Just days after the California Supreme Court granted the petition for review in Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012), the Ninth Circuit granted a motion for en banc rehearing in Kilgore v. KeyBank Nat’l Assn., No. 09-16703 (9th Cir. Sept. 21, 2012) (available here). Since both decisions entail critical interpretations of the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision, it is expected that, in concert, Iskanian and Kilgore will substantially determine the jurisprudence governing arbitration agreements in California state and federal courts.

At issue in Kilgore are the holdings in two California Supreme Court cases, Broughton v. Cigna Healthplans (21 Cal. 4th 1066 (1999)) and Cruz v. PacifiCare Health Systems, Inc. (30 Cal. 4th 303 (2003)), which until Concepcion stood without credible dissent for the proposition that public injunctive relief claims under California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL), respectively, are not arbitrable as a matter of California public policy. The three-judge panel in Kilgore ruled that Concepcion overruled Broughton and Cruz. The en banc proceeding will reconsider that ruling.

In Iskanian, the California Supreme Court will be chiefly concerned with whether Concepcion overrules the unconscionability jurisprudence of Gentry v. Superior Court (42 Cal. 4th 443 (2007)) and whether Concepcion applies to actions seeking civil penalties under the California Labor Code’s Private Attorneys General Act, or PAGA. Reversal in both Iskanian and Kilgore would thus make for a decidedly different narrative than had been predicted when Concepcion was issued and many observers assessed it as the “death knell for class actions.” Instead, Concepcion has generally been narrowly interpreted. And where it has not been—as in Iskanian and Kilgore—those rulings have shown signs of frailty.

The California Supreme Court will soon determine the applicable scope of AT&T Mobility v. Concepcion vis-à-vis the state’s longstanding unconscionability doctrine, as the court has granted a petition for review of the Second Appellate District’s ruling in Iskanian v. CLS Transp. Los Angeles, LLC (___ Cal. App. 4th ___ (2012) (available here)). The Iskanian court rejected Brown v. Ralphs (197 Cal. App. 4th 489 (2011)), which held PAGA claims to be outside the ambit of Concepcion, and also took the position that the California Supreme Court’s decision in Gentry v. Super. Ct. (42 Cal. 4th 443 (2007)) was overruled by Concepcion.

The Supreme Court’s review of Iskanian is expected to produce the definitive ruling on the post¬Concepcion applicability of California’s arbitration and unconscionability doctrines. The court contemporaneously denied petitions for review and depublication in Hoover v. Amer. Income Life Ins. Co. (___ Cal. App. 4th ___ (2012) (available here)), in which California’s Fourth Appellate District upheld a trial court’s denial of defendant’s motion to compel arbitration of classwide wage-and-hour claims. This may be an indication that the court is poised to overrule the aggressive Iskanian decision while allowing the Hoover decision to stand, a scenario sure to delight the plaintiffs’ bar.

More than 11,000 Verizon employees are now part of a certified class alleging that Verizon failed to comply with specific requirements set forth in California’s Pay Stub Law (Cal. Lab. Code § 226). The case is Banda v. Verizon California Inc., No. BC434587 (L.A. Super. Ct. Sept. 4, 2012) (order granting motion for class certification) (available here).

Superior Court Judge Charles F. Palmer rejected Verizon’s argument — commonly made by defendants facing class actions alleging wage statement violations — that the “injury” required by Labor Code section 226(e) rendered individual questions of injury predominant. Judge Palmer held that because “injury” as used in Section 226(e) is coextensive with the deprivation of a legal right, and the plaintiffs alleged that they had been uniformly deprived of the right to statutorily compliant pay stubs, individualized inquiries would not be substantially implicated. Additionally, Judge Palmer interpreted the statute as mandating that the nine pieces of information specifically required by Section 226(a)(1)-(9) be provided by the employer, thus rejecting Verizon’s contention that employees could find the missing information by doing simple math.

Section 226 requires that wage statements (commonly known as pay stubs) issued to California’s hourly workers show gross wages (Cal. Lab. Code § 226(a)(1)); total hours worked (§ 226(a)(2)); piece-rate units (§ 226(a)(3)); deductions (§ 226(a)(4)); net wages (§ 226(a)(5)); pay period beginning and ending dates (§ 226(a)(6)); employee’s name (§ 226(a)(7)); employer’s legal name (§ 226(a)(8)); and all hourly rates (§ 226(a)(9)). Filed in April of 2010, Banda alleged that the Verizon pay stubs issued to him and fellow employees failed to show the beginning dates of pay periods, hourly rates, and the number of hours worked at each hourly rate. The now-certified class is comprised of Verizon hourly employees who worked for the company in California between April 2009 and May 2011.

Because of the systematic nature of wage statements, few workplace violations are better suited to class treatment. The “injury” argument rejected in Banda has historically been the chief impediment to certification. To clarify that the Legislature’s intention as to the Section 226(e) “injury” language is consistent with Judge Palmer’s reading of it, the Legislature’s current term has been debating amendments to Section 226 that would effectively foreclose other defendants from relying on this argument in the future.

This past February, California’s Fourth Appellate District issued an opinion where it declined to broadly interpret the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision in the employment context. See Mayers v. Volt Management, No. G045036, ___ Cal. App. 4th ____ (available here). In June, the California Supreme Court agreed to take up the case, but further action is deferred pending disposition in a case from the Second Appellate District, Sanchez v. Valencia Holding Co. (201 Cal. App. 4th 74 (2011)), which addresses a related issue in the consumer context.

The question presented in Sanchez is: “Does the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?” (citations omitted). Sanchez is now fully briefed, but oral argument has not been scheduled.

In the underlying Mayers suit, the plaintiff alleged California Fair Employment and Housing Act (FEHA) violations against his former employer. The defendant responded by attempting to compel arbitration, relying on its standard arbitration clause which was included in its employment application, employment agreement, employee handbook, and ADR policy, all of which were ostensibly received by and consented to by Plaintiff in the course of his job application and orientation process. See slip op. at 3-7. The trial court denied the defendant’s motion to compel arbitration, and a unanimous panel of the Fourth Appellate District’s Division Three upheld the ruling. See id. at 12-19.

The Mayers panel rejected the defendant’s argument that even if the contested clauses were unconscionable, as the plaintiff had argued and the trial court had ruled, such terms could be severed while preserving the overall arbitration provision. See id. at 2-4. The Court of Appeal detailed the ways in which the asymmetric, unconscionable terms and procedures so pervaded the at-issue terms as to render them fatal to any enforcement of the arbitration clause: (1) the plaintiff was not provided a copy of the arbitration rules governing the process, nor told how to find them; (2) the arbitration provisions failed to identify the specific American Arbitration Association (AAA) rules that applied; and (3) the provisions included a prevailing party attorney fees term which would expose Plaintiff to greater liability for fees than if he pursued the claims in court. Thus, the court found the arbitration provisions to be unconscionable and therefore unenforceable, and stated that “[b]ecause the unconscionable terms cannot be severed from the rest of the arbitration provisions, plaintiff cannot be compelled to arbitrate his claims against defendant.” Id. at 3.

Though many have questioned whether California’s unconscionability doctrine would continue to have vitality in the wake of Concepcion, Mayers and Sanchez represent key decisions in the increasingly formidable post-Concepcion bulwark against the enforcement of arbitration clauses or terms deemed unconscionable. In Sparks v. Vista Del Mar Child and Family Servs. (available here), California’s Second Appellate District reached a substantially similar conclusion, holding that the plaintiff was not bound by an arbitration clause buried within a lengthy employee handbook.

The California Supreme Court’s decisions in Mayers and Sanchez are expected to bring much-needed clarity to California’s post-Concepcion landscape.