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Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348
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[No. S204032. June 23, 2014.]
ARSHAVIR ISKANIAN, Plaintiff and Appellant, v.
CLS TRANSPORTATION LOS ANGELES, LLC, Defendant and
Respondent.
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Counsel
Initiative Legal Group, Raul Perez, Katherine W. Kehr; Capstone Law,
Glenn A. Danas, Ryan H. Wu; Public 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, A ARP, Equal Rights Advocates and the Impact Fund as Amici
Curiae on behalf of Plaintiff and Appellant.
Arbogast Bowen, David M. Arbogast and Chumaban B. Bowen for Consumer
Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.
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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.
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 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 States of
America as Amicus Curiae on behalf of Defendant and Respondent.
Opinion
LIU, J. In this case, we again address whether the Federal Arbitration Act
(FAA; 9 U.S.C. § 1 et seq.) preempts a state law rule that restricts enforce-
ment 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
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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 [64 Cal.Rptr.3d 773, 165 P.3d 556] (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 (29 U.S.C. § 151 et seq.) 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'Arbitra-
tion 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 applicable law, (1) EMPLOYEE and COMPANY
expressly intend and agree that class action and representative action proce-
dures 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
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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 bréales,
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; Bus.
& Prof. Code, § 17200 et seq.) claim. 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.
On April 27, 2011, the United States Supreme Court issued AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. 333 [179 L.Ed.2d 742, 131 S.Ct. 1740]
(Concepcion). Concepcion invalidated our decision in Discover Bank v.
Superior Court (2005) 36 Cal.4th 148 [30 Cal.Rptr.3d 76, 113 P.3d 1100]
(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
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National Labor Relations Act. With respect to the PAGA claim, the court
understood Iskanian to be arguing that the PAGA does not allow representa-
tive 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 alleged that the party with the superior bargaining power has carried out
a scheme to deliberately cheat large numbers of consumers out of individu-
ally 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 “[Requiring 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 pre-
empted by the FAA.” (Id. at p._[131 S.Ct. at p. 1753].)
In Gentry, we considered a class action waiver and an arbitration agree-
ment 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
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doctrine of unconscionability, Gentry focused on whether the class action
waiver would “undermine the vindication of the employees’ unwaivable
statutory rights” to overtime pay. (Gentry, supra, 42 Cal.4th at p. 450.) We
concluded that a class action waiver may be unenforceable in some circum-
stances: “[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’ rights 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.’ (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
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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 [186 L.Ed.2d 417 & fn. 5, 133 S.Ct. 2304, 2312]
(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 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 [163 Cal.Rptr.3d 269, 311 P.3d 184] (Sonic II)- But the
Gentry rule, whether modified or not, is not analogous to the unconscionabil-
ity 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 employ-
ment] 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 indi-
vidual arbitration or litigation cannot be designed to approximate the advan-
tages 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].)
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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 [121 Cal.Rptr.3d 58, 247 P.3d 130] (Sonic I). In Sonic II, we 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 unavail-
ability 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. (57 Cal.4th 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
prearbitration 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 p. 1149; see ibid. [“Our mie contemplates that
arbitration, no less than an administrative hearing, can be designed, to achieve
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 role considers whether individual arbitration is an effective dispute
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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 [93 Cal.Rptr.3d 65]; Sanchez v. Western
Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 170-171 [90 Cal.Rptr.3d
818]; Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277,
1298-1299 [90 Cal.Rptr.3d 539]; Murphy v. Check ’N Go of California, Inc.
(2007) 156 Cal.App.4th 138, 148-149 [67 Cal.Rptr.3d 120]; 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 pro-
vides 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 arbitration process that is
accessible, affordable, and consistent with fundamental attributes of arbitra-
tion. (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 afford-
ability 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
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(Board) in In re D.R. Horton Inc. (Jan. 3, 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.
A.
In Horton I, the employee, Michael Cuda, a superintendent at D.R. Horton,
Inc., claimed he had been misclassified as exempt from statutory overtime
protections under the Fair Labor Standards Act of 1938 (FLSA; 29 U.S.C.
§ 201 et seq.). 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 [2012 WL 36274 at p. *2].) 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 [2012 WL 36274 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 (§ 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.
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
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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 [57 L.Ed.2d 428, 98 S.Ct. 2505] (1978). The Supreme Court
specifically stated in Eastex that Section 7 ‘protects employees from retalia-
tion 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 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 (29 U.S.C. § 101 et seq.), 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
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“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 “the 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 [88 L.Ed. 762, 64 S.Ct. 576]. To find that an arbitration agreement must
yield to the NLRA is to treat it no worse than any other private 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 [2012 WL 36724 at p. *11],
quoting Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26
[114 L.Ed.2d 26, 111 S.Ct. 1647] (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 fomm. [Citation.] Rather, the issue here is whether the MAA’s
categorical prohibition of joint, class, or collective federal[,] state or employ-
ment 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 [2012 WL 36274 at p. *12], fn. omitted.)
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
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unconscionable. Here, in contrast, only agreements between employers and
their own employees are at 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 [2012
WL 36274 at p. *15], fn. omitted.)
“Finally,” the Board said, “even if there were a direct 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 act[s] in conflict’ with the later statute (Section 15).”
(Horton I, supra, 357 NLRB No. 184, p. 12 [2012 WL 36274 at p. *16], fn.
omitted.)
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.)
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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 for-
mality 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 ‘overrid- ”den by a contrary congressional command.’ (CompuCredit Corp. v.
Greenwood (2012) 565 U.S._,_[181 L.Ed.2d 586, 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 ‘will be discoverable in the text,’ the statute’s ‘legisla-
tive history,’ or ‘an “inherent conflict” between arbitration and the [statute’s]
underlying purposes.’ [Citation.] ‘[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 collec-
tively 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 & Carter v. Countrywide Credit Industries, Inc. (5th Cir. 2004) 362 F.3d
294, 298.) “The right to collective action also cannot be successfully de-
fended on the policy ground that it provides employees with greater bargain-
ing 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 modem class action practice. [Citation.] We
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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, 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 legisla-
tive 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
[79 L.Ed.2d 839, 104 S.Ct. 1505]), 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 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
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even though the federal statute at issue, the Age Discrimination in
Employment Act, expressly permitted collective actions. We said that statu- ‘tory 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 [provid-
ing for employee class actions as a remedy for ELSA 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 signifi-
cantly 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 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 of the NLRA do not represent ‘a contrary ”congressional command’ overriding the FAA’s mandate (CompuCredit
Corp. 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 Security Services USA, Inc. (E.D.Ark. 2012)
883 F.Supp.2d 784, 789-790; Morvant v. P.E 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 Mortgage Corp. (W.D.Wis., Mar. 16, 2012, No. ll-cv-779-bbc)
2012 WL 1242318, 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
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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 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 volun-
tary 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, ‘[tjhe 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 Center v. PacifiCare of California (2003)
31 Cal.4th 1187, 1195, fn. 4 [8 Cal.Rptr.3d 517, 82 P.3d 727] (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
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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 [158 Cal.Rptr. 828, 600 P.2d 1060].) The fact that the party
petitioning for arbitration has participated in litigation, short of a determina-
tion 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
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. [Cita-
tions.] ‘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.
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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.
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 [140 Cal.Rptr.3d 206] (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].)
Iskanian contends that because he spent three years attempting to
obtain class certification, including considerable effort and expense on dis-
covery, 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
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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 im-
paired the other side’s ability to take advantage of the benefits and efficien-
cies 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 associ-
ated 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 [118 Cal.Rptr.3d 613], 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, 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 [142 Cal.Rptr.3d 312]; Roberts v. El Cajon
Motors, Inc. (2011) 200 Cal.App.4th 832, 845-846 [133 Cal.Rptr.3d 350];
Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451 [110
Cal.Rptr.3d 104]; Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553,
558 [94 Cal.Rptr.2d 201]; Sobremonte v. Superior Court (1998) 61
Cal.App.4th 980, 996 [72 Cal.Rptr.2d 43]; but see Groom v.Health Net (2000)
82 Cal.App.4th 1189, 1197 [98 Cal.Rptr.2d 836] [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 reason-
able 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
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378
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 pertain-
ing to his individual wage claim. Because the arbitration agreement itself
provides for “reasonable discovery,” there is no indication that CLS obtained
any material information 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
Labor Code Private Attorneys General Act of 2004. (Lab. Code, § 2698
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.)
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The PAGA addressed two problems. First, the bill sponsors observed
that “many Labor Code provisions are unenforced because they are punish-
able 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 priorities, Labor Code violations rarely result in
criminal investigations and prosecutions.” (Sen. Com. on Judiciary, 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 “signifi-
cant 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 Depart-
ment 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 require-
ments—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. [QI]Moreover, evidence demonstrates that the resources dedicated to
labor law enforcement have not kept pace with the growth of the economy in
California.” (Assem. Com. on Labor and Employment, Analysis of Sen. Bill
No. 796 (Reg. Sess. 2003-2004) as amended July 2, 2003, p. 3.)
We summarized the Legislature’s response to this problem in Arias v.
Superior Court (2009) 46 Cal.4th 969, 980-981 [95 Cal.Rptr.3d 588, 209 P.3d
923] (Arias): “In September 2003, the 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 enforce-
ment efforts. (Stats. 2003, ch. 906, § 1.)
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“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.’ (Lab. Code, § 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 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 “con-
strued as requiring representative actions under the act to be brought as class
actions,” then a defendant could be subjected to lawsuits by multiple plain-
tiffs 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 agen-
cies. ... 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.
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“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 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 [141 Cal.Rptr.
20, 569 P.2d 125]). 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. (l)(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 enforce-
ment 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 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 [36 Cal.Rptr.3d 31], fns. omitted; see
Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1114 [56
Cal.Rptr.3d 880, 155 P.3d 284] [distinguishing premium pay under § 226.7
from a civil penalty in determining the applicable statute of limitations].)
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382
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 [126 Cal.Rptr. 415] (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 [60 Cal.Rptr.3d 569].)
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
[146 L.Ed.2d 836, 120 S.Ct. 1858].) The Federal False Claims Act, allowing
individuals to share the recovery achieved by the reporting of false claims,
originated during the Civil War. (See U.S. ex rel. Marcus v. Hess (1943)
317 U.S. 537, 539-540 [87 L.Ed. 443, 63 S.Ct. 379]; 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 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, pp. 5237, 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 (Gov. Code, § 81000 et seq.)].)
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 [64 Cal.Rptr.2d
522].) Second, Civil Code section 3513 states, ‘Anyone may waive the
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383
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 [99
Cal.Rptr.2d 745, 6 P.3d 669] (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
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 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.” (Ibid.) 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 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 [135
Cal.Rptr.3d 832] [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
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384
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: “[Assuming it is autho-
rized, 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 [128 Cal.Rptr.3d 854],
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 “stand[s] 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 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 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 evidenc-
ing 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 [87 L.Ed.2d 444, 105 S.Ct. 3346]). Even so, however, the statutory
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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, p. 29 (1924) [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
Bemheimer, Chairman of Com. on Arbitration, N.Y. State Chamber of
Commerce, that FAA is designed to resolve “ordinary everyday trade dis-
putes” 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. 382), there is no mention of such actions in the
legislative history and no indication that the FAA was concerned with
limiting their scope. (Cf. 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 v.
Brown (2012) 565 U.S. _, _ [182 L.Ed.2d 42, 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, 65
[177 L.Ed.2d 403, 130 S.Ct. 2772, 2775] [employment discrimination suit];
Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. 662,
667 [176 L.Ed.2d 605, 130 S.Ct. 1758] [antitrust dispute involving price
fixing and supracompetitive pricing]; Preston v. Ferrer (2008) 552 U.S. 346,
350 [169 L.Ed.2d 917, 128 S.Ct. 978] [action by attorney to recover fees
from former client]; Buckeye Check Cashing, Inc. v. Cardegna (2006)
546 U.S. 440, 443 [163 L.Ed.2d 1038, 126 S.Ct. 1204] [class action by
borrowers against lender for alleged usurious loans]; Green Tree Financial
Corp. v. Bazzle (2003) 539 U.S. 444, 449 [156 L.Ed.2d 414, 123 S.Ct. 2402]
[class action damages suit by borrowers against lender for violations of state
law]; Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 683
[134 L.Ed.2d 902, 116 S.Ct. 1652] [contract and fraud claims related to
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386
franchise agreement]; Rodriguez de Quijas v. Shearson/Am. Exp. (1989)
490 U.S. 477, 478-479 [104 L.Ed.2d 526, 109 S.Ct. 1917] [various statutory
causes of actions by investors against broker over investments “turned sour”];
Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470-471
[103 L.Ed.2d 488, 109 S.Ct. 1248] [action for fraud and breach of contract];
Perry v. Thomas (1987) 482 U.S. 483, 484-485 [96 L.Ed.2d 426, 107 S.Ct.
2520] [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 [96 L.Ed.2d 185, 107 S.Ct. 2332]
[suit against brokerage firm by clients alleging various statutory causes of
action]; Mitsubishi Motors v. Soler Chrysler-Plymouth, supra, 473 U.S. at
pp. 619-620 [contract, defamation, and antitrust dispute between automobile
companies]; Southland Corp. v. Keating (1984) 465 U.S. 1, 4 [79 L.Ed.2d 1,
104 S.Ct. 852] [class action suit for fraud, breach of contract, breach of
fiduciary duty, and violation of state disclosure requirements related to
franchise agreement]; Gilmer, supra, 500 U.S. at pp. 23-24 [employment age
discrimination suit]; Moses H. Cone Hospital v. Mercury Constr. Corp. (1983)
460 U.S. 1, 6-7 [74 L.Ed.2d 765, 103 S.Ct. 927] [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 conten-
tion that the FAA preempts a PAGA action. In EEOC v. Waffle House, Inc.
(2002) 534 U.S. 279 [151 L.Ed.2d 755, 122 S.Ct. 754] (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 backpay. The
court based its conclusion primarily on the fact that the EEOC was not a
party to the arbitration agreement. (534 U.S. 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 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 arbitra-
tion 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 tarn 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 Agency or aggrieved
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387
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. (46 Cal.4th at
p. 986.) It is true that “a person may not bring a PAGA action unless he or
she is ‘an aggrieved employee’ (§ 2699, subd. (a))” (cone. opn. of Chin, J.,
post, at p. 395) 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 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. 394.)
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. 382-384.) 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 tarn 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 tarn actions. The Legislature instead chose to limit
qui tarn plaintiffs to willing employees who had been aggrieved by the
employer in order to avoid “private plaintiff abuse.” (Sen. Com. on Judiciary,
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
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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 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 enforce-
ment 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. __, _ [183 L.Ed.2d 351, 132 S.Ct. 2492, 2501]; see
Chamber of Commerce of UnitedStates of America v. Whiting (2011) 563 U.S.
582, ___ [179 L.Ed.2d 1031, 131 S.Ct. 1968, 198] [‘Our precedents
“establish that a high threshold must be met if a state law is to be pre-empted
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 employ-
ment is within the state’s historic police power. (See Metropolitan Life Ins.
Co. v. Massachusetts (1985) 471 U.S. 724, 756 [85 L.Ed.2d 728, 105 S.Ct.
2380] [“ ‘States possess broad authority under their police powers to regulate
the employment relationship to protect workers within the State.’ ”]; Kerr’s
Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319,
326-327 [19 Cal.Rptr. 492, 369 P.2d 20].) 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
[138 L.Ed.2d 914, 117 S.Ct. 2365] [“It is an essential attribute of the States’
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 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 Agency’s interest in
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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 [112 Cal.Rptr.3d 697, 235 P.3d 21] (County of
Santa Clara). There we reconsidered our earlier holding in People ex rel.
Clancy v. Superior Court (1985) 39 Cal.3d 740 [218 Cal.Rptr. 24, 705 P.2d
347] (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 “abso-
lutely neutral” and must 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 constitu-
tional “liberty interest” or “the right of an existing business to continued
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, al-
though 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
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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 [147 Cal.Rptr. 631, 581 P.2d 636].) We disagree.
“[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 [17 Cal.Rptr.3d 225, 95 P.3d 459].) 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 legisla-
tive 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 [51 Cal.Rptr.2d 837, 913 P.2d
1046].)
In considering CLS’s challenge, we note that it would apply not only to the
PAGA but to all qui tam actions, including California’s False Claims Act (Gov.
Code, § 12650 et seq.), 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 budget-
ary resources (see Professional Engineers in California Government v.
Schwarzenegger (2010) 50 Cal.4th 989, 1010-1011 [116 Cal.Rptr.3d 480,
239 P.3d 1186]), 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 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
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391
entity retains a private law firm or attorney as outside counsel. A “fundamen-
tal” 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 tarn action on behalf of the government
generally does not have access to such power. The qui tarn 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 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 govern-
ment. 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 tarn 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.
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
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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 [25 Cal.Rptr.3d 540, 107 P.3d 217] [Cal. Arbitration
Act rather than FAA procedures apply to arbitrations brought in Cal. courts].)
The parties have not addressed these questions and may do so on remand.
The parties may also address CLS’s contention that the 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.
Cantil-Sakauye, C. J., Corrigan, J., and Kennard, J.,* concurred.
CHIN, J., Concurring.—I agree that the rule of Gentry v. Superior Court
(2007) 42 Cal.4th 443 [64 Cal.Rptr.3d 773, 165 P.3d 556] (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 (29 U.S.C. § 151 et seq.), 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 Labor Code 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 [163 Cal.Rptr.3d 269, 311 P.3d 184]
(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
*Retired Associate Justice of the Supreme Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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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. 366.) 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. 333
[179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion), American Express Co. v.
Italian Colors Restaurant (2013) 570 U.S._[186 L.Ed.2d 417, 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 IT 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. 365-366.) 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
(2000) 531 U.S. 79, 89-90 [148 L.Ed.2d 373, 121 S.Ct. 513].) Consistent
with this principle, in Italian Colors, the court recently held that an arbitra-
tion agreement may be not invalidated based on proof that its waiver of a
congressionally approved mechanism —the class action —would make pursu-
ing 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 protec-
tions. (Maj. opn., ante, at pp. 365-366.) 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 [74 L.Ed.2d 765, 103 S.Ct. 927], italics added.) To quote Justice
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Baxter’s dissent in Gentry, it does not permit courts to “elevate a mere
judicial affinity for” the Berman dispute resolution mechanism “as a benefi-
cial 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 aggrieved employee’s PAGA action ‘is fundamentally a law ”enforcement action’ that “substitute^] for an action brought by the govern-
ment itself.” (Arias v. Superior Court (2009) 46 Cal.4th 969, 986 [95
Cal.Rptr.3d 588, 209 P.3d 923].) 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 [95
Cal.Rptr.3d 605, 209 P.3d 937].) 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 other-
wise required under applicable law, (1) EMPLOYEE and COMPANY ex-
pressly 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
1 All further unlabeled statutory references are to the Labor Code.
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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. 382-384.)
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 [87 L.Ed.2d 444, 105 S.Ct. 3346] [“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
the 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. 384, italics omitted, 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. 386.) 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 pp. 386-387.)
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. 386.) As
noted above, a person may not bring a PAGA action unless he or she is “an
aggrieved employee” (§ 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[ye] been aggrieved by
the employer” may bring PAGA actions. (Maj. opn., ante, at p. 387.) 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.
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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 inappli-
cable to PAGA claims. Under the majority’s view that PAGA claims “lie[]
outside the FAA’s coverage” because they are not disputes between employ-
ers and employees “arising out of their contractual relationship” (maj. opn.,
ante, at p. 386), 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 [151 L.Ed.2d 755, 122 S.Ct. 754] (WaffleHouse), to the
extent it is relevant, actually does “suggest^ that the FAA preempts” (maj.
opn., ante, at p. 386) 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 Op-
portunity 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. (WaffleHouse, 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” (WaffleHouse, 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 Int’l Corp. (2010) 559 U.S.
662, 682 [176 L.Ed.2d 605, 130 S.Ct. 1758]), 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 tarn actions.” (Maj. opn., ante, at p. 387.) When the high court recently
held in Concepcion that the FAA prohibits courts from conditioning enforce-
ment 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: “. .'.
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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” (Moses H. Cone Hospital v. Mercury
Constr. Corp., supra, 460 U.S. at p. 24, italics added), which “withdraws]
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 [79 L.Ed.2d 1, 104 S.Ct. 852]). Thus,
“if contracting parties agree to include” certain claims “within the issues to
be arbitrated, the FAA ensures that their agreement will be enforced accord-
ing 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 [131 L.Ed.2d 76, 115 S.Ct. 1212], italics omitted &
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 contrac-
tually agreed to arbitrate their statutory PAGA claims to ignore that agree-
ment and pursue those claims in court as the state’s “representatives.” (Maj.
opn., ante, at pp. 387-388.)
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.
Baxter, J., concurred.
WERDEGAR, J., Concurring and Dissenting. —I join the court’s conclu-
sions as to Arshavir Iskanian’s Labor Code Private Attorneys General Act of
2004 (Lab. Code, § 2698 et seq.) claims, which are not foreclosed by his
employment contract or the Federal Arbitration Act (FAA; 9 U.S.C. § 1
et seq.). 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.
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I.
“ Employment contracts prohibiting collective action, first known as ‘iron- ”clads,’ 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 [93
L.Ed. 212, 69 S.Ct. 251]; Silverstein, Collective Action, Property Rights and
Law Reform: The Story of the Labor Injunction (1993) 11Hofstra Lab. LJ. 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 United States Supreme Court, struck down the bans as an
infringement on liberty of contract. (Coppage v. Kansas (1915) 236 U.S. 1,
9-14 [59 L.Ed. 441, 35 S.Ct. 240]; Adair v. United States (1908) 208 U.S. 161,
172-176 [52 L.Ed. 436, 28 S.Ct. 277, 5 Ohio L.Rep. 605]; Frankfurter &
Greene, at pp. 146-148; 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 [62
L.Ed. 260, 38 S.Ct. 65], 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; The Yellow-dog
Contract, 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 [49 L.Ed. 937, 25 S.Ct. 539].
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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 governmen-
tal authority for owners of property to organize in the corporate and other
forms of ownership association, the individual unorganized worker is com-
monly 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 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
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.
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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 [74 L.Ed. 1034, 50 S.Ct. 427].) 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.)
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 alla, “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 alla,
these provisions were a “logical and imperative extension of that section of
the Norris-La Guardia Act which makes the yellow-dog contract unenforce-
able 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.,
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 Recognizing as clear “the legality of collective action on the part of
employees in order to safeguard their proper interests,” the post-Lochner
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.” (Amen Foundries v. Tri-City Council (1921) 257 U.S. 184, 209 [66 L.Ed. 189, 42
S.Ct. 72], 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 Wagner received
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Supreme Court now upheld against constitutional challenge Congress’s “safe-
guard” of this right. (Labor Board v. Jones & Laughlin (1937) 301 U.S. 1,
33-34 [81 L.Ed. 893, 57 S.Ct. 615].)
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 [57 L.Ed.2d 428, “98 S.Ct. 2505] [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) 340 U.S.
App.D.C. 391, 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), 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 N.L.R.B. No. 184,
p. 6.) CLS Transportation’s adhesive form contract includes a clause prohib-
iting Iskanian, like all its employees, from pursuing class or representative
suits or class arbitrations- .5 Thus, Iskanian may not file collectively with
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.)
5 The clause provides: “[EJxcept as otherwise required under applicable law, (1) EM-
PLOYEE 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
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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.
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 [84 L.Ed. 799, 60 S.Ct. 569]; 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 [70 L.Ed.2d 833, 102 S.Ct. 851]; J. I. Case Co. v.
Labor Board (1944) 321 U.S. 332, 337 [88 L.Ed. 762, 64 S.Ct. 576] [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
and will not seek to represent the interests of any other person.” (“Proprietary Information and
Arbitration Policy/Agreement,” 1 16(b) (Iskanian’s contract).)
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About Law-making (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 [74 L.Ed.2d 765, 103
S.Ct. 927]), 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 contraer (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 enforce-
able as other contracts, but not more so.” (Prima Paint v. Flood & Conklin
(1967) 388 U.S. 395, 404, fn. 12 [18 L.Ed.2d 1270, 87 S.Ct. 1801].) 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 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 [10 L.Ed.2d 308, 83 S.Ct. 1139];
Automobile Workers v. O’Brien (1950) 339 U.S. 454, 456-457 [94 L.Ed. 978,
70 S.Ct. 781].) So too is a walkout. {Labor Bd. v. Washington Aluminum Co.
(1962) 370 U.S. 9, 14-17 [8 L.Ed.2d 298, 82 S.Ct. 1099]; 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
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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 [99 L.Ed.2d 125, 75 S.Ct. 176] [“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.
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 effec-
tively 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. 333 [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&TMobility 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
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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 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 [114 L.Ed.2d 26, 111
S.Ct. 1647].) 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 N.L.R.B.
No. 184.) The majority’s analysis assumed a congressional command super-
seding 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 insuffi-
cient. One need not look to such generalized and abstract indications. As
discussed, the FAA subordinates arbitration agreements to generally appli-
cable 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).
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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
[95 Cal.Rptr.3d 588, 209 P.3d 923] (cone. 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 immedi-
ate 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 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.