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California Court of Appeal Holds That AT&T Mobility Does Not Apply To PAGA Actions

Published by on July 25, 2011

In Brown v. Ralphs Grocery Co., a California Court of Appeal held that a class action waiver in an employment arbitration agreement was enforceable in a wage and hour class action.  The Court of Appeal held, however, that the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011) (“AT&T”) does not apply to permit […]

In Brown v. Ralphs Grocery Co., a California Court of Appeal held that a class action waiver in an employment arbitration agreement was enforceable in a wage and hour class action.  The Court of Appeal held, however, that the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011) (“AT&T”) does not apply to permit waivers of “representative actions” under California’s Private Attorney General Act of 2004 (“PAGA”).  More after the break.

Plaintiff brought a class action and representative action under PAGA against her former employer for alleged violations of the Labor Code in which plaintiff sought to represent a class of former and current employees. Plaintiff’s employment contract with defendants contained a clause that required her to submit her individual causes of action to arbitration. Specifically, plaintiff’s employment contract contained a “class action waiver” in which plaintiff agreed to waive her right to pursue class action remedies in the trial court or in an arbitration forum. Defendants filed a motion to compel plaintiff to arbitrate her individual claims. The trial court denied defendants’ motion to compel and held that under Gentry v. Superior Court, 42 Cal. 4th 433 (2007) (“Gentry”), the class action waiver provision in plaintiff’s employment agreement was unenforceable.

The Court of Appeal reversed in part, holding that substantial evidence did not support the trial court’s ruling that the class action waiver provision in plaintiff’s employment agreement was unenforceable. In concluding that the class action waiver was enforceable, the Court of Appeal applied the framework for enforceability set forth by the California Supreme Court in Gentry.  The Court of Appeal held that plaintiff failed to make the evidentiary showing as required by Gentry that the class action waiver resulted in a waiver of her statutory rights. On this basis, the Court of Appeal held that the class action waiver was not unenforceable.  The Court of Appeal declined to decide whether the class action waiver was separately enforceable based on the preemption under the Federal Arbitration Act (“FAA”) as held in AT&T (holding that California decisional law invalidating class action waivers in consumer arbitration agreements is preempted by the FAA). In a parenthetical, however, the Court of Appeal indicated that had plaintiff satisfied the Gentry standards, AT&T might not require preemption and enforceability because Gentry is concerned with the waiver of statutory rights and not just unconscionability, which was the focus of the United States Supreme Court in AT&T.

The Court of Appeal further held that the preemption set out in AT&T did not apply to waive plaintiff’s action under PAGA which is a “representative” claim and not a “class” claim. The Court of Appeal relied on the intent behind PAGA to allow private enforcement actions to be maintained without satisfying class certification requirements, with the goal of furthering enforcement of State wage and hour laws.  Thus, the Court of Appeal affirmed the trial court’s decision that the waiver of plaintiff’s right to pursue a representative action under PAGA was unenforceable under California law.

The matter was remanded to the trial court to conclude whether to sever the unenforceable provision waiving plaintiff’s right to pursue a PAGA representative action or whether to refuse to enforce the entire arbitration agreement.

California employers should review and consider revising their arbitration agreements to address this decision.

To review the entire opinion, click here.

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