California: Making Arbitration Great Again

Palm Trees

California’s resistance to the longstanding federal policy favoring arbitration frequently results in public expressions of frustration by the justices of the U.S. Supreme Court.  In over five years since the Supreme Court’s broad directives in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), recent California decisions, including our recent coverage of the California Supreme Court’s holding in Sandquist v. Lebo, Case No. S220812, 2016 WL 4045008 (Cal. July 28, 2016), suggest that the state’s stubbornness may be waning, at least for the time being.  The following summarizes key decisions that diverge from California’s traditional resistance to arbitration and which every employer should have in their arsenal of tools.

In March, the California Supreme Court in Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237 (2016), issued a unanimous opinion that resolved several arguments frequently raised against enforcement of arbitration agreements.  The plaintiff’s job application included a mandatory arbitration agreement that required the parties to arbitrate all claims arising from her employment.  Following her resignation, the plaintiff sued and sought to invalidate the arbitration provision as unconscionable because: (1) it did not include copy of the arbitration rules; (2) the injunctive relief provision favored the employer; (3) it only called out employee-side claims; and (4) required her to do anything the employer demanded to protect its proprietary and confidential information.  The Supreme Court was not persuaded and upheld the arbitration agreement.

Baltazar provides employers with long sought clarity and needed flexibility in the practical implementation and enforcement of arbitration agreements.  Lower appellate court decisions have followed suit.

In Harris v. Tap Worldwide, LLC, _ Cal. App. 4th _, 2016 WL 3439751 (June 22, 2016), the court reaffirmed that employees may not avoid arbitration agreements by merely claiming not to have read or signed them.  In that dispute, the plaintiff’s at-will employment was conditioned on his assent to all the terms set forth in the employee handbook, including an arbitration provision.  Accordingly, the court concluded that the plaintiff’s commencement of work established his acceptance of that agreement.

Similarly, in Espejo v. Southern California Permanente Medical Group, 246 Cal. App. 4th 1047 (2016), the court held that a party petitioning for arbitration bears only the limited burden of providing prima facie evidence that a valid agreement exists.  As such, the court did not require the employer to submit a declaration to authenticate the plaintiff’s electronic acknowledgement until after the plaintiff had questioned the acknowledgement’s authenticity in his opposition.  Because the employer’s supplemental declaration was filed by all relevant deadlines, that court ruled the declaration was timely and improperly ignored by the trial court.

Finally, in Young v. REMX, Inc., _ Cal. App. 4th _, 2016 WL 4386166 (July 26, 2016),  the court ruled that an arbitration order that dismisses class claims and stays a representative PAGA action pending arbitration of a plaintiff’s individual claims is non-appealable.  The court’s opinion concluded that the “death knell” doctrine traditionally used to justify interlocutory appeals of orders denying class certification was inapplicable to plaintiff’s appeal.  As the court noted, there was no formal judgment binding absent nonparties by virtue of the PAGA claim’s continuation, which—unlike a dismissed class action—offered the plaintiff an adequate incentive to continue litigation through the potential recovery of significant penalties, fees, and costs.  Similarly, the court found that the plaintiff’s appeal was not suitable for writ review because the claims compelled to arbitration were not clearly beyond the scope of the parties’ agreement and the plaintiff offered no evidence that her individual arbitration would be unduly time consuming or expensive.

California Supreme Court Holds “No Universal Rule” Exists When Deciding Who Should Determine Availability of Classwide Arbitration


On July 28, 2016, the California Supreme Court added to the ever-changing body of case law regarding classwide arbitration when it held that “no universal rule” exists regarding who (the court or the arbitrator) should decide whether classwide arbitration is permissible under an arbitration agreement, and that this issue must be decided on a case-by-case basis. 


Seventh Circuit Holds That Mandatory Arbitration With Class Waiver Violates NLRA, Setting up Circuit Split


On May 26, the U.S. Court of Appeals for the Seventh Circuit held that a wage-and-hour class arbitration clause violated the National Labor Relations Act (NLRA), setting up a circuit split with the Fifth Circuit, and opening the door for the U.S. Supreme Court to weigh in on arbitration clauses in employment agreements containing class action waivers.


Prognosis Negative: You’re Not Immune to Company Policy Under California Leave Law

Chairs Around a Table

In Richey v. Autonation, Inc., issued January 29, 2015, the California Supreme Court reinstated an arbitration award against the plaintiff and confirmed that employers retain the right to terminate employees who violate company policy even while they are on a leave of absence under the California Family Rights Act (CFRA).


High Court Says “Let It Ride”; Limo Company Fails to Flag Down Enough Justices to Hear PAGA Carve-out Case


On January 20, the United States Supreme Court denied certiorari in CLS Transportation Los Angeles LLC v. Iskanian, leaving intact a decision by the California Supreme Court holding that representative Private Attorney General Act (PAGA) claims cannot be waived in arbitration agreements. Enacted in 2004, PAGA deputizes private citizens to seek penalties on behalf of the state by bringing representative suits for workplace violations.


Third Circuit Issues First Appellate Decision Compelling Arbitration of Dodd-Frank Whistleblower Claim

Judges Gavel

In Khazin v. TD Ameritrade, No. 14-1689, 2014 WL 6871393 (3rd Cir. Dec. 8, 2014), the Third Circuit affirmed a lower court’s decision compelling arbitration of a Dodd-Frank whistleblower retaliation claim.  This is the first circuit court decision to address whether such claims are arbitrable, and the decision is consistent with two district court opinions that have previously addressed the issue


Including PAGA Representative Action Waivers in Arbitration Agreements Post-Iskanian

Decorative Scales of Justice in the Courtroom

After the California Supreme Court’s recent decision in Iskanian v. CLS Transportation, which held that PAGA representative action waivers are unenforceable under California law, employers have struggled with whether to retain such waivers in their arbitration agreements.  The answer to whether such waivers should be retained is not as straightforward as one might expect.


Obama Executive Order Places New Burdens and Restrictions on Federal Contractors


In an unwelcome, mid-summer surprise for the business community, President Obama signed the Fair Pay and Safe Workplaces Executive Order on Thursday July 31, 2014 requiring federal contractors to report violations of federal and state labor and employment laws and prohibiting certain contractors from requiring that employees arbitrate disputes alleging violations of Title VII or claims for sexual assault or harassment.  The Executive Order also requires federal contractors to provide relevant information about hours worked and overtime on employee paychecks.


Compelling Individual Arbitration Violates National Labor Relations Act? It Does According to ALJ

People at a Table

Joining the ever growing list of opinions on the arbitrability of class claims, an NLRB Administrative Law Judge recently ruled that an arbitration agreement that did not expressly bar workers from bringing class or collective actions still violated federal labor law because the employer’s steps taken to enforce the agreement in court had the practical effect of doing so. READ MORE

Arbitration Wars: The California Supreme Court Strikes Back In Sonic II

On October 17, 2013, the California Supreme Court revisited the enforceability of arbitration agreements in California. The Court released its decision Sonic-Calabasas Inc. v. Moreno (Sonic II). In that 5 – 2 ruling, the California Supreme Court reversed its prior decision to strike down an arbitration agreement on the ground of FAA preemption, but remanded the case for analysis of the enforceability of the arbitration agreement under an unconscionability analysis.  READ MORE