arbitration agreements

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.

DOL and EEOC to Make 2016 A Challenging Year for Employers

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Members of the Fair Labor Standards Legislation Committee of the American Bar Association’s Section of Labor and Employment Law recently met.  The meeting includes employer and employee advocates, as well as government officials.  The meeting often highlights not only the present status of regulations, policy and pending litigation but also provides a window into coming trends that may be important for employers.  We highlight a few takeaways.

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Justice Scalia’s Employment Law Legacy

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On February 13, 2016, Justice Antonin Scalia, the anchor of the Court’s conservative wing for nearly three decades, passed away.  He leaves behind a distinguished legal career that involved experience in wide range of roles.  After graduating from Harvard Law School, Justice Scalia entered private practice and then became a law professor at the University of Virginia.  He served in the Nixon and Ford administrations, eventually becoming Assistant Attorney General.  Scalia then began his judicial ascension when President Ronald Reagan nominated him to the United States Court of Appeals for the District of Columbia Circuit.  Soon thereafter, Reagan nominated Scalia to the Supreme Court to replace Justice William Rehnquist, whom Reagan had named to the Chief Justice position.  Scalia was unanimously confirmed.

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Ending in a Draw: In Iskanian v. CLS Transportation, the California Supreme Court Upholds Class Action Waivers in Arbitration Agreements, But Also Makes PAGA Claims Unwaivable

Ever since the U.S. Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, California employers hoped this day would come. In a predictable result, the California Supreme Court today acknowledged that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA). In so doing, the Court overruled its 2007 decision in Gentry v. Superior Court which effectively had barred class action waivers for wage and hour cases. But the Court’s 6-1 plurality decision also bolstered an alternate method for bringing Labor Code claims in court by declaring that actions brought under the Private Attorneys General Act (Labor Code § 2968 et seq.) are not waivable by private agreement and thus not subject to compelled arbitration. READ MORE

Oxford Health Plans LLC v. Sutter: You Get What You Bargain For, Including the “Good, Bad, or Ugly”

Judges Gavel

Ever have that feeling that your arbitrator just doesn’t understand you? You may be right, but there’s not much you can do about it. A recent unanimous ruling by the United States Supreme Court should encourage employers to review the language in their arbitration agreements to ensure clarity on the issue of class arbitration. In Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. at 4-5, 8-9 (U.S. June 10, 2013), the Supreme Court reiterated that parties who agree to arbitration and ask the arbitrator to decide an issue are stuck with the “good, bad, or ugly” decision of the arbitrator. Even where, as in this case, the arbitrator makes a dubious decision that the parties’ contract allows class arbitration, Federal Arbitration Act § 10(a)(4) does not allow a court to second-guess that decision.

Sutter, a pediatrician, and Oxford Health Plans, an insurance company, entered into a contract for services that included the following arbitration clause: “[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration . . . .” Id. at 1-2. Later, Sutter brought suit in state court on behalf of himself and a proposed class of other doctors alleging that Oxford Health Plans had violated their contracts and various state laws. Id. Upon Oxford Health Plans’ motion, the case was compelled to arbitration. Id. at 2. Critically, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and the arbitrator determined that, based on the terms of the clause quoted above, it did. See id. at 2, 3. Oxford Health Plans brought a motion in federal court arguing the arbitrator’s decision should be vacated on the ground that he had “exceeded [his] powers” under Federal Arbitration Act § 10(a)(4). Id. READ MORE

Second Circuit Holds No Substantive Right To Bring A Pattern-Or-Practice Title VII Claim

Reversing a denial of a motion to compel arbitration in Parisi et al. v. Goldman, Sachs & Co. et al., the Second Circuit held that a plaintiff does not have a substantive right to bring a pattern and practice claim under Title VII. The plaintiff at issue in Parisi alleged gender discrimination under Title VII, seeking to bring her claims on behalf of herself and a putative class of female Goldman Sachs employees. During her employment, the plaintiff signed a broad arbitration agreement, which covered her discrimination claims and did not contain a provision providing for class-wide arbitration.  READ MORE

California Court of Appeal Denies Wage-and-Hour Class Claims and Enforces Arbitration Agreement under Concepcion

Gavel and Hundred-Dollar Bill

Employers in California have been watching closely to see how courts will apply the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act (FAA) preempted state law concerning the enforceability of class action waiver provisions, in which a party waives his or her right to arbitrate claims on a class basis. READ MORE

Supreme Court Reaffirms Enforceability of Arbitration Agreement in Noncompetition Dispute

Judges Gavel

In a succinct opinion issued on November 26, 2012, the Supreme Court delivered a stern warning to state courts that fail to enforce arbitration clauses accompanying noncompetition agreements. In Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. ____ (2012), the employment contracts between two energy-sector employees and their employer contained a two-year noncompetition provision and a mandatory arbitration clause. After the employees joined a competitor, the employer commenced an arbitration proceeding, prompting the employees to bring suit in Oklahoma state court seeking an injunction preventing enforcement of the noncompetition agreements. Despite the mandatory arbitration clauses, Oklahoma’s highest court declared the noncompetition agreements unenforceable under a state law prohibiting restraints on an employee’s ability to work in the same industry. READ MORE

California Court of Appeal: Employer Cannot Compel Arbitration Unless There Is A Signed Arbitration Agreement

Chairs Around a Table

Since the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, more and more employers have sought to get out of court and into arbitration when dealing with employee disputes. The California Courts of Appeal, however, are not making that easy when it comes to an employer’s burden to show the existence of a valid agreement to arbitrate. Several months ago, the Second Appellate District held in Sparks v. Vista Del Mar Child and Family Services that an arbitration policy in an employee handbook was not enough to force arbitration. Similar decisions have reached the same conclusion, e.g., Carey v. 24 Hour Fitness USA, Inc., (5th Cir. Jan. 25, 2012). READ MORE

California Court Finds Arbitration Agreement In Employee Handbook Unenforceable

People at a Table

In a July 30, 2012 decision the Second Appellate District of the Court of Appeal ruled that an employee was not bound by the arbitration clause in his employee handbook for a slew of reasons:

  • the clause itself was buried (or as the Court said “not specifically highlighted”) in a lengthy handbook and was not called to the employee’s attention;
  • the employee did not specifically acknowledge the clause or agree to arbitrate, but merely signed an acknowledgment of receipt of the handbook itself;
  • the handbook contained a (relatively) standard clause that it was not intended to create a contract but, the employer also “had it both ways” and retained the rights to unilaterally amend the handbook’s provisions;
  • the employer failed to provide the employee with the specific arbitration rules; and
  • the clause itself was found unconscionable:  procedurally, because the employer did not distribute the rules governing the arbitration to employees and because the issue of arbitration was not negotiable and, substantively, because it required the employee to relinquish administrative and judicial rights and made no express provision for discovery rights.

While this decision points out the pitfalls of this particular factual scenario, it also highlights some nuances.  As courts reinvigorate their scrutiny of arbitration clauses and agreements, due to what this Court called “the increasing phenomenon of depriving employees of the right to a judicial forum,” employers may want to revisit and revise their handbook language.