Right to Seek Injunctive Relief Cannot be Waived by Arbitration Provision
Arbitration Agreement does not Provide Shield from General Contract Defenses
An arbitration agreement preventing individuals from seeking injunctive relief was void as contrary to California public policy and could not be enforced under California law, the California Supreme Court recently determined in McGill v. Citibank.
Sharon McGill brought a class action lawsuit against Citibank alleging claims under California’s Unfair Competition Law, False Advertising Law and Consumer Legal Remedies Act, which provide for public injunctive relief as a remedy. Citibank argued that, under the arbitration provisions of her credit card agreement, such claims could only be pursued on an individual basis and were subject to mandatory arbitration. The trial court rejected Citibank’s argument, holding that California law does not allow arbitration agreements to prohibit injunctive relief. The court of appeals reversed, holding that the Federal Arbitration Act preempted California law on this issue.
The state Supreme Court reversed again (finding for McGill), holding that: 1.) California law prohibits arbitration agreements waiving the right to seek public injunctive relief in any forum and 2.) the FAA does not preempt such California law. The Court relied on Civil Code section 3513, which provides that: “Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” The Court explained that the right to seek public injunctive relief that had been purportedly waived in Citibank’s arbitration agreement was, by definition, “for the benefit of the public” and “to remedy a public wrong…not to resolve a private dispute.”
Accordingly, the Court determined that the right to seek public injunctive relief could not be limited by a private contract. California’s law was not preempted by the FAA because the statute was generally applicable to all contracts — not just arbitration agreements. The Court summed up its position stating that the “FAA does not require enforcement of such a provision, in derogation of this generally applicable contract defense, merely because the provision has been inserted into an arbitration agreement.”
Although McGill does not deal specifically with the employer-employee context, it stands as a reminder to employers that arbitration agreements in which employees waive the right to pursue statutory remedies must be carefully drafted and reviewed to ensure compliance with the complicated intertwining of California and federal law.
For more information about this matter and how it may relate to your organization or business, contact the authors of this Legal Alert listed at right in the Labor & Employment practice group, or your BB&K attorney.
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