Last month, a California Court of Appeal invalidated an arbitration agreement for including a representative action waiver combined with a non-severability clause.

Background

In Securitas Security Services USA, Inc. v. Superior Court (Edwards), 2015 Cal.App.LEXIS 190 (Cal. App. 4th Dist. Feb. 27, 2015), the employee, Edwards, signed an arbitration agreement from her employer, Securitas Security Services USA, Inc.  The agreement featured the following relevant clauses.

• A 30 day opt out clause

• Express class action & representative waiver combined with a non-severability clause: Paragraph 4: “[T]here will be no right or authority for any dispute to be brought, heard or arbitrated as a class, collective or representative action (‘Class Action Waiver’). Notwithstanding any other clause in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action.”

• Severability clause: Paragraph 10: “In the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable. If the Class Action Waiver is deemed to be unenforceable, [Securitas] and [Edwards] agree that this Agreement is otherwise silent as to any party’s ability to bring a class, collective or representative action in arbitration.”

In 2013, Edwards sued Securitas in the San Diego Superior Court alleging that Securitas failed to provide all required meal and rest breaks and proper wage statements.  The lawsuit was brought as a class action and representative claim under the Private Attorneys General Act (“PAGA”).  Securitas moved to compel the claims to arbitration.

Securitas argued that the California Supreme Court’s holding in Iskanian v. CLS Transportation, 59 Cal.4th 348 (2014), that predispute PAGA waivers were unenforceable, did not apply to Edwards’s PAGA claim because Edwards could have opted out of the agreement.  Edwards opposed the motion and argued that the PAGA waiver was contrary to public policy under Iskanian.

Trial Court

The trial court granted Securitas’s motion to compel arbitration, but ruled that Edwards’s PAGA claim could not be waived and that the provision was invalid.  It ruled that the severability clause in paragraph 10 thus applied.  The Court ordered the parties to proceed with arbitration as to Edwards’s entire complaint, including her PAGA claims, observing that Edwards had elected to resolve her PAGA claims in arbitration along with her class claims.  Securitas appealed arguing that the court impermissibly compelled Edward’s PAGA and class actions claims to arbitration.

Court of Appeal

The Court of Appeal first focused on Iskanian and whether the representative waiver was enforceable.  The Court noted that Iskanian’s underlying public policy rationale—”that a PAGA waiver circumvents the Legislature’s intent to empower employees to enforce the Labor Code as agency representatives and harms the state’s interest in enforcing the Labor Code”—did not turn on the mandatory or voluntary nature of the employee’s initial consent.  Therefore, the Court held that Edwards’s opportunity to opt out of the agreement did not take the case outside of Iskanian.  As such, the Court deemed the class action waiver unenforceable.

The Court then turned to whether the trial court properly severed the class action waiver and enforced the remainder of the agreement.  The Court examined the contractual provisions of the agreement in an attempt to ascertain the parties contractual intent.  Focusing on the nonseverability clause immediately following the class action waiver, the Court held that the provision “unambiguously reflects the parties’ intent that where a dispute is subject to the arbitration agreement (i.e., ‘to be arbitrated’) and is ‘brought as a class, collective or representative claim’ as would be Edwards’s claims including her PAGA claim, the provision waiving such claims, even if later determined to be illegal or unenforceable, cannot be severed from the remainder of the agreement.”  Therefore, the Court held that despite paragraph 10’s severability clause, because of the language of the nonseverability clause in paragraph 4, combined with the PAGA waiver, the agreement was unenforceable in its entirety.

Takeaway

The Securitas decision is a reminder that following Iskanian, courts are unlikely to enforce predispute PAGA waivers in arbitration agreements.  Further, the mere inclusion of an opt out provision is unlikely to change this analysis.  Additionally, this decision emphasizes the importance of the specific language used in arbitration agreements, specifically with respect to severability and nonseverability clauses.