By Colleen Regan

Christmas came early this year to California employers interested in stemming the tide of class action lawsuits asserting wage and hour violations.  On June 23, 2014, three judicial decisions—one by the California Supreme Court and two by the Ninth Circuit—clarified the ability of employers to use arbitration agreements to keep class actions out of court. 

The first, and most important, was the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (Cal. Sup. Ct., filed 6/23/2014), which held that class action waivers in employment arbitration agreements must be respected under the Federal Arbitration Act.  The California Supreme Court thus recognized that its 2007 decision in Gentry v. Superior Court is no longer good law.  The Iskanian decision is welcome news to employers that wish to limit potential exposure to class actions by using arbitration agreements that include class action waivers.

The plaintiff in Iskanian also asserted a representative action under the Private Attorneys General Act of 2004.  Thus, another important question presented in Iskanian was whether the arbitration agreement had effectively waived the employee’s right to bring a representative PAGA action.  On this issue, the California Supreme Court sided with the employee, holding that the PAGA claim is beyond the scope of the FAA, which addresses only private disputes.  The PAGA claim, by contrast, is brought in the name of the State of California, and thus is not a private claim.  Click HERE to read our full One Minute Memo, and HERE for the text of the case.

A panel of the Ninth Circuit on June 23 also filed two important decisions of its own.  In Johnmohammadi v. Bloomingdale’s, Inc. (9th Cir. No. 12-55578, June 23, 2014), the court upheld an order enforcing an arbitration agreement that became effective if the employee failed to opt out of the agreement within 30 days.  Relying on this opt-out feature, the Ninth Circuit rejected the employee’s argument that the agreement violated the National Labor Relations Act:  there could be no question of interfering with concerted activity, the court concluded, where, as here, the agreement was not a mandatory condition of employment; the plaintiff could have opted out and preserved her right to proceed in court.

The same panel, in Davis v. Nordstrom, Inc. (9th Cir. No. 12-17403, June 23, 2014), reversed an order that had denied enforcement of an arbitration agreement that appeared in an employee handbook.  The court held that the employer could unilaterally modify its arbitration agreement to include a class action waiver, by giving 30 days of notice to employees.  This was enough to create a binding contract of arbitration, even without an employee signature.  While it would have been cleaner to have a clearly signed agreement to display in court, the Ninth Circuit panel here adhered to the old-fashioned view of employment contract formation, i.e., when an employee continues in employment after being given notice of changed terms, the employee has accepted those terms. 


California’s minimum wage goes up next week (July 1) to $9.00, on its way to $10 per hour on January 1, 2016.  This change has ripple effects: 

  • Employers must provide amended wage information (either through a “wage theft notice” or through the pay stub) to minimum wage workers within 7 days of the change. 
  • Thresholds for white collar exemption salaries will increase.
  • Minimum payments for non-productive work time for piece rate and commission-based employees also go up.  

Stay tuned later this week for Part 2 of our Credit Checks Series.