California Appeals Court Finds Arbitration Agreement with PAGA Waiver and Opt-Out Clause UnenforceableA California appellate court has ruled that an arbitration agreement containing a representative action (PAGA) waiver and a non-severability clause is unenforceable.

In Securitas Security Services USA, Inc. v. Superior Court (Edwards), the employer provided its employees an arbitration agreement that they could opt out of during a 30-day period by calling a toll-free number. Any employee not opting out became bound by the agreement to arbitrate all employment disputes.

Besides the 30-day opt-out clause, the Securitas arbitration agreement also included a non-severable express class action and representative waiver as well as a severability clause.

Plaintiff Edwards filed a class action and representative claim under the Private Attorneys General Act (“PAGA”) in San Diego Superior Court, alleging Securitas failed to provide required rest and meal breaks and proper wage statements. Securitas filed a motion to compel arbitration, which was granted by the trial court.

However, the trial court also ruled that the plaintiff’s PAGA claim could not be waived and that provision of the arbitration agreement was invalid. The trial court ordered both parties to proceed to arbitration on the entire complaint. Securitas appealed, contending that the plaintiff’s PAGA and class action claims were impermissibly compelled to arbitration.

The Court of Appeal considered the 2014 California Supreme Court decision in Iskanian v. CLS Transportation in ruling that the class action waiver was unenforceable, holding that the option to opt-out did not take the case outside of Iskanian.

The appellate court also found that the language in the arbitration agreement’s nonseverability clause, combined with the PAGA waiver, made the agreement unenforceable in its entirety, despite the severability clause.

This decision demonstrates that post-Iskanian, California courts are likely to find predispute PAGA waivers in arbitration agreements unenforceable — and the inclusion of an opt-out provision is not likely to remedy this.

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