California Appellate Court Issues Major Decision On Enforceability Of Arbitration Agreements In Employment Context

Originally published June 6, 2012

Keywords: FAA, California Supreme Court, consumers, claims

In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the US Supreme Court held that the Federal Arbitration Act (FAA) preempts the rule established by the California Supreme Court in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), under which most agreements that require consumers to arbitrate their claims against businesses on an individual basis were deemed unconscionable.

Since Concepcion was decided, plaintiffs' lawyers have tried to distinguish it or limit its scope in a variety of ways. Generally, they have been unsuccessful. But some California state courts have been receptive to one argument or another. On June 4, 2012, however, a California appellate court roundly rejected virtually every argument for evading Concepcion that has been ventured by the plaintiffs' bar.

The case—Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. Rptr. 3d ___, 2012 WL 1979266 (Cal. Ct. App. June 4, 2012)—is a putative class action alleging, among other things, that the defendant failed to pay overtime and provide required meal and rest breaks. The named plaintiff's employment agreement contains a provision requiring disputes to be arbitrated on an individual basis.

Initially, the trial court granted the defendant's motion to compel arbitration. The Court of Appeal then granted a writ and ordered the trial court to reconsider in light of the California Supreme Court's intervening decision in Gentry v. Superior Court, 165 P.3d 556 (Cal. 2007), which held that lower courts should refuse to enforce agreements that require arbitration of employment disputes on an individual basis whenever class-wide arbitration "would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration." Concluding that it could not succeed under the Gentry standard, the defendant withdrew its motion to arbitrate and proceeded to defend the case. After the superior court certified a class, the US Supreme Court decided Concepcion. Soon thereafter, the defendant renewed its motion to compel arbitration. The trial court again granted the motion, and the plaintiff appealed.

The Court of Appeal rejected the plaintiff's argument—made routinely in post-Concepcion litigation—that the defendant had waived its right to compel arbitration by withdrawing its initial motion and resisting class certification. The court began by...