Arbitration provisions are everywhere. If you own a cell phone, use a credit card, or subscribe to cable or satellite TV, odds are very high that your contract with those companies contains an arbitration clause. Your employment agreement may very well have an arbitration clause too. Your car loan? The vacation you just booked with an online travel site? All are likely to have an arbitration clause buried somewhere in the fine print.

According to a three-part series published in The New York Times, corporate America has been luring consumers and employees into signing contracts that require all disputes be resolved through private arbitration. Consumers and employers aren’t given much choice. Companies offer “take it or leave it” contracts with the arbitration provisions buried at the end. And courts, for the most part, say these provisions are legal and enforceable.

But not all courts agree, and not in all situations. In fact, federal courts are increasingly protecting employees’ rights to pursue claims against an employer as part of a class action in court, even if the employment agreement contains an arbitration provision that seeks to prohibit such collective action.

Most recently, a federal court in Los Angeles rejected an employer’s effort to quash an employee’s class action in reliance on a broadly-worded arbitration clause. In Totten vs. Kellog, Brown & Root, LLC, Judge Dolly Gee of the U.S. District Court for the Central District of California ruled that the arbitration provision signed by Totten when he was hired by KBR–to the extent it forced Totten to relinquish class-wide claims challenging KBR’s employee payment practices–violates two federal laws.

KBR hired Totten in January, 2012. As a condition of employment, Totten signed an agreement that contained a mandatory arbitration clause that governed “all legal and equitable claims” relating to his employment. The agreement also stated that neither Totten nor KBR “may pursue any dispute on a class action, collective action or consolidated basis or in any representative capacity on behalf of other persons.” But KBR hedged its bets, and added language that said if a court were to strike down the prohibition on class actions, then an employee’s individual claims would still be subject to mandatory arbitration.

KBR fired Totten in June, 2014. The next month, he filed a class action lawsuit against KBR for multiple violations of the California Labor Code, including failure to pay minimum wages, failure to pay overtime, failure to provide a second meal period, failure to provide wage statements, and failure to pay all wages owed at the time of termination. Totten also included a claim for civil penalties under California’s Private Attorney General Act.

In response, KBR filed a motion to compel Totten to arbitrate his claims and to bar all class-wide claims. KBR pointed to the language of the agreement and the Federal Arbitration Act, which provides that written arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Totten opposed KBR’s motion. He relied on several decisions of the National Labor Relations Board that held class-action waivers unenforceable under the National Labor Relations Act and the Norris-LaGuardia Act. Section 7 of the NLRA guarantees employees “the right to . . . engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act.

The Norris-LaGuardia Act declares that it is the “public policy of the United States” that individual workers be free of “interference, restraint, or coercion” by employers when they engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.

The NLRB noted that the U.S. Supreme Court has held that “employers cannot enter into individual agreements with employees in which the employees cede their statutory rights to act collectively.” Other federal courts have ruled that “concerted activity” as that term is used in the NLRA and the Norris-LaGuardia Act includes collective legal actions, like a class action lawsuit.

The NLRB also dismissed the idea that the Federal Arbitration Act superseded these employee-protection provisions. To the contrary, the NLRB noted that section 2 of the FAA specifically provides that arbitration agreements that contradict federal law are not enforceable. Section 2 states that arbitration agreements are “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Contracts that contravene federal law are revocable.

Judge Gee adopted the NLRB’s approach and rejected decisions of other federal courts that upheld employee class-action waivers under the Federal Arbitration Act. She also rejected arguments by KBR that the U.S. Supreme Court decision in AT&T Wireless vs. Concepcion required her to uphold the class-action waiver.

The Court disagrees, however, that Concepcion applies to this case. Concepcion involved preemption of a state law ruling precluding enforcement of a class arbitration waiver in the consumer context. (citation omitted). The consumers in Concepcion could not have relied upon the NLRA: they did not seek to bring a collective action against their employer seeking to better their workplace conditions. (emphasis added) Although many courts, including this one, have granted motions to compel arbitration in the employment litigation context under the FAA, those cases involved individual employees who were not engaged in concerted activity. (emphasis added)

Judge Gee also held that Totten may pursue his Private Attorney General Claim against KBR as part of the class action in federal court, relying on recent decisions of the California Supreme Court in Iskanian v. CLS Transp. Los Angeles, LLC and of the Ninth Circuit U.S. Court of Appeals in Sakkab v. Luxottica Retail North America, Inc.

In Iskanian, the California Supreme Court ruled that an employment contract that seeks to waive an employee’s right to bring a PAGA claim is unenforceable, because it goes against the public policy of encouraging whistleblowers who disclose violations of the Labor Code. Thereafter, the Ninth Circuit applied Iskanian and held that the Federal Arbitration Act does not overrule California’s public policy. Both courts permitted employees to proceed with class-wide claims under the PAGA despite employment agreements that purported to waive all class actions.

As a result of Judge Gee’s ruling, Totten will go forward with his class action lawsuit against KBR in federal court. Any individual claims he pursues against KBR will be sent to arbitration.

Judge Gee’s decision is detailed and well-reasoned and should, therefore, be persuasive to other federal courts faced with these issues. But the issue is far from settled nationwide.  Federal courts that are generally hostile to employees’ rights will tend to side with employers in these battles and follow the cases that have upheld class-action waivers in employment agreements. This disagreement among the federal courts also makes it more likely that the issue will eventually be presented to the U.S. Supreme Court.

We are experienced and skilled in representing employees in class action litigation against employers. We also have a vibrant practice advising and representing whistleblowers. If your employer has interfered with your rights in any way, please contact us to discuss what you can do about it.