9th Circuit Upholds Employer’s Dispute Resolution Agreement Banning Collective Action

The Ninth Circuit Court of Appeals has upheld an employer’s dispute resolution agreement despite that portions of the provision were unconscionable and it prohibited workers from engaging in collective action.  In Poublon v. C.H. Robinson Co., No. 15-55143 (9th Cir. February 3, 2017), an account manager, Poublon, signed an Incentive Bonus Agreement that included a provision stating all work-related claims against her employer, C.H. Robinson Co., must be resolved through mediation followed by binding arbitration.  The dispute resolution provision also stated Poublon may not “bring any Claim combined with or on behalf of any other person or entity, whether on a collective, representative, or class action basis or any other basis.”  About three months after Poublon signed the Incentive Bonus Agreement, she ceased working for C.H. Robinson.

One month later, Poublon demanded mediation with her former employer related to her purported wage and hour claim against the company.  Following an unsuccessful mediation session, Poublon filed a class-action lawsuit against C.H. Robinson.  In her lawsuit, Poublon accused the company of misclassifying herself and other similarly situated employees as exempt from overtime pay requirements and claimed C.H. Robinson violated Sections 2698-2699.5 of the California Private Attorneys General Act (“PAGA”).  The company responded to the lawsuit by filing a motion to compel the dispute to arbitration based on the terms included in the Incentive Bonus Agreement.  After determining the dispute resolution provision was both procedurally and substantively unconscionable, the district court denied C.H. Robinson’s motion.

On appeal, the Ninth Circuit stated although portions of the dispute resolution provision were unconscionable, it was possible to sever them from the parties’ overall agreement.  With regard to the waiver of representative claims included in the Incentive Bonus Agreement, the court stated:

Waiver of Representative Claims. The dispute resolution provision states that “except as mutually agreed at the time between You and the Company, neither You nor the Company may bring any Claim combined with or on behalf of any other person or entity, whether on a collective, representative, or class action basis or any other basis.” The parties do not dispute that this provision denies Poublon the right to bring her representative PAGA claim, and we agree. In Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court held that where “an employment agreement compels the waiver of representative claims,” whether or not the agreement specifically references PAGA, it “frustrates the PAGA’s objectives” and “is contrary to public policy and unenforceable as a matter of state law.” 59 Cal. 4th 348, 384 (2014). This holding is not preempted by the FAA and is the controlling rule of California contract law. Sakkab, 803 F.3d at 439.

Poublon argues that because the waiver of a representative PAGA claim is unenforceable, it is also substantively unconscionable. This is incorrect. Under California law, “[c]ontracts can be contrary to public policy but not unconscionable and vice versa.” Sonic-Calabasas A, Inc. v. Moreno, 51 Cal. 4th 659, 686-87, cert. granted, judgment vacated on other grounds, 132 S. Ct. 496 (2011) (Sonic I) (internal citations omitted); see also Securitas Sec. Servs. USA, Inc. v. Superior Court, 234 Cal. App. 4th 1109, 1123 (2015) (holding that the determination “whether an agreement has been validly formed, and whether its terms are adhesive or unconscionable . . . are different from the determination of whether [the employee] entered into a knowing and intelligent waiver of her right to bring a PAGA claim . . . or whether Iskanian compels a conclusion that such a waiver is unenforceable as against public policy”). We are not aware of a California case holding that a PAGA waiver is substantively unconscionable. Nor has Poublon directed us to a case holding that the waiver of a representative claim, other than a PAGA claim, is substantively unconscionable.

By contrast, the Supreme Court has suggested that arbitration agreements can generally waive collective, classwide, and representative claims. In Concepcion, an arbitration agreement “required that claims be brought in the parties’ `individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.'” 563 U.S. at 336. Because the California Supreme Court had developed a rule that such provisions were unconscionable, we denied a company’s motion to compel arbitration. Id. at 338. The Supreme Court reversed, holding that this state court rule was preempted by the FAA, because “[t]he overarching purpose of the FAA . . . is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings,” and “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Id. at 344. Accordingly, even if the parties cannot lawfully agree to waive a PAGA representative action, Concepcion weighs sharply against holding that the waiver of other representative, collective or class action claims, as provided in the dispute resolution provision, is unconscionable. Therefore, the unenforceability of the waiver of a PAGA representative action does not make this provision substantively unconscionable.

Ultimately, the Ninth Circuit Court of Appeals concluded, “the dispute resolution provision is valid and enforceable once the judicial carve-out clause is extirpated and the waiver of representative claims is limited to non-PAGA claims, and the district court erred in holding otherwise.”  As a result, the appellate court reversed the district court’s order and remanded the case.

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