On February 27, 2015, the California Court of Appeal determined that arbitration could not be compelled in Securitas Security Services USA, Inc. v. Superior Court (Edwards). Securitas’ arbitration agreement contained a waiver provision, waiving both class actions and representative Private Attorney General Act (PAGA) actions. In addition to waiving these claims, the waiver provision expressly stated that the waiver could not be severed from the agreement. In a separate paragraph, the Agreement contained a general severability clause, providing that “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, [the parties] agree that this Agreement is otherwise silent as to any party’s ability to bring a class, collective, or representative action in arbitration.”
Plaintiff signed an acknowledgement of the arbitration agreement and did not opt-out of it within the 30 day period given to employees. After she was terminated, she filed a complaint in state court, asserting wage and hour claims against Securitas. Notwithstanding the arbitration agreement, she later amended her complaint to add class and PAGA claims. Securitas moved to compel arbitration.
The trial court granted Securitas’ motion, but held that under Iskanian v. CLS Transportation, the PAGA waiver provision and the non-severability provision were unenforceable. Accordingly, the court applied the general severability clause and ordered the parties to proceed with arbitration of the entire complaint, including plaintiff’s class and PAGA claims.
Securitas then filed a petition for a preemptory writ of mandate compelling the trial court to set aside the portion of its order sending plaintiff’s class and PAGA claims to arbitration. The Court of Appeal granted Securitas’ request to set aside the order sending the class and PAGA claims to arbitration, finding that (1) the class action waiver was enforceable under Iskanian and (2) the PAGA waiver was not, explaining that plaintiff’s failure to opt-out of the agreement was insufficient to make the PAGA waiver enforceable.
The court then interpreted the non-severability provision that accompanied the PAGA waiver to mean that in spite of the general severability clause in the Agreement, the PAGA waiver was not severable. Because the PAGA waiver was invalid under Iskanian and could not be severed from the agreement, the entire arbitration agreement was held to be unenforceable. Interestingly, the Court of Appeal expressed an opinion that following Iskanian, the only way to draft a valid PAGA waiver is to do so after a dispute has arisen.
California employers should take caution in drafting waivers and severability clauses in arbitration agreements. Jackson Lewis attorneys are always available to assist.