Articles Posted in Arbitration

For years, the battle over arbitration clauses and agreements has raged on in courts and legislatures throughout the country. The latest development in arbitration in employment in California came on Thursday in California when Governor Newsom signed AB 51. The governor’s approval of AB 51 is a victory employees throughout California- it effectively prohibits employers from forcing employees into mandatory arbitration agreements starting January 1, 2020.

It is common practice throughout California to have an employee sign an arbitration agreement at the time she is hired. These agreements are generally non-negotiable, buried in a pile of new hire paperwork, and require the employee to arbitrate any claims arising out of employment. While valid arbitration agreements provide some of the safeguards that are afforded to litigants in court, it often takes away basic protections and rights including a trial by jury, and class or collective action. Arbitration is also a private process so it allows an employer to keep their wrongdoing under wraps.

The United States Supreme Court has said, repeatedly, that arbitration agreements are valid in the employment context. Recognizing the inherent imbalance in power between employers and employees, several states have tried to stop employers from forcing employees into arbitration. However, given the Supreme Court’s rulings, it is impossible to ban arbitration in employment altogether.  The hope is that in California, AB 51 will even the playing field before an employee signs an arbitration agreement; requiring that an employee can only enter such an agreement voluntarily. The law also prohibits an employer from retaliating against an employee who declines to enter into an arbitration agreement, which provides additional protection.

Earlier this week, the Supreme Court killed one of the few remaining mechanisms for employees to get some measure of justice for the illegal acts of their employers – class arbitrations. The National Labor Relations Act (“NLRA”) was enacted in 1935 to protect the right of workers to band together and engage in collective action for their mutual aid and protection. Normally, the NLRA protects workers in the context of a union- when the workers are forming a union, when they are engaged in collective bargaining, and during strikes. However, even in non-union contexts, the NLRA protects workers who engage in collective action.

In Epic Systems Corp. v. Lewis, the Supreme Court decided that the NLRA does not protect the right of workers to engage in collective action through class-wide arbitrations, and instead, employers can compel employees to one-on-one arbitration for any workplace disputes or claims. In doing so, the Court ignored the realities of employment arbitration agreements and shifted the power squarely to employers.

Employees rarely “agree” to arbitration. Employees are often confronted with take-it-or-leave-it arbitration agreements – if the employee doesn’t sign, she doesn’t get the job. In the past, many arbitration agreements would require employees who sign the arbitration agreement to waive their right to go to court, and instead forces the employee into closed-door arbitrations. Usually the agreements include any claims – including discrimination and wage and hour claims.

In the Iskanian v.CLS Transportation Los Angeles, LLC decision, the California Supreme Court addressed the enforceability of employer-employee arbitration agreements in various circumstances. Iskanian v.CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014). The case delivered some good news – but mostly bad news – for employees and attorneys who represent employees.

First, as to the bad news: Boxed in by the United States Supreme Court’s decisions on the enforceability of arbitration agreements, including in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2001), the California Supreme Court upheld the validity of class action waivers in employment arbitration agreements. The California Supreme Court overruled its previous decision in Gentry v. The Superior Court of Los Angeles, 42 Cal.4th 443 (2007) as preempted by the Federal Arbitration Act (“FAA”).

The California Supreme Court also addressed the recently developed and powerful argument that class action arbitration waivers are invalid under the National Labor Relations Act (“NLRA”), which provides workers with a right to collective organize and advocate for their rights as a group. That argument gained traction with the National Labor Relations Board (“NLRB”) in its recent decision in D.R. Horton. Inc., 357 NLRB No. 184 (2012), but unfortunately the California Supreme Court sided with the Fifth Circuit’s contrary opinion in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). The California Supreme Court held that the NLRA was no obstacle to the applicability of the FAA to support the enforcement of class action waivers in arbitration agreements.

The law is pretty well settled that a labor arbitration does not generally bar a unionized employee from bringing a claim under the Fair Employment and Housing Act, such as a discrimination, sexual harassment or retaliation claim. See Alexander v. Gardner-Denver (1974) 415 U.S. 36; Camargo v. California Portland Cement Co. (2001) 86 Cal.App.4th 995. However, Wade v. Ports America Management Corporation (2013) 218 Cal.App.4th 648 declined to extend this good fortune to non-statutory claims such as wrongful termination in violation of public policy.

Mr. Wade brought a claim for wrongful termination in violation of public policy. His public policy claim was for race discrimination. Wade justified this outcome by noting the uniqueness of the Fair Employment and Housing Act’s statutory scheme. That part, I generally understand, even if I don’t agree with it However, the Court didn’t stop there. It came up with a hard-to-follow and not so well- reasoned argument that Mr. Wade’s public policy against race discrimination was violated was encompassed in his union arbitrations and therefore precluded by it. The fact that his union arbitration didn’t in any way address race discrimination, didn’t stop the Court from its labored and illogical analysis that it did. So, be very careful of your labor arbitration’s impact on any civil case you might bring!

Jody I. LeWitter

The tension between an employee’s simple right to receive his wages for work he performed and the U.S. Supreme Court’s favoritism towards employers, is almost palpable in the tortured history of Sonic-Calabasas A, Inc. v. Moreno (Sonic II) ___ Ca.4th ___ (Oct. 17, 2013).

Here the employer imposed an arbitration agreement upon Mr. Moreno. When Mr. Moreno filed a simple Labor Commission claim to collect his vacation pay, the employer refused to attend the Labor Commission (Berman) hearing, and instead moved to arbitrate the claim. I suspect the move was a ploy to make it so expensive and time consuming for poor Mr. Moreno to collect what wasn’t a large amount of money to begin with, that he’d just give up. Lucky for Mr. Moreno, the Labor Commissioner realized the negative implications for all employees just trying to get paid for the work they do, if they can’t go to the Labor Commission.

In 2011 the California Supreme Court held that Mr. Moreno was entitled to his Labor Commission hearing, and that if the employer was dissatisfied with the results of the Berman hearing, it could then move to arbitrate. This was a fairly benign and logical holding.

Reading arbitration cases is like walking through a muddy field on a dark and rainy night. What is okay in the context of one case, is not in the context of another case. It just depends on how much you slip and slide through the mud and where exactly you fall.

Take the recent case of Peng v. First Republic (2013) 219 Ca.4th 1462. The Court held that failure to attach the arbitration rules didn’t make the arbitration agreement procedurally unconscionable. On the other hand, if the arbitration rules had changed any important substantive rights, the agreement might have been procedurally unconscionable. So, we are left guessing whether in any other situation, an employer has to provide the arbitration rules to an employee or not.

Second, Peng held that the right of the employer to change the employment contract terms at any time, whereas the employee cannot, did not make this agreement substantively unconscionable. Why? Because the employer is supposed to act with “good faith . . . and fair dealing.” So, if the employer doesn’t act in good faith and fair dealing, well, then, is the agreement invalid? Again, slip and slide. We’re left guessing.

Mr. Richey worked as a sales manager at a Toyota dealership. He suffered a back injury while moving furniture at home, and applied for family leave from Toyota. The leave was granted, but Mr. Richey was fired because his employer alleged that he was abusing his family leave by working in a family restaurant he owned while on his family leave. Mr. Richey contended that his work at his restaurant while on leave was limited, light-duty work, and that he really could not do his regular duties at the Toyota dealership. Richey v. Autonation, Inc., 210 Cal. App. 4th 1516 (2012)

When Toyota fired Mr. Richey, Mr. Richey evoked his rights under a mandatory arbitration agreement that Toyota required that he sign as a condition of his employment. After an 11 day hearing, the arbitrator ruled against Mr. Richey on his interference claim, i.e. his claim that Toyota interfered with or denied his right to family leave under the California Family Rights Act (CFRA) and the federal Family Medical Leave Act (FMLA). The arbitrator held that the employer was not liable because it terminated Mr. Richey’s employment because it honestly, but mistakenly, believed he misused his family leave.

Mr. Richey moved to vacate the arbitrator’s award, noting two things: (1) under both state and federal law, an honest mistake based on the employer’s state of mind is not a defense, and; (2) an arbitrator’s error of law that results in a denial of a party’s unwaivable statuatory right (in this instance his right to family leave) exceeds the arbitrator’s power and should be vacated.

Pulli v. Pony International (June 19, 2012) ___ Cal.4th____ is another interpretation of an arbitration agreement in a long line of cases interpreting whether or not an arbitration agreement is enforceable. The fact that this case even exists underscores the fact that the law on the enforceability of arbitration agreements is unnecessarily murky and that employees continue to balk at the inherent unfairness of arbitration agreements, which take away an employee’s right to a jury trial.

In this case, the California Court of Appeals held that, as a procedural matter, a defendant waives its right to have an arbitrator determine the issue of arbitrability where the defendant acted in a manner inconsistent with the right to arbitrate and substantially invoked “the litigation machinery” per Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 by addressing the employee’s claim on its merit, rather than by simply asking that the matter be sent to arbitration. This ruling makes sense – as the employer was asking the court to rule for two bites of the apple: let the court rule, and if it didn’t like the court’s opinion, then take it to an arbitrator.

Second, the Court of Appeals held that on the merits, an arbitration agreement is not invalidated by Labor Code §206.5‘s prohibition against requiring that an employee sign a release for the payment of wages without paying the wages in question. The Court noted that, as a matter of statuatory interpretation, the goal of Labor Code §206.5 is to prohibit the coercion of settlement of wage claims without the actual payment of the wages, but that Labor Code §206.5 did not bar an employer from requiring (or coercing, really!) the waiver of a jury trial.

Alright – enough already! The courts really give employers every unfair opportunity to require their employees to “agree” to arbitrate their disputes. But even the courts agree that employers can’t be allowed to hide what they are doing! Take Empire Today LLC (also known as Flooring Install). Their management should be ashamed of themselves.

Empire employs lots of carpet installers, and lots of them are not well educated (at least in terms of reading 11 pages of single-spaced legalese) and for many, the English in which their employment agreements are written is not their first language.

So you probably get the drift here. Empire tells its non-English speaking employees that they must sign an 11 page, single-spaced, complicated and obtuse legalese document, in order to get the job. And, they must sign pretty much all of their rights away, and it was made clear to them that there was no room for other options or changes to the contract. Oh – and this arbitration provision was buried in paragraph 36!

CantorCO2e’s mandatory employment agreement was riddled with unconscionable provisions, errors, and bias. No wonder the California Court of Appeals decided that the court should determine the validity of the agreement and then determined that the agreement was not valid. Ajamian v. CantorCO2e, LLP, ___Cal.App.4th ___ (Feb. 16, 2012).

As part of employers’ end run around employees’ right to a jury trial, not only are employers making employees sign mandatory arbitration agreements, but they are trying to make the courts forfeit their right to even examine these agreements to see if they are illegal. Here CantorCO2e argued that its agreement does just that, but its agreement is so vague and unclear, and its arguments so tenuous, that the court rejected this proposition.

In order for an employer to take away the employee’s right to have a court determine whether an arbitration agreement is valid, it must do so in a way that is “clear and unmistakable.” Here, there are multiple reasons that the alleged attempt to take away these rights is not clear and unmistakable. It is important to note – for the future – that the court here limited its holding to the facts of this case, leaving employers multiple avenues by which they can strip a court of its right to judge the employer’s arbitration agreement and give this right to the employer’s hand pick and paid arbitrator. How this plays out in the future remains to be seen, but taking away a court’s right to review this important matter is dangerous and should be remedied by legislation if necessary.

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