​(August 11, 2011) In the first California case with the potential to build on a class action lawsuit ruling welcomed by employers, an appeals court has declined to extend that U.S. Supreme Court decision to other areas.

This year, the U.S. Supreme Court ruled in AT&T Mobility LLC v. Concepcion that companies can require buyers to sign consumer arbitration agreements that waive class action claims.

The case was welcomed by many in the business community who hoped to see the decision extended outside the arena of consumer arbitration agreements to allow for class action waivers in other areas, such as employment agreements, as well. The anticipation was that the AT&T Mobility decision might decrease wageand- hour class actions and other collective actions that have plagued employers.

But the first California decision on the application of AT&T Mobility limited the reach of this favorable ruling.

In Brown v. Ralphs Grocery Co., a California Court of Appeal refused to extend the AT&T Mobility analysis to representative actions brought under the California Private Attorney General Act (PAGA). PAGA allows an employee to file suit on behalf of all “aggrieved employees” for alleged Labor Code violations.

The employee in this case filed a complaint asserting four Labor Code violations. The employee sought class certification and also to bring a representative action under PAGA. The employer argued that the employee was bound by an arbitration agreement in the employment application which prohibited class action claims and representative claims as a private attorney general. The employer argued that these arbitration provisions were enforceable in light of AT&T Mobility.

The court held that PAGA waivers are not enforceable under California law. Under this decision, if an employer has a PAGA waiver in an arbitration agreement, that waiver will be unconscionable.

The court found that AT&T Mobility did not apply because there are differences between a representative action under PAGA and a class action. The court noted that the purpose of the PAGA statute is to “deputize” citizens to enforce the Labor Code and protect the public. PAGA’s purpose would be defeated if employees were forced to individual arbitration and could not bring actions on behalf of others.

The court dodged the separate issue of whether AT&T Mobility overruled current California authority generally prohibiting class action waivers in most employment arbitration agreements. The court indicated that it lacked the power to invalidate prior authority from the California Supreme Court generally prohibiting such waivers and also declined to decide the issue based on the facts of this particular case.

Thus, the first California case on the issue of enforceability of arbitration provisions in employment agreements leaves the issue unresolved and employers without further guidance.

Staff Contact: Gail Cecchettini Whaley