose whether or not to
bring PAGA actions when they are aware of Labor Code violations. (See
Armendariz, supra, 24 Cal.4th at p. 103, fn. 8 [waivers freely made after a dispute
has arisen are not necessarily contrary to public policy].) But it is contrary to
public policy for an employment agreement to eliminate this choice altogether by
requiring employees to waive the right to bring a PAGA action before any dispute
arises.
CLS argues that the arbitration agreement at issue here prohibits only
representative claims, not individual PAGA claims for Labor Code violations that
an employee suffered. Iskanian contends that the PAGA, which authorizes an
35
aggrieved employee to file a claim ―on behalf of himself or herself and other
current or former employees‖ (§ 2699, subd. (a), italics added), does not permit an
employee to file an individual claim. (Compare Reyes v. Macy’s, Inc. (2011) 202
Cal. App. 4th 1119, 1123–1124 [agreeing with Iskanian‘s position] with Quevedo v.
Macy’s, Inc. (C.D.Cal. 2011) 798 F. Supp. 2d 1122, 1141–1142 [an employee may
bring an individual PAGA action and waive the right to bring it on behalf of other
employees].) But whether or not an individual claim is permissible under the
PAGA, a prohibition of representative claims frustrates the PAGA‘s objectives.
As one Court of Appeal has observed: ―[A]ssuming it is authorized, a single-
claimant arbitration under the PAGA for individual penalties will not result in the
penalties contemplated under the PAGA to punish and deter employer practices
that violate the rights of numerous employees under the Labor Code. That
plaintiff and other employees might be able to bring individual claims for Labor
Code violations in separate arbitrations does not serve the purpose of the PAGA,
even if an individual claim has collateral estoppel effects. (Arias, supra, 46
Cal.4th at pp. 985–987.) Other employees would still have to assert their claims
in individual proceedings.‖ (Brown v. Ralphs Grocery Co. (2011) 197
Cal. App. 4th 489, 502, fn. omitted.)
We conclude that where, as here, an employment agreement compels the
waiver of representative claims under the PAGA, it is contrary to public policy
and unenforceable as a matter of state law.
C.
Notwithstanding the analysis above, a state law rule, however laudable,
may not be enforced if it is preempted by the FAA. As Concepcion made clear, a
state law rule may be preempted when it ―stands as an obstacle to the
accomplishment of the FAA‘s objectives.‖ (Concepcion, supra, 563 U.S. at p. __
[131 S.Ct. at p. 1748].) We conclude that the rule against PAGA waivers does not
36
frustrate the FAA‘s objectives because, as explained below, the FAA aims to
ensure an efficient forum for the resolution of private disputes, whereas a PAGA
action is a dispute between an employer and the state Labor and Workforce
Development Agency.
The FAA‘s focus on private disputes finds expression in the statute‘s text:
―A written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract.‖ (9 U.S.C. § 2, italics added.) Although the italicized language
may be read to indicate that the FAA applies only to disputes about contractual
rights, not statutory rights (see Friedman, The Lost Controversy Limitation of the
Federal Arbitration Act (2012) 46 U.Rich. L.Rev. 1005, 1037–1045), the high
court has found the FAA applicable to statutory claims between parties to an
arbitration agreement (see, e.g., Mitsubishi Motors v. Soler Chrysler-Plymouth
(1985) 473 U.S. 614, 635–637). Even so, however, the statutory phrase ―a
controversy thereafter arising out of such contract or transaction‖ is most naturally
read to mean a dispute about the respective rights and obligations of parties in a
contractual relationship.
The FAA‘s focus on private disputes is further revealed in its legislative
history, which shows that the FAA‘s primary object was the settlement of ordinary
commercial disputes. (See J. Hearings on Sen. Bill No. 1005 and H.Res. No. 646
before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st
Sess., 15 (1924) at p. 29 [testimony of FAA drafter Julius Henry Cohen that the
act will merely make enforceable the customs of trade associations to arbitrate
disputes]; id. at p. 7 [testimony of Charles Bernheimer, Chairman of Com. on
Arbitration, N.Y. State Chamber of Commerce, that FAA is designed to resolve
37
―ordinary everyday trade disputes‖ between merchants].) There is no indication
that the FAA was intended to govern disputes between the government in its law
enforcement capacity and private individuals. Furthermore, although qui tam
citizen actions on behalf of the government were well established at the time the
FAA was enacted (see ante, at p. 33), there is no mention of such actions in the
legislative history and no indication that the FAA was concerned with limiting
their scope. (Compare Concepcion, supra, 563 U.S. at pp. __–__ [131 S.Ct. at
pp. 1751–1752] [noting that class arbitration was not envisioned by the Congress
that enacted the FAA].)
Consistent with this understanding, the United States Supreme Court‘s
FAA jurisprudence — with one exception discussed below — consists entirely of
disputes involving the parties‘ own rights and obligations, not the rights of a public
enforcement agency. (See, e.g., Italian Colors, supra, 570 U.S. at p. __ [133 S.
Ct. at p. 2308] [class action by merchants for excessive credit card fees charged in
violation of antitrust laws]; Marmet Health Care Center, Inc. v. Brown (2012) 565
U.S. __, __ [132 S. Ct. 1201, 1202–1203] [wrongful death action]; Concepcion,
supra, 563 U.S. at p. __ [131 S.Ct. at p. 1744] [class action suit for damages over
fraudulent practices]; Rent-A-Center West, Inc. v. Jackson (2010) 561 U.S. 63, __
[130 S. Ct. 2772, 2775] [employment discrimination suit]; Stolt-Nielsen S.A. v.
AnimalFeeds International Corp. (2010) 559 U.S. 662, 667 [antitrust dispute
involving price fixing and supracompetitive pricing]; Preston v. Ferrer (2008) 552
U.S. 346, 350 [action by attorney to recover fees from former client]; Buckeye
Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 443 [class action by
borrowers against lender for alleged usurious loans]; Green Tree Financial
Corp. v. Bazzle (2003) 539 U.S. 444, 449 [class action damages suit by borrowers
against lender for violations of South Carolina law]; Doctor’s Associates, Inc. v.
Casarotto (1996) 517 U.S. 681, 683 [contract and fraud claims related to franchise
38
agreement]; Rodriguez de Quijas v. Shearson/Am. Exp. (1989) 490 U.S. 477, 478–
479 [various statutory causes of actions by investors against broker over
investments ―turned sour‖]; Volt Information Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior Univ. (1989) 489 U.S. 468, 470–471 [action for fraud and
breach of contract]; Perry v. Thomas (1987) 482 U.S. 483, 484–485 [suit for
breach of contract, conversion, and breach of fiduciary duty arising from
employment relationship]; Shearson/American Express Inc. v. McMahon (1987)
482 U.S. 220, 222–223 [suit against brokerage firm by clients alleging various
statutory causes of action]; Mitsubishi Motors v. Soler Chrysler-Plymouth (1985)
473 U.S. 614, 619–620 [contract, defamation, and antitrust dispute between
automobile companies]; Southland Corp. v. Keating (1984) 465 U.S. 1, 4 [class
action suit for fraud, breach of contract, breach of fiduciary duty, and violation of
state disclosure requirements related to franchise agreement]; Gilmer v.
Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 23–24 [employment age
discrimination suit]; Moses H. Cone Memorial Hospital v. Mercury Construction
Corp. (1983) 460 U.S. 1, 6–7 [contract dispute].)
The one case in which the high court has considered the enforcement of an
arbitration agreement against the government does not support CLS‘s contention
that the FAA preempts a PAGA action. In EEOC v. Waffle House, Inc. (2002)
534 U.S. 279 (Waffle House), the high court held that an employment arbitration
agreement governed by the FAA does not prevent the Equal Employment
Opportunity Commission (EEOC) from suing an employer on behalf of an
employee bound by that agreement for victim-specific relief, such as reinstatement
and back pay. The court based its conclusion primarily on the fact that the EEOC
was not a party to the arbitration agreement. (Id. at pp. 288–289.) Waffle House
further noted that the EEOC was not a proxy for the individual employee, that the
EEOC could prosecute the action without the employee‘s consent, and that the
39
employee did not exercise control over the litigation. (Id. at p. 291.) Whereas
Waffle House involved a suit by the government seeking to obtain victim-specific
relief on behalf of an employee bound by the arbitration agreement, this case
involves an employee bound by an arbitration agreement bringing suit on behalf of
the government to obtain remedies other than victim-specific relief, i.e., civil
penalties paid largely into the state treasury. Nothing in Waffle House suggests
that the FAA preempts a rule prohibiting the waiver of this kind of qui tam action
on behalf of the state for such remedies.
Simply put, a PAGA claim lies outside the FAA‘s coverage because it is
not a dispute between an employer and an employee arising out of their
contractual relationship. It is a dispute between an employer and the state, which
alleges directly or through its agents — either the Labor and Workforce
Development Agency or aggrieved employees — that the employer has violated
the Labor Code. Through his PAGA claim, Iskanian is seeking to recover civil
penalties, 75 percent of which will go to the state‘s coffers. We emphasized in
Arias that ―an action to recover civil penalties ‗is fundamentally a law
enforcement action designed to protect the public and not to benefit private
parties‘ ‖; that ―[i]n a lawsuit brought under the [PAGA], the employee plaintiff
represents the same legal right and interest as state labor law enforcement
agencies‖; and that ―an aggrieved employee‘s action under the [PAGA] functions
as a substitute for an action brought by the government itself.‖ (Arias, supra, 46
Cal.4th at p. 986.) The fact that any judgment in a PAGA action is binding on the
government confirms that the state is the real party in interest. (Ibid.) It is true
that ―a person may not bring a PAGA action unless he or she is ‗an aggrieved
employee‘ (§ 2699, subd. (a))‖ (conc. opn., post, at p. 6), but that does not change
the character of the litigant or the dispute. As Justice Chin correctly observes,
―every PAGA action, whether seeking penalties for Labor Code violations as to
40
only one aggrieved employee — the plaintiff bringing the action — or as to other
employees as well, is a representative action on behalf of the state.‖ (Id. at p. 4.)
Of course, any employee is free to forgo the option of pursuing a PAGA
action. But it is against public policy for an employment agreement to deprive
employees of this option altogether, before any dispute arises. (Ante, at pp. 34–
36.) The question is whether this public policy contravenes the FAA. Nothing in
the text or legislative history of the FAA nor in the Supreme Court‘s construction
of the statute suggests that the FAA was intended to limit the ability of states to
enhance their public enforcement capabilities by enlisting willing employees in
qui tam actions. Representative actions under the PAGA, unlike class action suits
for damages, do not displace the bilateral arbitration of private disputes between
employers and employees over their respective rights and obligations toward each
other. Instead, they directly enforce the state’s interest in penalizing and deterring
employers who violate California‘s labor laws. In crafting the PAGA, the
Legislature could have chosen to deputize citizens who were not employees of the
defendant employer to prosecute qui tam actions. The Legislature instead chose to
limit qui tam plaintiffs to willing employees who had been aggrieved by the
employer in order to avoid ―private plaintiff abuse.‖ (Sen. Judiciary Comm.,
Analysis of Sen. Bill No. 796 (Reg. Sess. 2003–2004) as amended Apr. 22, 2003,
p. 7.) This arrangement likewise does not interfere with the FAA‘s policy goal.
Our opinion today would not permit a state to circumvent the FAA by, for
example, deputizing employee A to bring a suit for the individual damages claims
of employees B, C, and D. This pursuit of victim-specific relief by a party to an
arbitration agreement on behalf of other parties to an arbitration agreement would
be tantamount to a private class action, whatever the designation given by the
Legislature. Under Concepcion, such an action could not be maintained in the
face of a class waiver. Here, importantly, a PAGA litigant‘s status as ―the proxy
41
or agent‖ of the state (Arias, supra, 46 Cal.4th at p. 986) is not merely semantic; it
reflects a PAGA litigant‘s substantive role in enforcing our labor laws on behalf of
state law enforcement agencies. Our FAA holding applies specifically to a state
law rule barring predispute waiver of an employee‘s right to bring an action that
can only be brought by the state or its representatives, where any resulting
judgment is binding on the state and any monetary penalties largely go to state
coffers.
Further, the high court has emphasized that ― ‗courts should assume that
―the historic police powers of the States‖ are not superseded ―unless that was the
clear and manifest purpose of Congress.‖ ‘ (Arizona v. United States (2012) 567
U.S. __, __ [132 S. Ct. 2492, 2501]; see Chamber of Commerce v. Whiting (2011)
563 U.S. __, __ [131 S. Ct. 1968, 1985] [‗Our precedents ―establish that a high
threshold must be met if a state law is to be preempted for conflicting with the
purposes of a federal Act.‖ [Citation.]‘].)‖ (Sonic II, supra, 57 Cal.4th at
p. 1154.) There is no question that the enactment and enforcement of laws
concerning wages, hours, and other terms of employment is within the state‘s
historic police power. (See Metropolitan Life Ins. Co. v. Massachusetts (1985)
471 U.S. 724, 756 [― ‗States possess broad authority under their police powers to
regulate the employment relationship to protect workers within the State.‘ ‖];
Kerr’s Catering Service v. Dept. of Industrial Relations (1962) 57 Cal. 2d 319,
326–327.) Moreover, how a state government chooses to structure its own law
enforcement authority lies at the heart of state sovereignty. (See Printz v. United
States (1997) 521 U.S. 898, 928 [―It is an essential attribute of the State‘s retained
sovereignty that they remain independent and autonomous within their proper
sphere of authority.‖].) We can discern in the FAA no purpose, much less a clear
and manifest purpose, to curtail the ability of states to supplement their
42
enforcement capability by authorizing willing employees to seek civil penalties for
Labor Code violations traditionally prosecuted by the state.
In sum, the FAA aims to promote arbitration of claims belonging to the
private parties to an arbitration agreement. It does not aim to promote arbitration
of claims belonging to a government agency, and that is no less true when such a
claim is brought by a statutorily designated proxy for the agency as when the
claim is brought by the agency itself. The fundamental character of the claim as a
public enforcement action is the same in both instances. We conclude that
California‘s public policy prohibiting waiver of PAGA claims, whose sole purpose
is to vindicate the Labor and Workforce Development Agency‘s interest in
enforcing the Labor Code, does not interfere with the FAA‘s goal of promoting
arbitration as a forum for private dispute resolution.
D.
CLS contends that the PAGA violates the principle of separation of powers
under the California Constitution. Iskanian says this issue was not raised in CLS‘s
answer to the petition for review and is not properly before us. Because the
constitutionality of the PAGA is directly pertinent to the issue of whether a PAGA
waiver is contrary to state public policy, and because the parties have had a
reasonable opportunity to brief this issue, we will decide the merits of this
question. (See Cal. Rules of Court, rule 8.516(b)(1), (2).)
The basis of CLS‘s argument is found in County of Santa Clara v. Superior
Court (2010) 50 Cal. 4th 35 (County of Santa Clara). There we reconsidered our
earlier holding in People ex rel. Clancy v. Superior Court (1985) 39 Cal. 3d 740
(Clancy), which appeared to categorically bar public entities from hiring private
counsel on a contingent fee basis to prosecute public nuisances. In the context of a
disputed injunction to close an adult bookstore, this court reasoned that private
counsel acting as a public prosecutor must be ―absolutely neutral‖ and must
43
engage in a ―delicate weighing of values‖ that would be upset if the prosecutor had
a financial interest in the prosecution. (Id. at pp. 748–749.)
In County of Santa Clara, we clarified that Clancy‘s ―absolute prohibition
on contingent-fee arrangements‖ applies only to cases involving a constitutional
―liberty interest‖ or ―the right of an existing business to continue operation,‖ and
not to all public nuisance cases. (County of Santa Clara, supra, 50 Cal.4th at
p. 56.) We recognized, as we did in Clancy, that contingent fee representation was
appropriate in ―ordinary civil cases‖ in which a government entity‘s own
economic interests were at stake. (County of Santa Clara, at p. 50; see Clancy,
supra, 39 Cal.3d at p. 748.) Whereas the suit in Clancy was akin to a criminal
prosecution, with possible criminal penalties and severe civil penalties, we said the
public nuisance suit at issue in County of Santa Clara, which involved abatement
of lead paint, fell somewhere in between an ordinary civil case and a criminal
prosecution. (County of Santa Clara, at p. 55.) We held that for such cases, the
interest in prosecutorial neutrality is sufficiently protected when private counsel,
although having a pecuniary interest in litigation, is ―subject to the supervision and
control of government attorneys‖ so that ―the discretionary decisions vital to an
impartial prosecution are made by neutral attorneys.‖ (Id. at p. 59.)
CLS contends that the PAGA runs afoul of our holding in County of Santa
Clara by authorizing financially interested private citizens to prosecute claims on
the state‘s behalf without governmental supervision. CLS further contends that
because County of Santa Clara dealt with regulation of the legal profession, which
is the province of this court, the PAGA violates the principle of separation of
powers under the California Constitution. (See Cal. Const., art. III, § 3; Merco
Constr. Engineers, Inc. v. Municipal Court (1978) 21 Cal. 3d 724, 731–732.) We
disagree.
44
―[T]he separation of powers doctrine does not create an absolute or rigid
division of functions.‖ (Lockyer v. City and County of San Francisco (2004) 33
Cal. 4th 1055, 1068.) Rather, ―[t]he substantial interrelatedness of the three
branches‘ actions is apparent and commonplace: the judiciary passes upon the
constitutional validity of legislative and executive actions, the Legislature enacts
statutes that govern the procedures and evidentiary rules applicable in judicial and
executive proceedings, and the Governor appoints judges and participates in the
legislative process through the veto power. Such interrelationship, of course, lies
at the heart of the constitutional theory of ‗checks and balances‘ that the separation
of powers doctrine is intended to serve.‖ (Superior Court v. County of Mendocino
(1996) 13 Cal. 4th 45, 52–53.)
In considering CLS‘s challenge, we note that it would apply not only to the
PAGA but to all qui tam actions, including the California False Claims Act, which
authorizes the prosecution of claims on behalf of government entities without
government supervision. (See Gov. Code, § 12652, subd. (c).) No court has
applied the rule in Clancy or County of Santa Clara to such actions, and our case
law contains no indication that the enactment of qui tam statutes is anything but a
legitimate exercise of legislative authority. The Legislature is charged with
allocating scarce budgetary resources (see Professional Engineers in California
Government v. Schwarzenegger (2010) 50 Cal. 4th 989, 1010–1011), which
includes the provision of resources to the state executive branch for prosecution
and law enforcement. Qui tam actions enhance the state‘s ability to use such
scarce resources by enlisting willing citizens in the task of civil enforcement.
Indeed, the choice often confronting the Legislature is not between prosecution by
a financially interested private citizen and prosecution by a neutral prosecutor, but
between a private citizen suit and no suit at all. As noted, the lack of government
resources to enforce the Labor Code led to a legislative choice to deputize and
45
incentivize employees uniquely positioned to detect and prosecute such violations
through the PAGA.
This legislative choice does not conflict with County of Santa Clara. Our
holding in that case applies to circumstances in which a government entity retains
a private law firm or attorney as outside counsel. A ―fundamental‖ reason to
worry about neutrality in that context is that such an attorney, like an attorney
directly employed by the government, ―has the vast power of the government
available to him; he must refrain from abusing that power by failing to act
evenhandedly.‖ (Clancy, supra, 39 Cal.3d at p. 746.) By contrast, a litigant who
brings a qui tam action on behalf of the government generally does not have
access to such power. The qui tam litigant has only his or her own resources and
may incur significant cost if unsuccessful. The PAGA, by deputizing employee
plaintiffs to enforce the Labor Code on behalf of the Labor and Workforce
Development Agency, does not present the same risks of abuse as when a city or
county hires outside counsel to do its bidding.
Moreover, our rule in County of Santa Clara involves minimal if any
interference with legislative or executive functions of state or local government.
The rule simply requires government entities to supervise the attorneys they
choose to hire to pursue public nuisance actions. By contrast, a rule disallowing
qui tam actions would significantly interfere with a legitimate exercise of
legislative authority aimed at accomplishing the important public purpose of
augmenting scarce government resources for civil prosecutions.
Because of these differences, Clancy and County of Santa Clara do not
apply beyond the context of attorneys hired by government entities as independent
contractors. There is no conflict between the rule in those cases and the PAGA.
Accordingly, we reject CLS‘s argument that the PAGA violates the separation of
powers principle under the California Constitution.
46
VI.
Having concluded that CLS cannot compel the waiver of Iskanian‘s
representative PAGA claim but that the agreement is otherwise enforceable
according to its terms, we next consider how the parties will proceed. Although
the arbitration agreement can be read as requiring arbitration of individual claims
but not of representative PAGA claims, neither party contemplated such a
bifurcation. Iskanian has sought to litigate all claims in court, while CLS has
sought to arbitrate the individual claims while barring the PAGA representative
claim altogether. In light of the principles above, neither party can get all that it
wants. Iskanian must proceed with bilateral arbitration on his individual damages
claims, and CLS must answer the representative PAGA claims in some forum.
The arbitration agreement gives us no basis to assume that the parties would prefer
to resolve a representative PAGA claim through arbitration.
This raises a number of questions: (1) Will the parties agree on a single
forum for resolving the PAGA claim and the other claims? (2) If not, is it
appropriate to bifurcate the claims, with individual claims going to arbitration and
the representative PAGA claim to litigation? (3) If such bifurcation occurs, should
the arbitration be stayed pursuant to Code of Civil Procedure section 1281.2? (See
Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 388–391
[California Arbitration Act rather than FAA procedures apply to arbitrations
brought in California courts].) The parties have not addressed these questions and
may do so on remand. The parties may also address CLS‘s contention that the
47
PAGA claims are time-barred, as well as Iskanian‘s response that CLS has
forfeited this contention and cannot raise it on appeal.
CONCLUSION
Because the Court of Appeal held that the entire arbitration agreement,
including the PAGA waiver, should be enforced, we reverse the judgment and
remand the cause for proceedings consistent with this opinion.
LIU, J.
WE CONCUR: CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
KENNARD, J.*
________________________
* Retired Associate Justice of the Supreme Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
48
CONCURRING OPINION BY CHIN, J.
I agree that the rule of Gentry v. Superior Court (2007) 42 Cal. 4th 443
(Gentry), which was announced by a bare four-to-three majority of this court, is
inconsistent with and invalid under the decisions of the United States Supreme
Court interpreting the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.). I also
agree that the class action waiver in this case is not unlawful under the National
Labor Relations Act, that defendant CLS Transportation Los Angeles, LLC, did
not waive its right to arbitrate, that the arbitration agreement is invalid insofar as it
purports to preclude plaintiff Arshavir Iskanian from bringing in any forum a
representative action under the Private Attorneys General Act of 2004 (PAGA)
(Lab. Code, § 2698 et seq.), and that this conclusion is not inconsistent with the
FAA. However, as explained below, I do not endorse all of the majority‘s
reasoning and discussion, including its endorsement of dicta in Sonic-Calabasas
A, Inc. v. Moreno (2013) 57 Cal. 4th 1109 (Sonic II). I therefore concur in the
judgment.
I. BOTH GENTRY’S RULE AND SONIC II’S DICTA ARE INVALID UNDER THE
FAA.
As noted above, I agree with the majority that Gentry‘s rule may not stand
under the United States Supreme Court‘s construction of the FAA. Indeed, for
that very reason, I joined Justice Baxter‘s well-reasoned dissent in Gentry, which
explained that neither the FAA nor California law permits courts to ―elevate a
mere judicial affinity for class actions as a beneficial device for implementing the
wage laws above the policy expressed by both Congress and our own Legislature
that voluntary individual agreements to arbitrate . . . should be enforced according
to their terms.‖ (Gentry, supra, 42 Cal.4th at p. 477 (dis. opn. of Baxter, J.).)
I do not agree, however, that the approach to unconscionability a majority
of this court described in dicta in Sonic II may ―be squared‖ with the high court‘s
FAA decisions. (Maj. opn., ante, at p. 10.) That approach, as my dissent in Sonic
II explained, is preempted by the FAA as the high court construed that act in
AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740]
(Concepcion), American Express Co. v. Italian Colors Restaurant (2013) 570 U.S.
__ [133 S. Ct. 2304] (Italian Colors), and several other decisions. (Sonic II, supra,
57 Cal.4th at pp. 1184-1192 (dis. opn. of Chin, J.).) Nothing has occurred since
we issued Sonic II to change my view.
Indeed, the majority‘s discussion in this case further reveals the invalidity
under federal law of Sonic II‘s dicta. According to the majority, under that dicta,
whether the arbitration procedure to which the parties have agreed is
unconscionable turns not on whether it permits recovery, but on whether it is, in a
court‘s view, less ―effective . . . for wage claimants‖ than a ―dispute resolution
mechanism‖ that includes the procedures and protections ―the Berman statutes‖
prescribe. (Maj. opn., ante, at pp. 9-10.) However, the high court has established
that the FAA does not permit courts to invalidate arbitration agreements based on
the view that the procedures they set forth would ― ‗weaken[] the protections
afforded in the substantive law to would-be complainants.‘ [Citation.]‖ (Green
Tree Financial Corp.-Ala. v. Randolph (1990) 531 U.S. 79, 89-90.) Consistent
with this principle, in Italian Colors, the court recently held that an arbitration
agreement may be not invalidated based on proof that its waiver of a
congressionally approved mechanism — the class action — would make pursuing
2
a federal antitrust claim prohibitively expensive. (Italian Colors, supra, 570 U.S.
at pp. __ [133 S.Ct. at pp. 2310-2312].) A fortiori, an arbitration agreement may
not be invalidated based on a court‘s subjective view that the agreement‘s waiver
of the Berman procedures and protections would render arbitration less
―effective . . . for wage claimants‖ than a ―dispute resolution mechanism‖ that
includes those procedures and protections. According to the high court, the FAA
is ―a congressional declaration of a liberal federal policy favoring arbitration
agreements, notwithstanding any state substantive or procedural policies to the
contrary.‖ (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1,
24, italics added.) To quote Justice Baxter‘s dissent in Gentry, it does not permit
courts to ―elevate a mere judicial affinity for‖ the Berman dispute resolution
mechanism ―as a beneficial device for implementing the wage laws above the
policy expressed by . . . Congress . . . that voluntary individual agreements to
arbitrate . . . should be enforced according to their terms.‖ (Gentry, supra, 42
Cal.4th at p. 477 (dis. opn. of Baxter, J.).) I therefore do not join the majority
opinion insofar as it suggests that the approach to unconscionability described in
Sonic II‘s dicta is valid under the FAA.
II. THE PAGA WAIVER IS UNENFORCEABLE.
Under PAGA, an ―aggrieved employee‖ — i.e., ―any person who was
employed by‖ someone alleged to have violated the Labor Code ―and against
whom one or more of the alleged violations was committed‖ — may bring a civil
action against the alleged violator to recover civil penalties for Labor Code
violations both as to himself or herself and as to ―other current or former
employees.‖ (Lab. Code, § 2699, subds. (a), (c).)1 As we have explained, an
1 All further unlabeled statutory references are to the Labor Code.
3
aggrieved employee‘s PAGA action ― ‗is fundamentally a law enforcement
action‘ ‖ that ―substitute[s] for an action brought by the government itself.‖ (Arias
v. Superior Court (2009) 46 Cal. 4th 969, 986.) The employee-plaintiff ―acts as
the proxy or agent of state labor law enforcement agencies, representing the same
legal right and interest as those agencies‖ and seeking statutory civil penalties
―that otherwise would be sought by‖ those agencies. (Amalgamated Transit
Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal. 4th 993, 1003.) By
statute, 75 percent of the penalties ―recovered by aggrieved employees‖ under
PAGA goes to the Labor and Workforce Development Agency, and only 25
percent goes to ―the aggrieved employees.‖ (§ 2699, subd. (i).) Accordingly,
every PAGA action, whether seeking penalties for Labor Code violations as to
only one aggrieved employee — the plaintiff bringing the action — or as to other
employees as well, is a representative action on behalf of the state.
As relevant, the arbitration agreement here provides: ―[E]xcept as
otherwise required under applicable law, (1) EMPLOYEE and COMPANY
expressly intend and agree that class action and representative action procedures
shall not be asserted, nor will they apply, in any arbitration pursuant to this
Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not
assert class action or representative action claims against the other in arbitration
or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit
their own, individual claims in arbitration and will not seek to represent the
interests of any other person.‖ (Italics added.) Because, as explained above, all
PAGA claims are representative actions, these provisions purport to preclude
Iskanian from bringing a PAGA action in any forum. To this extent, the
arbitration provision is, for reasons the majority states, invalid under California
law. (Maj. opn., ante, at pp. 34-36.)
4
I agree with the majority that this conclusion is not inconsistent with the
FAA, but my reasoning differs from the majority‘s. Although the FAA generally
requires enforcement of arbitration agreements according to their terms, the high
court has recognized an exception to this requirement for ―a provision in an
arbitration agreement forbidding the assertion of certain statutory rights.‖ (Italian
Colors, supra, 570 U.S. at p. __ [133 S.Ct. at p. 2310]; see Mitsubishi Motors v.
Soler Chrysler–Plymouth (1985) 473 U.S. 614, 637 [―so long as the prospective
litigant effectively may vindicate its statutory cause of action in the arbitral forum,
the statute will continue to serve both its remedial and deterrent function‖].)
Accordingly, the conclusion that the arbitration agreement here is invalid insofar
as it forbids Iskanian from asserting his statutory right under PAGA in any forum
does not run afoul of the FAA.
The majority takes a different route in finding no preemption. It first
correctly observes that the FAA applies by its terms only to provisions in contracts
― ‗to settle by arbitration a controversy thereafter arising out of such contract.‘ ‖
(Maj. opn., ante, at p. 37, quoting 9 U.S.C. § 2.) Based on this language, the
majority then declares that a PAGA claim ―lies‖ completely ―outside the FAA‘s
coverage because it is not a dispute between an employer and an employee arising
out of their contractual relationship.‖ (Maj. opn., ante, at p. 40.) It is, instead,
merely ―a dispute between an employer and the state, which alleges directly or
through its agents — either the Labor and Workforce Development Agency or
aggrieved employees — that the employer has violated the Labor Code.‖ (Maj.
opn., ante, at p. 40.)
For several reasons, I question the majority‘s analysis. First, I disagree that
a PAGA claim is not ―a dispute between an employer and an employee arising out
of their contractual relationship.‖ (Maj. opn., ante, at p. 40.) As noted above, a
person may not bring a PAGA action unless he or she is ―an aggrieved employee‖
5
(§ 2699, subd. (a)), i.e., a person ―who was employed by‖ the alleged Labor Code
violator and ―against whom‖ at least one of the alleged violations ―was
committed‖ (§ 2699, subd. (c)). In other words, as the majority explains, by
statute, only ―employees who ha[ve] been aggrieved by the employer‖ may bring
PAGA actions. (Maj. opn., ante, at p. 41.) Thus, although the scope of a PAGA
action may extend beyond the contractual relationship between the plaintiff-
employee and the employer — because the plaintiff may recover civil penalties for
violations as to other employees — the dispute arises, first and fundamentally, out
of that relationship.
Second, to find no FAA preemption in this case, we need not adopt a novel
theory, devoid of case law support, that renders the FAA completely inapplicable
to PAGA claims. Under the majority‘s view that PAGA claims ―lie[] outside the
FAA‘s coverage‖ because they are not disputes between employers and employees
―arising out of their contractual relationship‖ (maj. opn., ante, at p. 40), the state
may, without constraint by the FAA, simply ban arbitration of PAGA claims and
declare agreements to arbitrate such claims unenforceable. I do not subscribe to
that view, for which the majority offers no case law support. By contrast, as
explained above, there is case law support — from the high court itself — for the
conclusion that the arbitration agreement here is unenforceable because it purports
to preclude Iskanian from bringing a PAGA action in any forum. We should limit
ourselves to an analysis firmly grounded in high court precedent, rather than
needlessly adopt a novel theory that renders the FAA completely inapplicable.
Third, contrary to the majority‘s assertion, EEOC v. Waffle House, Inc.
(2002) 534 U.S. 279 (Waffle House), to the extent it is relevant, actually does
―suggest[] that the FAA preempts‖ the majority‘s rule. The question there was
whether, under the FAA, an agreement between an employer and an employee to
arbitrate employment-related disputes precluded the Equal Employment
6
Opportunity Commission (EEOC), which was not ―a party to‖ the arbitration
agreement and had never ―agreed to arbitrate its claims,‖ from pursuing victim-
specific relief in a judicial enforcement action. (Waffle House, supra, at p. 294.)
The court said ―no,‖ explaining that nothing in the FAA ―place[s] any restriction
on a nonparty‘s choice of a judicial forum‖ (Waffle House, supra, at p. 289) or
requires a ―nonparty‖ to arbitrate claims it has not agreed to arbitrate (id. at p.
294). Because Iskanian is a party to the arbitration agreement in this case, this
holding is inapposite. What is apposite in Waffle House is the court‘s statement
that the FAA ―ensures the enforceability of private agreements to arbitrate.‖
(Waffle House, supra, 534 U.S. at p. 289.) This statement, which simply reiterates
what the court has said ―on numerous occasions‖ (Stolt-Nielsen S.A. v.
AnimalFeeds International Corp. (2010) 559 U.S. 662, 682), casts considerable
doubt on the majority‘s view that the FAA permits either California or its courts to
declare private agreements to arbitrate PAGA claims categorically unenforceable.
Finally, under other high court precedent, there is good reason to doubt the
majority‘s suggestion that the FAA places no limit on ―the ability of states to
enhance their public enforcement capabilities by enlisting willing employees in
qui tam actions.‖ (Maj. opn., ante, at p. 41.) When the high court recently held in
Concepcion that the FAA prohibits courts from conditioning enforcement of
arbitration agreements on the availability of classwide arbitration procedures, even
if such procedures ―are necessary to prosecute small-dollar claims that might
otherwise slip through the legal system,‖ it explained: ―States cannot require a
procedure that is inconsistent with the FAA, even if it is desirable for unrelated
reasons.‖ (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753].) In earlier
decisions, the high court broadly explained that the FAA ―is a congressional
declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the contrary‖
7
(Moses H. Cone Hospital v. Mercury Constr. Corp., supra, 460 U.S. at p. 24,
italics added), which ―withdr[aws] the power of the states to require a judicial
forum for the resolution of claims which the contracting parties agreed to resolve
by arbitration‖ (Southland Corp. v. Keating (1984) 465 U.S. 1, 10). Thus, ―if
contracting parties agree to include‖ certain claims ―within the issues to be
arbitrated, the FAA ensures that their agreement will be enforced according to its
terms even if a rule of state law would otherwise exclude such claims from
arbitration.‖ (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52,
58, italics added.) In other words, ―[w]hen state law prohibits outright the
arbitration of a particular type of claim, the analysis is straightforward: The
conflicting rule is displaced by the FAA.‖ (Concepcion, supra, 563 U.S. at p. __
[131 S.Ct. at p. 1747].) These binding pronouncements indicate that the FAA
may, in fact, place a limit on the ability of a state, for policy reasons, to ―enhance‖
its public enforcement capabilities by authorizing employees who have
contractually agreed to arbitrate their statutory PAGA claims to ignore that
agreement and pursue those claims in court as the state‘s ―representatives.‖ (Maj.
opn., ante, at p. 41.)
However, as explained above, requiring an arbitration provision to preserve
some forum for bringing PAGA actions does not exceed that limit. I therefore
concur in the judgment.
CHIN, J.
I CONCUR:
BAXTER, J.
8
CONCURRING AND DISSENTING OPINION BY WERDEGAR, J.
I join the court‘s conclusions as to Arshavir Iskanian‘s Private Attorneys
General Act claims, which are not foreclosed by his employment contract or the
Federal Arbitration Act (FAA). I disagree with the separate holding that the
mandatory class action and class arbitration waivers in Iskanian‘s employment
contract are lawful. Eight decades ago, Congress made clear that employees have
a right to engage in collective action and that contractual clauses purporting to
strip them of those rights as a condition of employment are illegal. What was true
then is true today. I would reverse the Court of Appeal‘s decision in its entirety.
I.
Employment contracts prohibiting collective action, first known as
― ‗ironclads,‘ ‖ date to the 19th century. (Ernst, The Yellow-dog Contract and
Liberal Reform, 1917-1932 (1989) 30 Lab. Hist. 251, 252 (The Yellow-dog
Contract).) Confronted with collective efforts by workers to agitate for better
terms and conditions of employment, employers responded by conditioning
employment on the promise not to join together with fellow workers in a union.
(Lincoln Union v. Northwestern Co. (1949) 335 U.S. 525, 534; Silverstein,
Collective Action, Property Rights and Law Reform: The Story of the Labor
Injunction (1993) 11 Hofstra Lab. L.J. 97, 100.) This practice was ―so obnoxious
to workers that they gave these required agreements the name of ‗yellow dog
contracts.‘ ‖ (Lincoln Union, at p. 534.)
―Recognizing that such agreements in large part represent the superior
economic position of the employer by virtue of which the theoretical freedom of
an employee to refuse assent was illusory, and that such agreements therefore
emptied of meaning the ‗right of collective bargaining,‘ ‖ state legislatures and
Congress sought to stem the practice, enacting statutes that prohibited
conditioning employment on a compulsory contractual promise not to unionize.
(Frankfurter & Greene, The Labor Injunction (1930) p. 146.) These efforts were
initially unsuccessful; first state courts, and then the Lochner-era1 Supreme Court,
struck down the bans as an infringement on liberty of contract. (Coppage v.
Kansas (1915) 236 U.S. 1, 9-14; Adair v. United States (1908) 208 U.S. 161, 172-
176; Frankfurter & Greene, at pp. 146-148; Ernst, The Yellow-dog Contract,
supra, 30 Lab. Hist. at p. 252.) When the Supreme Court gave a clear imprimatur
to yellow-dog contracts in Hitchman Coal & Coke Co. v. Mitchell (1917) 245 U.S.
229, upholding an injunction against collective organizing efforts on the ground
that the contracts granted employers a property right secure from union
interference, the use of contractual bans on collective action blossomed.
(Frankfurter & Greene, at pp. 148-149; Ernst, at pp. 253-256.) Through the use of
such terms, ―[a]ny employer willing to compel employee acquiescence could
effectively foreclose all union organizational efforts directed at his business.‖
(Winter, Jr., Labor Injunctions and Judge-made Labor Law: The Contemporary
Role of Norris-LaGuardia (1960) 70 Yale L.J. 70, 72, fn. 14.)
1 Lochner v. New York (1905) 198 U.S. 45.
2
In the 1930‘s, Congress tried again to outlaw contractual bans on collective
action. A bill drafted by then-Professor Felix Frankfurter and others2 was swiftly
and overwhelmingly approved in both houses and enacted as the Norris-LaGuardia
Act of 1932. (Bremner, The Background of the Norris-La Guardia Act (1947) 9
The Historian 171, 174-175.) Section 2 of the act declared as the public policy of
the United States employees‘ right to engage in collective activity, free from
employer restraint or coercion: ―Whereas under prevailing economic conditions,
developed with the aid of governmental authority for owners of property to
organize in the corporate and other forms of ownership association, the individual
unorganized worker is commonly helpless to exercise actual liberty of contract
and to protect his freedom of labor, and thereby to obtain acceptable terms and
conditions of employment, wherefore, . . . it is necessary that he have full freedom
of association, self-organization, and designation of representatives of his own
choosing, to negotiate the terms and conditions of his employment, and that he
shall be free from the interference, restraint, or coercion of employers of labor, or
their agents, in the designation of such representatives or in self-organization or in
other concerted activities for the purpose of collective bargaining or other mutual
aid or protection . . . .‖ (29 U.S.C. § 102, italics added.) Congress recognized the
inability of a ―single laborer, standing alone, confronted with such far-reaching,
overwhelming concentration of employer power‖ to ―negotiate or to exert any
influence over the fixing of his wages or the hours and conditions of his labor,‖ the
necessary corrective to be ―[t]he right of wage earners to organize and to act
2 See Frankfurter & Greene, The Labor Injunction, supra, page 226 and
footnote 61; id. at pages 279-288 (draft bill); Fischl, Self, Others, and Section 7:
Mutualism and Protected Protest Activities Under the National Labor Relations
Act (1989) 89 Colum. L.Rev. 789, 846-849.
3
jointly in questions affecting wages [and the] conditions of labor,‖ and, as the
solution, ―specific legislative action‖ to preserve workers‘ ―freedom in association
to influence the fixing of wages and working conditions.‖ (Sen.Rep. No. 163, 72d
Cong., 1st Sess., p. 9 (1932); see generally id., at pp. 9-14.) Arguing for passage,
the act‘s cosponsor, Senator George Norris, explained the measure was needed to
end a regime in which ―the laboring man . . . . must singly present any grievance
he has.‖ (Remarks of Sen. Norris, Debate on Sen. No. 935, 72d Cong., 1st Sess.,
75 Cong. Rec. 4504 (1932).)
To that end, section 3 of the Norris-LaGuardia Act was ―designed to outlaw
the so-called yellow-dog contract.‖ (H.R.Rep. No. 669, 72d Cong., 1st Sess., p. 6
(1932); accord, Sen.Rep. No. 163, supra, at pp. 15-16.) ―[T]he vice of such
contracts, which are becoming alarmingly widespread,‖ was that they rendered
collective action and unions effectively impossible; ―[i]ndeed, that is undoubtedly
their purpose, and the purpose of the organizations of employers opposing‖ the
Norris-LaGuardia Act. (H.R.Rep. No. 669, at p. 7.) If such contracts, requiring a
waiver of workers‘ rights of free association, were given enforcement in the
courts, ―collective action would be impossible so far as the employee is concerned
by virtue of the necessity of signing the character of contract condemned, which
prevents a man from joining with his fellows for collective action; and the
statement . . . that ‗it has long been recognized that employees are entitled to
organize for the purpose of securing the redress of grievances and to promote
agreements with employers relating to rates of pay and conditions of work‘ would
become an empty statement of historical fact.‖ (Ibid., quoting Texas & N. O. R.
Co. v. Ry. Clerks (1930) 281 U.S. 548, 570.) Accordingly, the Norris-LaGuardia
Act declared yellow dog contracts ―to be contrary to the public policy of the
United States‖ and unenforceable in any court of the United States. (29 U.S.C.
§ 103.)
4
Three years later, Congress expanded on these proscriptions in the National
Labor Relations Act (commonly known as the Wagner Act after its author, Sen.
Robert F. Wagner). (Pub.L. No. 74-198 (July 5, 1935) 49 Stat. 449, codified as
amended at 29 U.S.C. §§ 151-169.) The public policy underlying the act was the
same as that motivating the Norris-LaGuardia Act: ―protecting the exercise by
workers of full freedom of association, self-organization, and designation of
representatives of their own choosing, for the purpose of negotiating the terms and
conditions of their employment or other mutual aid or protection.‖ (29 U.S.C.
§ 151.) To ensure that end, the Wagner Act granted employees, inter alia, ―the
right . . . to engage in . . . concerted activities for the purpose of collective
bargaining or other mutual aid or protection . . . .‖ (29 U.S.C. § 157 (also known
as section 7).)3 Employers were forbidden ―to interfere with, restrain, or coerce
employees in the exercise of‖ their right to engage in concerted, collective activity.
(29 U.S.C. § 158(a)(1).) Inter alia, these provisions were a ―logical and imperative
extension of that section of the Norris-La Guardia Act which makes the yellow-
dog contract unenforceable in the Federal courts.‖ (Nat. Labor Relations Act of
1935, Hearings before House Com. on Labor on H.R. No. 6288, 74th Cong., 1st
Sess., at p. 14 (1935), statement of Sen. Wagner; accord, remarks of Sen. Wagner,
Debate on Sen. No. 1958, 74th Cong., 1st Sess., 79 Cong. Rec. 7570 (daily ed.
May 15, 1935); see H.R.Rep. No. 1147, 74th Cong., 1st Sess., supra, at p. 19.)4
3 Congress took to heart, as it had in the Norris-LaGuardia Act, Chief Justice
Taft‘s admonition that because a ―single employee was helpless in dealing with an
employer,‖ collective action ―was essential to give laborers [the] opportunity to
deal on equality with their employer.‖ (Amer. Foundries v. Tri-City Council
(1921) 257 U.S. 184, 209, quoted in H.R.Rep. No. 1147, 74th Cong., 1st Sess.,
p. 10 (1935) and H.R.Rep. No. 669, 72d Cong., 1st Sess., supra, at p. 7.)
4 Senator Wagner‘s ―intent was the intent of Congress, for unlike most other
major legislation, this statute was the product of a single legislator. Although
(footnote continued on next page)
5
Recognizing as clear ―the legality of collective action on the part of employees in
order to safeguard their proper interests,‖ the post-Lochner Supreme Court now
upheld against constitutional challenge Congress‘s ―safeguard‖ of this right.
(Labor Board v. Jones & Laughlin (1937) 301 U.S. 1, 33-34.)
In the years since the Wagner Act‘s passage, the Supreme Court, Courts of
Appeals, and National Labor Relations Board have conclusively established that
the right to engage in collective action includes the pursuit of actions in court.
(Eastex, Inc. v. NLRB (1978) 437 U.S. 556, 565-566 [the Wagner Act‘s ― ‗mutual
aid or protection‘ clause protects employees from retaliation by their employers
when they seek to improve working conditions through resort to administrative
and judicial forums‖]; Brady v. National Football League (8th Cir. 2011) 644 F.3d
661, 673 [―a lawsuit filed in good faith by a group of employees to achieve more
favorable terms or conditions of employment is ‗concerted activity‘ under § 7‖ of
the Wagner Act]; Mohave Electric Cooperative (1998) 327 N.L.R.B. 13, 18,
enforced by Mohave Elec. Co-op., Inc. v. N.L.R.B. (D.C. Cir. 2000) 206 F.3d
1183, 1188-1189 [same]; Altex Ready Mixed Concrete Corp. (1976) 223 N.L.R.B.
696, 699-700, enforced by Altex Ready Mixed Concrete Corp. v. N.L.R.B. (5th
Cir.) 542 F.2d 295, 297 [same]; Leviton Manufacturing Company, Inc. v. N.L.R.B.
(1st Cir. 1973) 486 F.2d 686, 689 [same].) This right extends to the filing of wage
and hour class actions (United Parcel Service, Inc. (1980) 252 N.L.R.B. 1015, 1018,
enforced by N.L.R.B. v. United Parcel Service, Inc. (6th Cir. 1982) 677 F.2d 421),
(footnote continued from previous page)
Wagner received assistance from various sources, he fully controlled the bill‘s
contents from introduction to final passage.‖ (Morris, Collective Rights as Human
Rights: Fulfilling Senator Wagner’s Promise of Democracy in the Workplace—
The Blue Eagle Can Fly Again (2005) 39 U.S.F. L.Rev. 701, 709.)
6
including wage class actions filed by former employees like Iskanian (see Harco
Trucking, LLC (2005) 344 N.L.R.B. 478, 482). The Wagner Act thus prohibits, as an
unfair labor practice, employer interference with the ability of current or former
employees to join collectively in litigation.
II.
Today‘s class waivers are the descendants of last century‘s yellow dog
contracts. (See D.R. Horton & Cuda (Jan. 3, 2012) 357 NLRB No. 184, p. 6.)
CLS Transportation‘s adhesive form contract includes a clause prohibiting
Iskanian, like all its employees, from pursuing class or representative suits or class
arbitrations.5 Thus, Iskanian may not file collectively with fellow employees a
suit or an arbitration claim challenging any of CLS‘s employment practices or
policies. Patently, the effect of the clause is to prevent employees from making
common cause to enforce rights to better wages and working conditions. In this,
the clause is indistinguishable from the yellow dog contracts prohibited by the
Norris-LaGuardia and Wagner Acts. Indeed, the whole point of protecting a right
to collective action is to allow employees to do precisely what CLS
Transportation‘s clause forbids—band together as a group to peaceably assert
rights against their employer.
5 The clause provides: ―[E]xcept as otherwise required under applicable law,
(1) EMPLOYEE and COMPANY expressly intend and agree that class action and
representative action procedures shall not be asserted, nor will they apply, in any
arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY
agree that each will not assert class action or representative action claims against
the other in arbitration or otherwise; and (3) each of EMPLOYEE and
COMPANY shall only submit their own, individual claims in arbitration and will
not seek to represent the interests of any other person.‖ (―Proprietary Information
and Arbitration Policy/Agreement,‖ ¶ 16(b) (Iskanian‘s contract).)
7
That the class waiver is without effect necessarily follows. An employer
may not by contract require an employee to renounce rights guaranteed by the
Wagner Act (Nat. Licorice Co. v. Labor Board (1940) 309 U.S. 350, 359-361; see
id. at p. 364 [―employers cannot set at naught the National Labor Relations Act by
inducing their workmen to agree not to demand performance of the duties which it
imposes‖]), and this includes a contract clause requiring an employee to resolve
disputes in individual, binding arbitration. Such a clause ―is the very antithesis of
collective bargaining [and] . . . impose[s] a restraint upon collective action.‖
(National Labor Relations Board v. Stone (7th Cir. 1942) 125 F.2d 752, 756; see
Barrow Utilities & Electric (1992) 308 N.L.R.B. 4, 11, fn. 5 [―The law has long been
clear that all variations of the venerable ‗yellow dog contract‘ are invalid . . . .‖].)
The restriction in Iskanian‘s contract thus directly contravenes federal statutory
labor law and is invalid on its face. A contract clause that violates the Wagner Act
is unenforceable. (Kaiser Steel Corp. v. Mullins (1982) 455 U.S. 72, 83-86; J. I.
Case Co. v. Labor Board (1944) 321 U.S. 332, 337 [private contracts that conflict
with the Wagner Act ―obviously must yield or the Act would be reduced to a
futility‖].) Iskanian may not be prevented, on the basis of his contract, from
proceeding with a putative class action.
III.
Notwithstanding this authority, CLS Transportation invokes the FAA as
grounds for upholding the class waiver.
In the early part of the 20th century, merchants faced judicial hostility to
predispute arbitration agreements they entered with their fellow merchants;
routinely, the courts declined to enforce such agreements, relying on the common
law rule that specific enforcement of agreements to arbitrate was unavailable.
(H.R.Rep. No. 96, 68th Cong., 1st Sess., pp. 1-2 (1924); Wasserman, Legal
Process in a Box, or What Class Action Waivers Teach Us About Law-making
8
(2012) 44 Loy. U. Chi. L.J. 391, 395.) In 1925, Congress enacted the FAA in
response. Its purpose was to have arbitration agreements ―placed upon the same
footing as other contracts.‖ (H.R.Rep. No. 96, at p. 1)
Section 2 of the FAA, its ―primary substantive provision‖ (Moses H. Cone
Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24), makes this point
explicit: An arbitration agreement ―shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the revocation of any
contract‖ (9 U.S.C. § 2, italics added). Here, we deal with a provision—the
waiver of the statutorily protected right to engage in collective action—that would
be unenforceable in any contract, whether as part of an arbitration clause or
otherwise. The FAA codifies a nondiscrimination principle; ―[a]s the ‗saving
clause‘ in § 2 indicates, the purpose of Congress in 1925 was to make arbitration
agreements as enforceable as other contracts, but not more so.‖ (Prima Paint v.
Flood & Conklin (1967) 388 U.S. 395, 404, fn. 12.) That purpose is not upset by
precluding, in arbitration clauses and employment contracts alike, mandatory class
waivers forfeiting the right to engage in collective action, a right foreshadowed by
section 3 of the Norris-LaGuardia Act and guaranteed by section 7 of the Wagner
Act. Accordingly, there is no conflict between the FAA and the Norris-LaGuardia
and Wagner Acts, nor is there anything in the FAA that would permit disregard of
the substantive rights guaranteed by those later enactments.
Were one to perceive a conflict, the express text of the Norris-LaGuardia
Act would resolve it. The 1932 act supersedes prior law, including any contrary
provisions in the 1925 FAA: ―All acts and parts of acts in conflict with the
provisions of this chapter are repealed.‖ (29 U.S.C. § 115.) The effect of this
provision, in combination with section 3 (29 U.S.C. § 103) banning yellow dog
contracts and the FAA‘s section 2 (9 U.S.C. § 2), subjecting arbitration
agreements to the same limits as other contracts, is to render equally
9
unenforceable contractual obligations to forswear collective action in regular
employment agreements and in employment arbitration agreements.
Brief reflection on the purposes underlying the Norris-LaGuardia Act and
Wagner Act demonstrates why this must be so. A strike for better wages and
working conditions is core protected activity. (Labor Board v. Erie Resistor Corp.
(1963) 373 U.S. 221, 233-235; Automobile Workers v. O’Brien (1950) 339 U.S.
454, 456-457.) So too is a walkout. (Labor Bd. v. Washington Aluminum Co.
(1962) 370 U.S. 9, 14-17; N.L.R.B. v. McEver Engineering, Inc. (5th Cir. 1986)
784 F.2d 634, 639; Vic Tanny Intern., Inc. v. N.L.R.B. (6th Cir. 1980) 622 F.2d
237, 240-241.) But the expressly declared fundamental purpose of the Wagner
Act is to minimize industrial strife. (29 U.S.C. § 151 [―[P]rotection by law of the
right of employees to organize and bargain‖ is necessary to ―promote[] the flow of
commerce by removing certain recognized sources of industrial strife and unrest‖];
see Brooks v. Labor Board (1954) 348 U.S. 96, 103 [―The underlying purpose of
[the Wagner Act] is industrial peace.‖]; Atleson, Values and Assumptions in
American Labor Law (1983) p. 40 [―The most common argument in favor of the
Wagner Act was that it would reduce industrial strife.‖].) The Wagner Act ―seeks,
to borrow a phrase of the United States Supreme Court, ‗to make the appropriate
collective action (of employees) an instrument of peace rather than of strife.‘ ‖
(H.R.Rep. No. 1147, 74th Cong., 1st Sess., supra, at p. 9.) If a class waiver
provision in an arbitration agreement were deemed enforceable, Iskanian and other
employees would be protected if they elected to protest through strikes or
walkouts but precluded from resolving grievances through peaceable collective
action—a result precisely opposite to the reduction in industrial strife at the heart
of the Wagner Act‘s goals. Congress would not have favored less peaceable
means over more peaceable ones.
10
Alternatively, if the device of inserting a collective action ban in an
arbitration clause were enough to insulate the ban from the Norris-LaGuardia and
Wagner Acts‘ proscriptions, employers could include in every adhesive
employment contract a requirement that all disputes and controversies, not just
wage and hour claims, be resolved through arbitration and thus effectively ban the
full range of collective activities Congress intended those acts to protect. Such a
purported harmonizing of the various acts would gut the labor laws; the right to
― ‗collective action would be a mockery.‘ ‖ (H.R.Rep. No. 669, 72d Cong., 1st
Sess., supra, at p. 7.) When Congress invalidated yellow dog contracts and
protected the right to engage in collective action, it could not have believed it was
conveying rights enforceable only at the grace of employers, who could at their
election erase them by the simple expedient of a compelled waiver inserted in an
arbitration agreement.
CLS Transportation argues AT&T Mobility LLC v. Concepcion (2011) 563
U.S. 321 [179 L. Ed. 2d 742, 131 S. Ct. 1740] and CompuCredit Corp. v.
Greenwood (2012) 565 U.S. ___ [181 L.Ed.2d. 586, 132 S. Ct. 665] save its class
waiver. Neither does.
Concepcion considered whether as a matter of obstacle preemption the
FAA foreclosed a state-law unconscionability rule applicable to class waivers in
consumer contracts. (AT&T Mobility LLC v. Concepcion, supra, 563 U.S. at p.
___ [131 S.Ct. at p. 1746].) It did not speak to the considerations entailed in
reconciling the FAA with other coequal federal statutes. Nor did it address any of
the particulars of Congress‘s subsequent labor legislation codifying employees‘
substantive rights to engage in collective action, rights not shared by consumers.
CompuCredit Corp. v. Greenwood, supra, 565 U.S. ___ [132 S. Ct. 665] is
similarly of no assistance. There, the Supreme Court reaffirmed that to determine
whether the FAA‘s presumption in favor of enforcing arbitration clauses applies to
11
a given claim, one must ask whether the presumption has been ― ‗overridden by a
contrary congressional command‘ ‖ in other federal law. (Id. at p. ___ [132 S.Ct.
at p. 669].) The claims at issue there arose under a federal law that guaranteed
consumers notice of a ― ‗ ―right to sue.‖ ‘ ‖ (Ibid., quoting 15 U.S.C. § 1679c(a).)
Had Congress intended to preclude arbitration as a suitable forum under the
applicable act, ―it would have done so in a manner less obtuse‖ than one offhand
reference to a right to sue. (CompuCredit, at p. ___ [132 S.Ct. at p. 672].) In
contrast, the Norris-LaGuardia Act and Wagner Act present no similar difficulties
for discerning a contrary congressional command. Such a command may be
evident from ―the text of the [other statute], its legislative history, or an ‗inherent
conflict‘ between arbitration and the [other statute‘s] underlying purposes.‖
(Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26.) Each such
source supplies support here: the conclusion that class waivers are foreclosed
arises not from inferences gleaned from a lone phrase, as in CompuCredit, but
from the explicit text, legislative history and core purpose of the acts, all
establishing the right to collective action and the illegality of compelled
contractual waivers of that right. (See ante, pts. I. & II.)
Refusing to enforce a National Labor Relations Board order finding a class
waiver violative of the Wagner Act, a divided Fifth Circuit reached a contrary
conclusion. (D.R. Horton, Inc. v. N.L.R.B. (5th Cir. 2013) 737 F.3d 344 (Horton
II), declining to enforce D.R. Horton & Cuda, supra, 357 NLRB No. 184.) The
majority‘s analysis assumed a congressional command superseding the FAA could
come only from ―the general thrust of the [Wagner Act]—how it operates, its goal
of equalizing bargaining power‖ (Horton II, at p. 360) and the ―congressional
intent to ‗level the playing field‘ between workers and employers‖ (id. at p. 361),
sources the majority found insufficient. One need not look to such generalized
and abstract indications. As discussed, the FAA subordinates arbitration
12
agreements to generally applicable bars against contract enforcement (9 U.S.C.
§ 2), and the Wagner Act by its text bars employers from contractually
conditioning employment on waiver of the right to engage in collective action (29
U.S.C. §§ 157, 158(a)(1); see Nat. Licorice Co. v. Labor Board, supra, 309 U.S. at
pp. 359-361).
Horton II also took comfort in the fact rule 23 of the Federal Rules of Civil
Procedure (28 U.S.C.), governing class actions, was not adopted until 1966.
(Horton II, supra, 737 F.3d at p. 362.) But that the most prevalent current form of
collective litigation is recent does not mean the Wagner Act at its inception did not
shield from waiver the right to collective litigation in whatever manner available.
Collective actions via the common law doctrine of virtual representation, based on
equity principles, are of much older vintage than rule 23. (Arias v. Superior Court
(2009) 46 Cal. 4th 969, 988-989 (conc. opn. of Werdegar, J.).) ―The 74th Congress
knew well enough that labor‘s cause often is advanced on fronts other than
collective bargaining and grievance settlement within the immediate employment
context. It recognized this fact by choosing, as the language of § 7 makes clear, to
protect concerted activities for the somewhat broader purpose of ‗mutual aid or
protection‘ as well as for the narrower purposes of ‗self-organization‘ and
‗collective bargaining.‘ ‖ (Eastex, Inc. v. NLRB, supra, 437 U.S. at p. 565.) The
broad language of the Wagner Act shields concerted activity for mutual aid or
protection by whatever means pursued, including through peaceable collective
suits.
In the end, CLS Transportation‘s argument rests on the notion that the FAA
should be interpreted to operate as a super-statute, limiting the application of both
past and future enactments in every particular. ―[M]en may construe things after
their fashion/Clean from the purpose of the things themselves.‖ (Shakespeare,
Julius Caesar, act I, scene 3, lines 34-35.) So it is with this view of the FAA. The
13
text and legislative history of the Norris-LaGuardia and Wagner Acts, passed by
legislators far closer in time to the FAA than our current vantage point, show no
such deference. The right of collective action they codify need not yield.
I respectfully dissent.
WERDEGAR, J.
14
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Iskanian v. CLS Transportation Los Angeles, LLC
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 206 Cal. App. 4th 949
Rehearing Granted
__________________________________________________________________________________
Opinion No. S204032
Date Filed: June 23, 2014
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: Robert L. Hess
__________________________________________________________________________________
Counsel:
Initiative Legal Group, Raul Perez, Katherine W. Kehr; Capstone Law, Glenn A. Danas, Ryan H. Wu;
Pubic Citizen Litigation Group and Scott L. Nelson for Plaintiff and Appellant.
Julie L. Montgomery and Cynthia L. Rice for California Rural Legal Assistance Foundation as Amicus
Curiae on behalf of Plaintiff and Appellant.
Altshuler Berzon, Michael Rubin; McGuinn, Hillsman & Palefsky and Cliff Palefsky for Service
Employees International Union and California Employment Lawyers Association as Amici Curiae on
behalf of Plaintiff and Appellant.
Rosen Law Firm and Glenn Rosen for California Association of Public Insurance Adjusters as Amicus
Curiae on behalf of Plaintiff and Appellant.
Amy Bach; The Bernheim Law Firm, Steven Jay Bernheim and Nazo S. Semerjian for United
Policyholders as Amicus Curiae on behalf of Plaintiff and Appellant.
Sanford Heisler, Janette Wipper, Felicia Medina, Chioma Chukwu; Barbara A. Jones; Melvin Radowitz;
Della Barnet; and Jennifer Reisch for Timothy Sandquist, AARP, Equal Rights Advocates and The Impact
Fund as Amici Curiae on behalf of Plaintiff and Appellant.
Arbogast Bowen, David M. Arbogast and Chumahan B. Bowen for Consumer Attorneys of California as
Amicus Curiae on behalf of Plaintiff and Appellant.
Fox Rothschild, David F. Faustman, Yesenia M. Gallegos, Cristina Armstrong, Namal Tantula; Cole,
Schotz, Meisel, Forman & Leonard and Leo V. Leyva for Defendant and Respondent.
Jones Day, George S. Howard, Jr., and Mhairi L. Whitton for Retail Litigation Center, Inc., and California
Retailers Association as Amici Curiae on behalf of Defendant and Respondent.
Page 2 – S204032 – counsel continued
Counsel:
Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and
Respondent.
Sheppard, Mullin, Richter & Hampton, Richard J. Simmons, Karin Dougan Vogel and Matthew M. Sonne
for Employers Group as Amicus Curiae on behalf of Defendant and Respondent.
Amar D. Sarwal, Evan P. Schultz and Allen C. Peters for Association of Corporate Counsel as Amicus
Curiae on behalf of Defendant and Respondent.
Littler Mendelson, Henry D. Lederman, Alexa L. Woerner, Robert Friedman and Edward Berbarie for The
National Retail Federation and Rent-A-Center, Inc., as Amici Curiae on behalf of Defendant and
Respondent.
Erika C. Frank; and Fred J. Hiestand for The California Chamber of Commerce and The Civil Justice
Association of California as Amici Curiae on behalf of Defendant and Respondent.
Horvitz & Levy, Lisa Perrochet, John F. Querio and Felix Shafir for California New Car Dealers
Association as Amicus Curiae on behalf of Defendant and Respondent.
Mayer Brown, Andrew J. Pincus, Archis A. Parasharami, Scott M. Noveck and Donald M. Falk for The
Chamber of Commerce of the United State of America as Amicus Curiae on behalf of Defendant and
Respondent.
2
Counsel who argued in Supreme Court (not intended for publication with opinion):
Glenn A. Danas
Capstone Law
1840 Century Park East, Suite 450
Los Angeles, CA 90067
(310) 556-4811
Michael Rubin
Altshuler Berzon
177 Post Street, Suite 300
San Francisco, CA 94108
(415) 421-7151
David F. Faustman
Fox Rothschild
1800 Century Park East, Suite 300
Los Angeles, CA 90067
(310) 598-4150
Andrew J. Pincus
Mayer Brown
1999 K Street, N.W.
Washington, DC 20006
(202) 263-3000
3