California Court of Appeal Enforces Arbitration

A California Court of Appeal recently required a plaintiff to forego class and representative action claims in Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. App. July 18, 2012) finding that she failed to show the employer’s arbitration agreement was unconscionable or that compelling individual arbitration would violate state or federal law or public policy. Knocking down the attempt to keep class and representative claims alive in either a judicial or arbitration proceeding, the First Appellate District held that all of the plaintiff’s California Labor Code claims, as well her claim for injunctive relief, had to be arbitrated on an individual basis.

The plaintiff in Nelsen signed an arbitration agreement contained in an employee handbook acknowledgment. After she filed a wage class action and PAGA claims in state court, the defendant filed a motion to compel individual arbitration, which the trial court granted. Despite arguments that the trial court’s order was not ripe for appeal, the Court of Appeal went out of its way to grant review, exercising its discretion to treat the appeal as a petition for writ of mandate.

The Court of Appeal held that even though the form arbitration agreement located near the end of a 42-page handbook was procedurally unconscionable, plaintiff failed to make the required, additional showing that the terms of the agreement were substantively unconscionable. Rejecting an argument that enforcement of the agreement would violate California public policy, the Court of Appeal found that the agreement did not expressly prohibit classwide arbitration or even contemplate class issues, and held that plaintiff had not presented evidence to the trial court showing that the public policy would actually have been violated, avoiding any need to determine whether the public policy was preempted by the FAA.

The court also rejected as unpersuasive the NLRB’s recent pronouncement that class waiver provisions violate the right of employees to “engage in concerted activities” for mutual aid and protection, and confirmed that the Supreme Court’s Concepcion decision adopted a sweeping rule of FAA preemption: “the FAA preempts any rule or policy rooted in state law that subjects agreements to arbitrate particular kinds of claims to more stringent standards of enforceability than contracts generally.” Nelsen, slip op. at 21.  Under this theory, the Court of Appeal held that plaintiff’s claim for injunctive relief – like her wage claims – also had to be individually arbitrated.

Nelsen follows other post-Concepcion decisions upholding arbitration in California, such as Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949, 959–61 (2012). But in a sign of just how unsettled arbitration issues remain, several other recent decisions by California appellate courts refused to compel arbitration where the agreement was found to be unconscionable for various reasons. See Sparks v. Vista Del Mar Child & Family Serv., No. B234988 (Cal. App. July 30, 2012); Jara v. JPMorgan Chase Bank NA, No. B234089 (Cal. App. July 30, 2012).  While fortunes have improved for employers seeking to enforce arbitration agreements with class waiver provisions, determining whether to adopt or enforce such an agreement remains a judgment call informed by the unique circumstances of each case.