Thanks to the U.S. Supreme Court, you may not have the right to redress from the company that wronged you.
In the wake of the United Supreme Court’s controversial decision in Concepcion, on Monday, in a 6-1 decision, the California Supreme Court, was forced to abrogate its prior well-reasoned decision in Gentry v. Superior Court, 42 Cal. 4th 443 (2007), which allowed California to refuse to enforce class action “waivers” on grounds of public policy and unconscionability. The case is Iskanian v. CLS Transportation Los Angeles, LLC, S204032.
The Supreme Court addressed whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. In Iskanian, the employee sought 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 Supreme Court concluded that California’s prior refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA.
What does this mean? Corporate businesses and now employers may improperly use the FAA as a means to strip consumers and employees of their constitutional right to a jury trial and ability to bring class claims. The result, businesses and employers shielding themselves from liability no matter how corrupt or unlawful their practice. For example, a company may knowingly charge an unlawful early termination fee (ETF) to consumers – let’s assume for this hypothetical the ETF is $500. The company then buries in the prolix of a standard form agreement an arbitration provision that waives the right to class proceedings. First, most consumers do not even know what “arbitration” is, not to mention what it means to sign an arbitration agreement waiving the right to class proceedings. Second, most consumers are not even aware that they have signed an arbitration agreement, the terms of which are more likely than not buried in the middle of the company’s 50+ page terms and conditions. Nevertheless, consumers are forced into arbitrating their case individually where the cost to file and maintain the action dwarfs (by multitudes) the possible recovery of the relatively small $500. Thus, no reasonable consumer would file an action against the company to recover the $500 fee because it would cost them much more than $500 to obtain a judgment in arbitration. As a result, companies and employers are incentivized to continue their unlawful practice to reap in millions at the expense of consumers knowing the FAA precludes the only practical enforcement mechanism to hold them liable.
Only with the class action mechanism is it possible to rein in these companies from knowingly breaking the law. Unfortunately, the United States Supreme Court is allowing these companies to use the FAA as a scapegoat. The answer to this problem – federal legislation. With the passage of legislation, a bill would supersede the Supreme Court’s ruling and reestablish consumers’ and employees’ ability to sue and to join with others in class-action lawsuits. Consumers and employees should not be denied their right to a level playing field.
Fortunately, the California Supreme Court in Iskanian provided some employees with a glimmer of hope. In Iskanian, 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. The California Supreme Court held 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.