Iskanian v. CLS Transportation of Los Angeles: Employer’s Perspective

By David F. Faustman

David Faustman is a partner in the California offices of Fox Rothschild, which represents the employer in this case.

In Iskanian v CLS Transportation of Los Angeles,¹ the California Supreme Court followed recent United States Supreme Court decisions, and declared that Gentry v. Superior Court,² its prior decision denying the enforceability of class action waivers, was no longer operative law. The court found that the Federal Arbitration Act (FAA) preempts the subject matter, and that federal law requires enforcement of class action waivers. Thus, the court determined that Iskanian must utilize arbitration to pursue his wage and hour claims as a single-party plaintiff. The court also held that the National Labor Relations Act’s protection of "concerted activity" does not prohibit class action waivers. Both rulings are a clear win for employers. There was, however, some not-so-good news for employers.

In a curious twist, the court refused to dismiss the companion "representative action" under the California Private Attorneys General Act (PAGA), holding that a waiver of participation in such a case was against California "public policy," and that Iskanian’s right to bring a representative action under PAGA could not be waived. The employer argued that there was no principled difference between a class action and a PAGA representative action, and that both should be subject to federal preemption. The court of appeal had concurred, but Justice Liu, writing for the majority, disagreed: "We conclude that the rule against PAGA waivers does not frustrate the FAA’s objective because . . . 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 [Labor Workplace Development Agency.]"³Justice Chin’s concurrence provides a roadmap to the arguable flaws in the majority’s PAGA analysis. First, he disagrees with the conclusion that a PAGA claim is not "a dispute between an employee and employer arising out of their contractual relationship."⁴Second, Justice Chin notes "no case law support" for the notion that the state may "simply ban arbitration of PAGA claims."⁵ Third, he criticizes the majority’s reliance on the U.S. Supreme Court’s opinion in EEOC v. Waffle House,⁶ which held, correctly, that an arbitration agreement was not binding on an administrative agency. Finally, Justice Chin doubts the majority’s conclusion that the FAA places no limit on "the ability of states to enhance their enforcement capabilities by enlisting willing employees in qui tam actions."⁷