Articles Posted in Arbitration

The conservative US Supreme Court’s activist agenda is in full throttle in the mandatory arbitration arena. In the AT&T v. Concepcion case (see prior blog of July 6, 2011), the US Supreme Court planted its thumb squarely on the employer’s side of the scales of justice by overturning past law and holding that there is no per se invalidation of class action arbitration provisions (Concepcion is a consumer class action case). Now the US Supreme Court apparently wishes to tip the scales at the opposite end of the spectrum: by applying this class action holding to individual Berman hearings brought by California workers for the payment of wages. The US Supreme Court has reached out and vacated (as well as remanded) the California Supreme Court’s holding in Sonic-Calabasas v. Moreno (2011) 51 Cal.4th 659. Why can’t the US Supreme Court stay out of our backyard?

The holding which the US Supreme Court vacated was quite modest. It simply upheld an employee’s right to a “Berman hearing” before the California Labor Commissioner, pursuant to California Labor Code, section 98, for the payment of unpaid wages. Berman hearings are a streamlined administrative procedure for employees to recover unpaid wages–including overtime, meal and rest period pay, and waiting time penalties–without having to go to court, allowing many employees who cannot afford a lawyer the ability to stand up for their workplace rights. The right to a Berman hearing protected by the California Supreme Court in Sonic-Calabasas was limited to the first instance only; the California Supreme Court permitted the employer to enforce a mandatory arbitration of the employee’s next step appeal, which would have otherwise taken place in the superior court.

The US Supreme Court vacated this opinion in light of Concepcion. See, Sonic-Calabasas, Inc. v Moreno (October 31, 2011) No. 10-1450. Does the US Supreme Court really believe that this minor right to an administrative hearing in the first instance should be wiped out? Does it really believe that an employer has a right to hijack a benign administrative process to entitle an employee to obtain his or her basic wages?

Ms. Zullo worked for a newspaper publisher, Inland Valley Publishing Company. The employer’s handbook contained a policy requiring mandatory arbitration of employment disputes. The handbook stated that any arbitration would be governed by the American Arbitration Association rules, but failed to set forth those rules in detail. The handbook did require that an employee who filed an arbitration demand meet strict timelines, altered the law by shortening potential statute of limitations, and required that an employee respond to an arbitrator’s communication within ten business days. The remedy for an employee’s violation of these rules was the dismissal of his or her claims. In order to work for Inland, an employee was required to sign and acknowledge this handbook.

After Ms. Zullo was fired, she filed a lawsuit in court. Inland sought an order to send her case to arbitration. The trial court ordered that the case be sent to arbitration. However, the Court of Appeals reversed, holding that the arbitration agreement was unconscionable. Zullo v. Superior Court, 197 Cal. App. 4th 477 (2011).

It is getting rather tiresome reading all the ways in which employers heavy handedly force employees to “agree” to arbitrate their claims, as well as all the ways in which the employers attempt to manipulate the arbitration process to favor the employer. Even though courts generally keep overturning such overreaching agreements, employers keep promulgating them. The reason is because most employees don’t always have the resources and where-with-all to hold the employer to the letter of the law.

The US Supreme Court’s April 27, 2011 decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. _ is just the latest in a disturbing slide of the high court away from individual rights and liberties towards ever increasing corporate impunity. 

With its Concepcion decision, the Court further rolls back one of the lasting achievements of the civil rights and environmental movements, class actions.

Class arbitration waivers are at the heart of the US Supreme Court’s decision in Concepcion. At issue in the case was a rule,

Despite the prevalence and overreaching of arbitration agreements in employment cases, traditionally in state and federal court, interpreting both the Federal and California Arbitration Acts (FAA and CAA, respectively), employees have at least been permitted to seek a Court’s determination about whether or not the arbitration agreement the employee signed is enforceable. In other words, despite the fact that an employee signed an arbitration agreement, the employee still generally had been able to ask a court to rule on important enforceability issues such as the existence of the agreement and whether an agreement is so unconscionable as to be unenforceable.

Then came the US Supreme Court in Rent-A-Center, West, Inc. v Jackson, 130 S. Ct. 2772 (2010) and poked a rather major hole in this important safeguard.

Rent-A-Center, interpreting the FAA, held that – where the arbitration agreement itself took this important safeguard away from the courts and assigned it to the arbitrator – the arbitrator holds all the power to rule on whether or not the arbitrator gets to hear the case (i.e., the existence and enforceability of the agreement).

It is another win for the employee in the ongoing battle to make mandatory employment arbitrations more equitable to the employee. Since the concept of mandatory arbitration agreements has been so overwhelmingly endorsed by the courts, some courts have still felt compelled to keep striking down a host of scurrilous provisions employers keep tacking onto their mandatory arbitration agreements. After a while, we must simply ask, again: should employer really be permitted to make arbitration agreements mandatory when there is all this abuse of the process going on?

In Trivedi v Curexo Technology Corp. (Cal. Court of Appeals, October 2010), the court looked first at whether the agreement was “procedurally unconscionable” (i.e. whether the manner in which the employer obtained the agreement was so unfair that it was illegal). Curexo presented Mr. Trivedo with the arbitration agreement in a take-it-or-leave-it manner, requiring that he arbitrate all claims that may arise in the future, using American Arbitration Association (“AAA”) rules without providing him with a copy of the rules. The court found the failure to provide the rules made the procedure procedurally unconscionable.

Next the court looked at whether the agreement was “substantively unconscionable” (i.e. whether the actual terms of the agreement were so unfair that it made the agreement illegal). Curexo’s agreement contained two terms that the courts had already frowned upon, so it was little surprise that the court found the terms unconscionable. The first was changing the law to make it easier for the company to collect attorneys’ fees against the employee, should the employee lose his claim. The second was allowing a party to by pass the so-called mandatory arbitration process for claims generally brought by employers, thus making the arbitration mandatory for employees but not for the employer.

On August 2, 2010 the California Supreme Court saw no problem with the fact that a disgraced and discredited retired judge – who was publicly censured for creating “an overall courtroom environment where discussion of sex and improper ethnic and racial comments were customary” – served as an arbitrator in a medical malpractice case brought by a female patient, without even disclosing the censure to the parties. The Court, in an opinion for which it should be deeply embarrassed, basically held that a retired judge’s clearly sexist and harassing conduct towards female staff does not in any way establish that the judge holds any bias against female litigants enough to even disclose the fact. In reality, the Court simply felt that the finality of arbitration awards was more important than fairness to the female plaintiff. Haworth v. Superior Court (Ossakow) S165906.

On October 12, 2010, the California Court of Appeals did what it could to limit the impact of this holding and raised some very good issues while doing so. Addressing a different set of facts involving potential arbitrator bias, it ruled the other way, distinguishing the facts from Haworth. In Benjamin, Weills & Mazer v. Kors, A125732, the arbitrator failed to disclose that he regularly represented law firms in fee disputes, in a case involving just such a fee dispute, i.e. he did not disclose that he normally and currently represents one side in the very type of case before him. The Court of Appeals held that the arbitrator should have disclosed this. The court held that this business relationship “could reasonably cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.”

The Court went on to approve of a broader disclosure for an arbitrator than what is required for a judge, and to analyze the different circumstances and interests of arbitrators and judges. Explaining that since arbitrators have their own business interests, and that private arbitration as a whole “is a commercial enterprise”, the situation is different than the judicial system. (Indeed, there are other reasons to provide a higher level of scrutiny to arbitrator bias than judicial bias. For example, an arbitrator is the gatekeeper and fact finder, judge and jury, whereas in a court preceding the litigants normally have the right to a jury to act as the ultimate fact finder instead of the judge).