The California Supreme Court and the fate of Class Actions

The California Supreme Court heard oral argument on April 3, 2014, in a case that is  likely to significantly shape the landscape of class actions in both state and federal court:  Iskanian v. CLS Transportation, No. S204032.  The Supreme Court granted review in Iskanian to resolve two important questions:

1.  Did AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 overrule Gentry v. Superior Court (2007) 42 Cal.4th 443?

California courts have long recognized that certain rights set forth in the Labor Code are unwaivable.  In other words, even if workers sign contracts giving up their rights in the workplace, courts will not enforce those contracts.

In recent years, many employers have required workers to sign arbitration agreements that prevent the workers from joining in a class action based upon Labor Code violations.  In Gentry, the California Supreme Court held that such class action waivers may be unenforceable where they have a negative impact on workers’ rights.  (This is a very simplified description of Gentry, which set forth a four-factor test designed to measure the impact of a class action waiver on the rights being asserted.  Those four factors are:  (1) the  size of the potential individual recovery; (2) the potential for retaliation against members of the class; (3) whether members of the class may be ill informed about their rights, and (4) other real world obstacles to the vindication of class members’ rights.)   Thus, Gentry provided an important and balanced protection for workers’ rights.

However, in Concepcion, the United States Supreme Court held that a similar test (the Discover Bank test) used to invalidate class action waivers in consumer contracts was preempted by the Federal Arbitration Act.  But Concepcion did not involve unwaivable rights.  Therefore, it has been an open question as to whether Concepcion should be extended so as to invalidate Gentry, and courts have answered this question both in the affirmative and in the negative.

Why this is important:  Gentry protects the rights of workers to join together in class actions to enforce their rights under the Labor Code.  Often workers will not assert their rights unless they can do so in a class action-for fear of retaliation, because their individual claims may be small in value, and for other reasons.  Without Gentry, employers will be free to force workers to give up their right to join in class actions.

How the Court will rule:  Colleagues who attended the oral argument reported back that the questions from the Justices indicated that, unfortunately, it appears that they will hold that Concepcion overruled Gentry.

2.  Does Concepcion permit arbitration agreements to override the statutory right to bring representative claims under PAGA-the Private Attorneys General Act of 2004 (Labor Code section 2698, et seq.)?

Why this is important:  PAGA provides for a separate way for workers to join together to challenge violations of the Labor Code.  Instead of bringing a class action, workers can file a “representative action” to enforce their rights.  In such cases, the workers stand in the place of California’s Attorney General and may prosecute the case as though the State of California were prosecuting it.

How the Court will rule:  Questions from the Justices, in particular Justices Liu and Kennard, indicate that the Court will find a way to preserve the rights of workers to bring PAGA actions.  This ruling will be extremely important if the Court finds that Gentry is no longer good law:  It will mean that even those workers who have signed an employment agreement waiving their right to collective actions will be able to bring representative actions under PAGA.

Class actions and representative actions in California are becoming more complicated and technical.  The attorneys at Hunter Pyle Law have experience in both areas.  If you have any questions about your situation at work, please do not hesitate to contact us.