Articles Posted in Arbitration

California employment laws afford workers a variety of protections and legal rights. One of the most essential rights employees have is the right to litigate certain claims against their employer.

The main alternative to court for resolving a dispute between an employee and an employer is arbitration. Arbitration uses a supposedly neutral third party to resolve disputes in and out of the employment context. Because arbitration often yields a faster resolution than a trial would, many employers require their employees to sign an arbitration agreement as a condition of their employment. Once signed, arbitration agreements essentially waive an employee’s right to sue her employer in court.

A recent case helped cement the principle that California employees cannot be compelled to arbitrate claims under a major employment law in the state, even when they have signed an agreement to arbitrate disputes arising out of the employment.

Although arbitration agreements mean that a case must be resolved through arbitration, not all agreements are enforceable. If a party does not have a real opportunity to negotiate the terms of the contract or a contract heavily favors one party, these may be indications that the agreement is unconscionable and thus, unenforceable. A California court recently found that an arbitration agreement signed between an employer and an employee was unconscionable based on those circumstances. In that case, the plaintiff submitted an electronic application for employment with a property management company. The plaintiff electronically signed an agreement that was required as a precondition to employment. In the agreement, it stated that the plaintiff and the property management company agreed to settle all “claims, disputes, and controversies” related to the plaintiff’s application for employment, employment, and cessation of employment with the company exclusively through final and binding arbitration.

The plaintiff obtained employment at the company and later filed a claim against the company, alleging that he was not compensated for overtime work or certain business expenses and that he was not provided with accurate wage statements. He also alleged that he injured his back at work, took leave, and once he was able to return to work, he never heard back from the company. The company argued that the suit was required to be resolved through arbitration based on the language of the agreement. The plaintiff argued in part that the agreement was unconscionable and could not be enforced.

Unconscionability Under California Law

An alarming decision from a California appeals court highlights the importance of reviewing any paperwork related to a potential employment claim. In that case, an employee filed a California employment lawsuit against her employers in April 2019. While the case was pending, in December 2019, the employers allegedly told the employee to sign some paperwork at work. The employee claims that her employers told her that the paperwork related only to “updates to ‘expired’ paperwork.” She also alleged that her employers said that she would be fired, and her paychecks would be withheld if she failed to sign the paperwork. She claimed she was not permitted to consult with her attorney before doing so. She signed the paperwork, which included an arbitration agreement. Her employers then used the agreement to compel arbitration in the lawsuit.

The arbitration agreement stated that the employee agreed to resolves any disputes related to her employment in arbitration. It also included a delegation clause, which stated that the arbitrator would have the exclusive authority to resolve disputes related to the “interpretation, applicability, enforceability or formation of this agreement, including the assumption that this agreement is unenforceable.”

In court, the employee argued that the arbitration agreement was unenforceable due to fraud, duress, and un-conscionability. However, the California court found that it could not rule on the validity of the agreement because of the delegation clause. In 2010, the U.S. Supreme Court held that if a delegation clause is “clear and unmistakable,” a court has to enforce it. This means that unless no agreement between the parties took place, the arbitrator must decide any questions related to the agreement’s validity. The court found that the delegation clause in the agreement clearly and unmistakably assigned the issues of validity of the agreement to the arbitrator.

The Ninth Circuit Court of Appeals recently decided a case involving a Federal Labor Standards Act (FLSA) claim that the employer claimed was barred due to an arbitration agreement between the employer and the alleged employee. The Ninth Circuit Court of Appeals is a federal appeals court located in San Francisco, California, and has jurisdiction over federal cases in California, Arizona, Nevada, and several other states. Thus, the decision affects California worker claims involving violations of the FLSA.

The Department of Labor filed an enforcement action against an employer, alleging that the employer and his companies violated the Fair Labor Standards Act. Specifically, the action alleged that the employer violated minimum wage, overtime, record-keeping, and anti-retaliation requirements by mis-classifying delivery drivers as independent contractors rather than employees. The employer filed a motion to compel arbitration based on an arbitration agreement signed by the employer and the delivery drivers. The court denied the motion to compel arbitration, and the employer appealed.

The appeals court held that a private arbitration agreement does not bar the Department of Labor from bringing an FLSA action. The FLSA allows the Department of Labor to seek monetary relief on behalf of employees. The court reasoned that the Department of Labor was not a party to the arbitration agreement, so it was not bound by the agreement. Therefore, the Federal Arbitration Act (FAA) does not require the Department of Labor to arbitrate the claim because it never agreed to do so.

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