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Score another for plaintiffs in the ongoing evolution of arbitration rules

Following California law on mandatory arbitration of employment claims is a little like watching a tennis match; rulings keep going back and forth between employers and employees. The latest in the ongoing volley, Franco v. Arakelian Enterprises, Inc., is clearly a point for employees. In Franco, a California appellate court ruled that prior case law that limited arbitration agreements waiving employees’ rights to bring class actions survived recent Supreme Court cases that reinforced employers’ rights to contractually require arbitration. The prior law, established by the California Supreme Court in Gentry v. Superior Court (decided in 2007), said that arbitration agreements could not preclude employees from bringing class actions if doing so would impermissibly interfere with their ability to vindicate their employment rights. Many believed that rule was subsequently trumped by decisions of the U.S. Supreme Court, including AT&T Mobility v. Concepcion (decided in 2011), which generally said that state law could not interfere with federal statutes that encourage arbitration. But in Franco, the appellate court held that California can still restrict class action waivers in arbitration agreements as long as it does so on a case-by-case basis, rather than across-the-board. Whether a class action waiver will be valid depends on various factors, including: (1) the amount of the employees’ claims (the smaller they are, the less likely they can be prosecuted individually); (2) whether employees will suffer retaliation for bringing claims alone, rather than as a class; and (3) whether employees will even know they have individual claims to bring (participants in class actions are often unaware that they have claims). Franco is the first case to apply this analysis to claims arising under California law, and it is an appellate court decision that cannot supersede the prior Supreme Court rulings. Regardless, it is instructive, at least until the next arbitration case comes out.