Class Action Waivers Might Not be Enforceable When the Federal Arbitration Act Does Not Apply


Last year we reported on the California Supreme Court’s decision that class action waivers in employment contracts are enforceable in California notwithstanding unconscionability or State public policy to the contrary when the Federal Arbitration Act (“FAA”) applies. [1] This past month, one of the California courts of appeal revisited the issue in a circumstance in which the FAA did not apply, and came to the contrary conclusion; determining that a court may refuse to enforce a class action waiver.

In Garrido v. Air Liquide Industrial U.S. LP, 2015 WL 6451011 (Cal. Ct. App., Oct. 26, 2015, B254490), the employee and employer entered into an employment agreement containing an arbitration clause that prohibited class arbitration. After the employee was fired, he filed a class action lawsuit alleging, among other claims, wage and hour violations of the California Labor Code. The employer moved to compel arbitration and to enforce the prohibition on class arbitration. The trial court denied the employer’s motion to compel arbitration, and the employer appealed. The court of appeal determined that the federal FAA did not apply, the California Arbitration Act (“CAA”) did, and a court may refuse to enforce class action waivers on grounds of unconscionability or public policy when the CAA applies. The court of appeal ultimately upheld invalidation of the class arbitration waiver because it posed a significant hurdle to the vindication of the employees’ statutory wage and hour rights.

Employers will want to determine whether their arbitration agreements are subject to the FAA, which could affect the enforceability of class action waivers in their arbitration agreements, like in Garrido, and reduce the benefit of arbitration to them. The applicability of the FAA may also affect the enforceability of the arbitration agreement itself. For example, if the FAA does not apply, then employees may still be able to bring lawsuits for the collection of due and unpaid wages in court, notwithstanding purported waivers of their individual claims in a private arbitration agreement. (Lab. Code § 229.)
[1] Iskanian v. CLS Transp. Los Angeles, LLC, 2014 WL 2808963 (June 23, 2014).

Employers generally must pay their employees at least the State minimum wage (currently $9/hour). Depending on where the employees work, employers may need to pay a minimum wage that is higher than the State minimum. Sacramento recently passed an ordinance increasing its minimum wage to $12.50/hour by 2020.