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California Supreme Court Continues Arbitration Obsession, Moves to Allow Class Action Waivers

Wednesday, July, 9, 2014

The Supreme Court in the state of California is well-known for having an obvious antipathy for binding arbitration clauses and has already had several of its decisions referred back to it by the U.S. Supreme Court for modification over the issue, which the U.S. Supreme Court has re-affirmed several times.  Most recently, the California court attempted to restrict the use of waivers forcing binding arbitration on certain class action lawsuits – which was again swatted down by the U.S. Supreme Court.  In its recent decision on Iskanian v. CLS Transportation, the California court acknowledged this and recognized that in most cases, the California Supreme Court cannot restrict the use of these waivers.


This is an important precedent as many employers use such waivers to avoid being hit with large-scale class-action lawsuits.  In a properly-worded, enforceable arbitration clause including such waivers, the employee’s only recourse when seeking a claim against their employer is via individual arbitration.  This has the chilling effect of making such cases much less profitable – and thus less attractive – to attorneys.


Despite the fact that the court did recognize one slender exception where such waivers are still considered inappropriate (suits brought under the State Labor Code's Private Attorneys General Act of 2004), the other impact of this decision is the overall legitimization of these arbitration class-action waivers, meaning they are no longer controversial but the settled law of the land and will likely increase in popularity and occurrence.