California Court Implements Iskanian, Finds Agreement Waiving Representative Claims Under PAGA Unenforceable

Ybarra v. Apartment Investment and Management Company, No. B245901 (October 7, 2014): A California Court of Appeal recently affirmed a trial court decision finding that a class action waiver provision in an employee’s arbitration agreement was unconscionable and unenforceable. The same court had previously reversed the trial court’s order in the case denying the employer’s motion to compel arbitration. In light of the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (and per the order of the California Supreme Court), however, the appellate court vacated and reconsidered its prior opinion.

Reyna Marie Ybarra entered into an arbitration agreement with her employer, Apartment Investment and Management Company (Aimco) at the start of her employment. Under the agreement, the parties were required to submit claims arising out of the employment or termination of the employment to binding arbitration. The agreement also prohibited parties from bringing class or collective actions and denied arbitrators the power to decide class and collective issues.

After Aimco fired Ybarra, she filed a representative claim for civil penalties under the California Labor Code’s Private Attorneys General Act of 2004 (PAGA), claiming that Aimco violated the Labor Code. Aimco filed a motion to compel arbitration of Ybarra’s PAGA claim on an individual basis, which the trial court denied on the grounds of unconscionability. According to the trial court, Ybarra showed that the arbitration agreement was procedurally unconscionable because it was presented as a condition of employment and that the agreement was substantively unconscionable because the PAGA representative action waiver was unenforceable.

Aimco appealed and the Second Appellate District of the Court of Appeal considered whether the arbitration agreement including its prohibition of representative claims was enforceable. In the meantime, on June 23, 2014, the California Supreme Court decided, in Iskanian, that arbitration agreements that waive representative claims under PAGA are unenforceable. The Iskanian court also decided that California’s policy prohibiting waiver of PAGA claims does not interfere with the Federal Arbitration Act’s pro-arbitration goals.

Thus, the appellate court ruled that it was bound to find that the representative action waiver in Ybarra’s and Aimco’s agreement was unenforceable. The California appellate court held that the trial court’s order denying Aimco’s motion to compel arbitration is affirmed and Ybarra is entitled to recover her costs on appeal.