In Franco v. Athens Disposal Company, Inc. an appellate court refused to enforce an employee arbitration agreement that barred both class arbitration and the employee’s prosecution of civil remedies under the Private Attorney General Act.

The plaintiff brought a class action lawsuit against Athens Dis

posal Company, Inc., for, among other claims, the denial of meal and rest periods. Athens moved to compel arbitration based on a written agreement with the employee. The arbitration agreement contained a provision waiving class arbitrations and precluded employees from acting in “a private attorney general capacity.” The employer argured that this provision barred Franco’s PAGA claim brought on behalf of other employees.

The court of appeal held the arbitration agreement was unenforceable, in part because the class arbitration waiver was unconscionable.  The court also took issue with the prohibition against an employee acting as a “private attorney general.”  The court explained that an action under the Private Attorney General Act (PAGA) is in the nature of an enforcement action, with the aggrieved employee acting as a private attorney general to collect penalties from employers who violate labor laws. Such an action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct.  Because the employer sought to nullify the PAGA and preclude the employee from seeking civil penalties on behalf of other current and former employees, the agreement impeded Gentry’s goal of “comprehensive[ly] enforc[ing]” a statutory scheme through the imposition of “statutory sanctions” and “fines.” The prohibition of private attorneys general was therefore unconscionable.

Arbitration clauses in the employment arena have come under strict scrutiny in the past years.  Several commentators believe that a legislative attempt to bar arbitration agreements in employment contracts will finally pass through legislature and be signed into law by President Obama.  I have long felt that the benefits of arbitration do not necessarily outweigh the hurdles employers must overcome in order to have a valid employment arbitration agreement.  For more information about arbitration agreements, whether in the employment section or elsewhere, feel free to contact our office.