Arbitration Puzzler: Nevada’s Anti-Waiver Rule Preempted; California’s Anti-Waiver Rule Not Preempted

Two opinions came out recently in disputes over the arbitrability of putative class actions alleging that employees were not paid for overtime (and other labor violations). In one, the Nevada Supreme Court acknowledged that its 2011 ruling, finding class action waivers in arbitration were unconscionable, is preemptedIn the second, the Ninth Circuit found that the California Supreme Court’s recent ruling in Iskanian, invalidating PAGA waivers in arbitration agreements, is not preempted.

The Nevada opinion relates to security guards who did not want to arbitrate their claims for unpaid work. Tallman v. Eighth Judicial Dist. Ct. of Nev., 2015 WL 5656981 (Nev. Sept. 24, 2015). One by one, the court disposed with each of the employee’s arguments for not enforcing their arbitration agreements with the employer. Importantly, the court acknowledged that its pre-Concepcion decision in Picardi, 251 P.3d 723 (2011), which found class action waivers in arbitration violated Nevada public policy and therefore were unconscionable, was abrogated by Concecpion. The court reasoned that Concepcion’s application could not be limited to consumer or federal cases. The court also concluded that the National Labor Relations Act did not invalidate the parties’ class action waiver. Siding with the many courts that have ganged up against the NLRB on that issue, it found the NLRB ruling “cannot be reconciled with the FAA as authoritatively interpreted by the Supreme Court.” In the course of its analysis, Nevada cited repeatedly to California’s recent opinion in Iskanian.

Iskanian itself was the subject of a recent 9th Circuit opinion in Sakkab v. Luxottica Retail N. Am., 2015 WL 5667912 (9thCir. Sept. 28, 2015).   It was the first federal court to consider whether Iskanian’s rule — that California law will not enforce pre-dispute agreements to waive claims under California’s Private Attorneys General Act (PAGA) – is preempted by federal law. In that case, employees of Lenscrafters brought a putative class action alleging failures to pay overtime and other compensation. The only real issue on appeal was whether the waiver of class or collective claims in the arbitration clause was enforceable with respect to the employees’ PAGA claims. The court found the Iskanian rule is not preempted. In support of its conclusion it noted that the Iskanian rule applies to arbitration and non-arbitration contracts, that the rule is not “hostile” to arbitration, and that it “does not diminish parties’ freedom to select informal arbitration procedures.” The court also emphasized “PAGA’s central role in enforcing California’s labor laws” noting that states, and not the federal government, have authority to regulate employment. I am guessing SCOTUS’s refusal to accept cert in Iskanianemboldened the 9th Circuit to find the rule was not preempted.

By Liz Kramer

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Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com