In McGill v. Citibank, N.A. (Apr. 6, 2017, S224086) __ Cal.5th ___, the California Supreme Court tackled the validity of clauses in pre-dispute arbitration agreements which purport to waive an individual's right to seek public injunctive relief in any forum such as in court. In the employment context, claims for injunctive relief are frequently asserted by Plaintiffs hoping to capitalize on the four-year statute of limitations applicable under California's Unfair Competition Law (Cal. B&P Code § 17200, "UCL").
The injunctive relief available under the UCL and other consumer-protection laws such as the Consumers Legal Remedies Act (Civ. Code § 1750 et seq, "CLRA") and California false advertising law (id. § 17500 et seq.) is considered "public" rather than "private" where the relief sought primarily benefits the public rather than the plaintiff alone. For this reason, in the employment context, the Court's holding will primarily impact wage and hour class actions where a claim for injunctive relief under the UCL is asserted as a matter of course.
The underlying lawsuit concerned a "credit protector" plan to which Sharon McGill subscribed when she opened a credit card account with Citibank in 2001. The terms of the plan were modified in 2001 to include a binding arbitration clause in which McGill agreed to submit her claims to arbitration on an individual basis and waive any right to bring a class action.
McGill filed a class action in 2011 which asserted claims based on Citibank's marketing of the plan and the way that it handled her own claim under the plan; alleged claims under the UCL, the CLRA, and false advertising law; and requested injunctive relief under these statutes. Pursuant to the arbitration provision and class action waiver, Citibank petitioned to compel McGill to arbitrate her claims (including injunctive relief) on an individual basis. The Court found the arbitration provision to be invalid and unenforceable insofar as it purported to waive McGill's statutory right to seek public injunctive relief in any forum (whether through arbitration or a lawsuit) under the UCL, the false advertising law, and the CLRA.
Also of note, the Court rejected Citibank's argument that the Federal Arbitration Act ("FAA") would preempt a California rule preventing the waiver's enforcement. The Court looked to defenses available under California law in support of this finding, as is permitted by the FAA's savings clause. The Court cited to the contract defense found in Civil Code § 3513, which provides that a law established for a public reason (rather than for an individual's private benefit) cannot be contravened by a private agreement. As the Court deemed the provision at issue in Citibank's agreement to be an attempt to contravene McGill's right to pursue public injunctive relief, it concluded that this defense applied and thus that the FAA does not require it to be enforced.
While this is a consumer case arising from a consumer's credit protector plan agreement, it has notable implications in the employment context due to the frequency with which UCL causes of action are asserted in federal and state wage and hour lawsuits. Claims for public injunctive relief have now joined Private Attorneys General Action ("PAGA") representative actions as non-arbitrable claims under California law.
We recommend that employers review their arbitration agreements and revise them as appropriate to ensure that claims for public injunctive relief are carved out in order to reduce the risk that a Court might find an agreement which runs afoul of this decision to be invalid and unenforceable.
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