Are Class Action Waivers Enforceable in California?

While there is no doubt California courts have openly expressed hostility toward the enforcement of class action waivers, state court and ninth circuit court decisions finding such waivers unenforceable have been consistently reversed on appeal to the United States Supreme Court, where the waivers are contained in an agreement to arbitrate pursuant to the Federal Arbitration Act (“FAA”), which makes agreements to arbitrate “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. The natural result of these decisions has been for more businesses and their attorneys to include such waivers as part of an agreement to arbitrate. This article provides a brief history of such rulings and discusses the current state of the law in California with regard to certain class action waivers.

A Brief History of Class Action Waivers

In previous cases, the U.S. Supreme Court ruled that in the event there is a state statute preventing waiver of class action suits, that state statute is superseded by the FAA where the waiver is contained as part of an agreement to arbitrate, thus allowing for enforcement of such class action waivers. In 2011, the Supreme Court expanded its earlier holdings to include not only state statutes which are now superseded, but also generally applied contract doctrines. In AT&T Mobility LLC v. Concepcion,[1] the Court was asked to determine whether the FAA preempts generally held contract doctrines, such as the unconscionability doctrine and California’s policy against exculpation. While acknowledging that the analysis required to reach its conclusion was more complex than in earlier cases, the Supreme Court ultimately found that the waivers were enforceable and instructed litigants to look to the language and history of the FAA, not generally applied state doctrines. Id.

Four years later, the Court returned to the issue in DirecTV Inc. v. Imburgia[2] and thwarted another attempt to evade the mandates of the FAA under the guise of state law contract interpretation. The California Court of Appeals reasoned that “because arbitration agreements containing class-arbitration waivers are unenforceable under California contract law, the entire arbitration agreement is unenforceable according to the express terms of the customer agreement.” Id.  In again reversing the lower court, the Supreme Court opined that, absent any federal statute to the contrary, bilateral arbitration clauses with express class action waivers will be enforced. Id. While the majority opinion assumed the California court correctly applied state law in interpreting the agreement, its decision was based on its finding that the California court’s interpretation of the agreement discriminated against arbitration clauses in violation of the FAA. Id.
A New Circuit Split

Since the Supreme Court’s Imburgia decision, there has developed a split in authority among the federal courts of appeals concerning the enforceability of employment arbitration agreements containing class action waivers. Not surprisingly, the Ninth Circuit has sided with employees and held that certain sections of the National Labor Relations Act (“NLRA”), providing for and protecting collective action by employees, render such waivers unenforceable under the FAA. So comes the argument that there is a federal statute which is contrary to the precepts of the FAA.

As sometimes occurs where opinions diverge between the federal circuit courts, the U.S. Supreme Court has agreed to hear three cases involving the enforceability of class action waivers on a consolidated basis.[3] Two of the three cases come to the Court following decisions by the federal circuit courts that the waivers are not enforceable, while the third comes out of a decision finding such waivers are indeed enforceable. While it remains to be seen how the Court will rule, if recent precedent provides instruction, the waivers are likely to be held enforceable since the Court has repeatedly acknowledged that the congressional mandate to enforce arbitration agreements strictly and consistently with their terms is not easily overcome.

Conclusion

There is little doubt that California state courts and the ninth circuit courts will remain hostile toward the enforcement of class action waivers not contained in an arbitration provision. However, because the FAA is a federal law which favors strict enforcement of arbitration agreements across the nation, every court in the United States is bound by well-settled law as decided by the U.S. Supreme Court. Therefore, arbitration agreements containing bilateral class action waivers will continue to gain increasing favor among business attorneys and others who wish to guard against the proliferation of such lawsuits. While it is important to note that certain state law claims cannot be included as part of a class action waiver, such as claims brought pursuant to California’s Private Attorneys General Act (“PAGA”), since such claims are brought by individuals on behalf of the State of California, which courts have reasoned did not sign an agreement to waive its right to be represented collectively or pursue class action lawsuits, businesses and their lawyers are encouraged to consider including a class action waiver in their arbitration agreements in appropriate circumstances. Even though the enforceability of such provisions may be affected by future Court decisions, given the current state of the law and broad reach of the FAA, as interpreted by the U.S. Supreme Court, such waivers will be found enforceable in a majority of cases.

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If you would like to learn more about class action waivers or other business-related legal issues, contact the knowledgeable business attorneys at Gehres Law Group for your complementary evaluation. We’re here to support California businesses navigate legal complexities so they can grow and thrive in any climate.

[1] AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-52 (2011).

[2] DIRECTV, Inc. v. Imburgia, — U.S. —, 136 S. Ct. 463, 468-71 (2015).

[3] See Epic Systems Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016), cert. granted, No. 16-285 (U.S. Jan. 13, 2017); Ernst & Young LLP et al. v. Stephen Morris et al., 834 F.3d 975 (9th Cir. 2016), cert. granted, No. 16-300 (U.S. Jan. 13, 2017); and NLRB v. Murphy Oil USA Inc., 808 F.3d 1013 (5th Cir. 2015), cert. granted, No. 16-307 (U.S. Jan. 13, 2017).

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