California Supreme Court To Hear Employment Arbitration Cases

Winter 2012Articles California Update

The California Supreme Court has on its docket three important cases involving arbitration agreements. These cases will be considered in the wake of Concepcion v. AT&T Mobility (Concepcion) in which the U.S. Supreme Court recently gave broad pre-emptive effect to the Federal Arbitration Act (FAA), and struck down California case law that had placed limits on the enforceability of arbitration agreements, specifically class action waivers. This will be an opportunity for the California high court to clarify state law regarding arbitration. The Court may even possibly modify its twelve-year-old decision in Armendariz v. Foundation Health (Armendariz) which emphasized “unconscionability” in restricting the enforcement of arbitration agreements.

Iskanian v. CLS.
This case presents two main issues:

    1. Whether the California Supreme Courts decision in Gentry v. Superior Court (Gentry) (striking down class action waivers in employee arbitration agreements) survives the U.S. Supreme Court’s decision in Concepcion (upholding class waivers in consumer arbitration agreements); and
    2. Even if Gentry is no longer good law, can the court refuse to honor the wavier of representative actions under the Private Attorney General Act of 2004 (PAGA). The Court of Appeal opinion said “No” to both issues. The representatives of the putative class appealed.

The appellant will argue that somehow Gentry survives, even though the precedent on which it was based was overruled by Concepcion, and that, in any event, a PAGA representative action is not merely a procedural vehicle (like a class action), but rather embodies substantive rights that cannot be waived.

(Fox Rothschild represents the defendant in this case.)

Sonic Calabassas v. Moreno

In early 2011, the California Supreme Court issued its first opinion in this case, holding that it was against public policy and unconscionable to include wage and hour issues in an arbitration agreement to the exclusion of the Labor Commissioner hearing provided in the Labor Code. The employer went to the U.S. Supreme Court, arguing that the FAA precluded such a result. The U.S. Court remanded to the California Court for reconsideration in light of Concepcion. Again, the California Court will be asked to consider whether one of its prior decisions has been impliedly overruled and is pre-empted by federal law.

Sanchez v. Valencia Holding Co.

In this case, a car dealer invoked the contractual arbitration agreement and class action waiver when a dissatisfied customer filed suit. The Court of Appeal relied on Armendariz, found the arbitration agreement to be “one-sided” (e.g., it exempted repossession), and struck down the agreement as “unconscionable.” The California Supreme Court agreed to hear this case on the issue whether Concepcion and the FAA preempt the subject matter, and command a different result. The defendant and amicus parties will argue that much of Armendariz is no longer valid. The decision in this matter will likely also affect employment cases.

Thus, this trifecta of cases has the potential to reset the jurisprudence of arbitration agreements in California — or to set up another showdown with the U.S. Supreme Court over these issues.