Let’s Play Two: California Supreme Court Hears Oral Argument in Two Important Class Action Cases

Authored by Jim Harris

The California Supreme Court heard oral argument in two important cases involving employment-related class actions. From the tenor of and comments made at the argument, it appears likely that the ultimate results will be a mixed bag for employers.

The first case, Iskanian v. CLS Transportation of Los Angeles, LLC, which we reported on late last year, presents related questions regarding the impact on California practice of the decision in Concepcion, where the High Court overruled a California Supreme Court decision under which class action waivers in certain arbitration agreements were deemed unconscionable. The threshold issue in Iskanian is whether another California Supreme Court decision, Gentry, also must fall under Concepcion. Gentry had held that a class action waiver in an arbitration agreement should not be enforced if a trial court were to determine that “class arbitration would be a significantly more effective of vindicating the rights of affected employees than individual arbitration.” Even the most liberal member of the California Supreme Court, Justice Liu, seemed prepared to conclude that Gentry likewise is preempted by federal law because it runs head-long into Concepcion’s recognition that “requiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration.” The Justices also seemed unimpressed by Plaintiff’s contention that they could simply water-down Gentry to bring it into compliance with Concepcion. And they appeared resistant to endorsing the National Labor Relations Board’s ruling in D.R. Horton that class action arbitration waivers violate the National Labor Relations Act, several Justices noting the chilly reception that D.R. Horton received in federal appellate courts.

The Plaintiff in Iskanian seems more likely to prevail, however, on the second issue—whether an arbitration agreement may permissibly override the statutory right to bring representative claims under PAGA, the California Private Attorneys General Act of 2004. The argument focused mainly on the nature of PAGA’s actions. Defense counsel argued there is no principled distinction between a PAGA representative action and a conventional employment class action. However, the Justices who addressed this question seemed skeptical. Justices from across the ideological spectrum seemed inclined to characterize a PAGA action as belonging to the State, although prosecuted by individual plaintiffs. On that premise, they seem inclined to rule that an arbitration agreement may not override the State’s statutory right.

The Supreme Court granted review in the second case, Ayala v. Antelope Valley Newspapers, to resolve questions regarding how trial courts are to determine whether common issues predominate in wage-hour cases where one issue is whether the putative class members are employees or independent contractors. The oral argument, however, barely addressed class action procedures or rules. Rather, the argument focused almost entirely on determining the proper substantive standard for making the employee/independent contractor determination. The Ayala case had been litigated in the lower courts on the premise that that the common law test adopted in Borello governed this inquiry. The employer’s position was that the multi-factored inquiry required under Borello was inherently individualized, precluding class certification. Prior to oral argument, the Supreme Court requested supplemental briefing as to whether the far broader, and simpler, “suffer or permit” standard embodied in California wage-orders should instead govern. Plaintiff’s counsel jumped on this suggestion, arguing that certification should be upheld under the “suffer or permit” standard. A proxy war ensued. Two Justices—Justices Liu and Werdegar—clearly believe the broader substantive standard should control. Several others—Justices Baxter, Chin and Corrigan—appeared to disagree strongly. The ultimate views of the remaining two Justices were less clear. What does seem clear is that the ruling on the standard will determine the outcome on certification.