FAA preempts California's unconscionability rule. Gentry v. Superior Court, 165 P3d 556 (California 2007), was a 21st century vestige of judicial hostility toward arbitration agreements. This week the California Supreme Court, under intense pressure from the US Supreme Court, finally caved in to the principle that federal law (the Federal Arbitration Act (FAA) of 1925) requires enforcement of an arbitration agreement's clause that disallows class arbitration proceedings.
Iskanian v. CLS Transportation (California Supreme Court 06/23/2014) overruled Gentry.
Iskanian 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. Iskanian had entered into an arbitration agreement that waived the right to class proceedings.
The California Supreme Court ruled that a state's refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA.
"[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members‘ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer‘s violations, it must invalidate the class arbitration waiver to ensure that these employees can 'vindicate [their] unwaivable rights in an arbitration forum.'"
However, in AT&T Mobility LLC v. Concepcion, 131 SCt 1740 (US Supreme Court 2011) the US Supreme Court made clear that
even if a state law rule against consumer class waivers were limited to "class proceedings [that] are necessary to prosecute small-dollar claims that might otherwise slip through the legal system," it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration "even if it is desirable for unrelated reasons."
So where does that leave us? There is a huge debate going on as to whether waivers of class arbitration are a good thing or a bad thing, and whether or not employers are taking unfair advantage of employees, and whether arbitration of employment disputes is better or worse (for whom? Employees? Employers?) than litigation. But where we are left is that we are dealing with the Federal Arbitration Act (FAA), which dates back to 1925, and with the current US Supreme Court's interpretation of that federal statute.
As is true with all federal statutory matters, those who want change in the law should look to Congress.