Articles Posted in Arbitration

Many employers in California require employees to sign mandatory arbitration agreements before commencing employment. Despite California laws prohibiting some employers from requiring these agreements, many still require arbitration agreements. Although some of these are lawful, many contain terms that courts find to be unconscionable, or unenforceable because they do not give the employee meaningful choice. However, these agreements often have the effect of deterring employee lawsuits that have merit. Fortunately, tenacious litigants who pursue these claims often find themselves vindicated in California courts, like in a recent employment case.

Facts of the Case

An apprentice electrician brought two separate lawsuits against his employer for unfair practices. Of note, the employee signed an arbitration agreement upon hiring that subjected the employee to binding arbitration for any disputes with the employer. The arbitration agreement included, among other provisions, measures that limited discovery, waived the right to pursue class action lawsuits, and required the complaining employee to pay filing fees and other expenses.

In a previous case, the employee filed a lawsuit against his employer for disability discrimination under the Fair Employment & Housing Act (FEHA). In the FEHA case, the trial court granted the employer’s motion to compel arbitration after severing “substantively unconscionable” terms from the arbitration agreement.

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Mandatory arbitration agreements refer to agreements that an employee must sign as a condition of employment. Employers often include these clauses in their employment contracts to hinder an employee’s ability to pursue claims in court in front of a jury.

While California’s arbitration ban (AB 51) prohibits certain California employers from requiring employees to sign arbitration agreements as a condition of employment, certain employers, like those covered by the Federal Arbitration Act (FAA), are exempt from this prohibition. However, recent decisions indicate that the FAA does not entirely preempt AB51. As such, many employers continue to enforce and attempt to uphold arbitration agreements, despite the employer’s failure to meet the terms of the agreement.

Gallo v. Wood Ranch USA, Inc.

Professional and trade unions are generally tasked with protecting the rights of their members and maximizing employee negotiating power with owners and management by presenting a united front. Usually, a union will enter into what is known as a “collective bargaining agreement” with an employer. The CBA will set rules that both employees and employers must abide by concerning issues such as wages, benefits, workers’ compensation, health insurance, and workplace breaks. Furthermore, CBAs often set a procedure for employees to make grievances against their employers. Unions’ negotiation of CBAs generally serve to benefit employees because the union is able to negotiate better terms for the workplace than employees could on their own. Individually, some terms of a CBA may not benefit employees. The California Court of Appeals recently addressed a claim by an employee in which he was attempting to sidestep the grievance procedures outlined in the CBA that he had agreed to.

The plaintiff in the recently decided case was a carpenter who was previously employed by the defendant. The plaintiff’s employment was conditioned upon agreeing to CBAs that were negotiated by two unions that the plaintiff was a member of. The CBAs in question mandated that any grievances employees had related to wage theft would be handled through binding arbitration, instead of in the state courts. The plaintiff made a claim in state court that the defendant had violated several employment laws and was not paying the plaintiff for work that had been done. The defendant responded to the plaintiff’s state court claims by attempting to enforce the arbitration agreement that was part of the CBAs. The state court granted the defendant’s motion and dismissed the case, leading the plaintiff to appeal the decision to the California Court of Appeals.

On appeal, the high court agreed with the lower court’s reasoning, holding that the grievance procedures outlined in the CBAs were clear and unambiguous and that the plaintiff had no right to ignore the CBAs. The court reasoned that a CBA should be evaluated just as any other contract would be and that the plaintiff understood and agreed to the CBA, and benefited from some of the provisions contained within it. As a result of the appellate findings and ruling, the plaintiff will be forced to pursue his claims at arbitration as stated in the CBAs.

Many corporations and other California employers with large numbers of employees like to use arbitration agreements with their employees to streamline the process of addressing employment law-related issues. At first glance, arbitration agreements offer both employees and employers a simplified process to address grievances between the parties. In practice, however, arbitration agreements function to put employees at a disadvantage when compared to other acceptable ways of addressing complaints and disputes. The California Court of Appeals recently addressed a claim by an employee that the arbitration process they agreed to was unfair and should not be enforced.

The plaintiff in the recently decided appeal had been an employee of the defendant, a large communications company. As a condition of her employment with the defendant, the plaintiff was required to enter into an arbitration agreement to resolve any disputes. The agreement included provisions that would make it more difficult for employees to succeed at making claims against the defendant. The plaintiff was terminated from employment with the defendant less than one year after starting the job, and she alleged that the termination was unlawful. The plaintiff made several claims in state court under the Fair Employment and Housing Act, alleging unlawful termination.

In response to the plaintiff’s lawsuit, the defendant attempted to enforce the arbitration agreement, remove the plaintiff’s claims from state court, and collect attorneys’ fees from her for filing the suit in the first place. The plaintiff responded that the arbitration clause was unconscionable and against public policy because employees were essentially forced to give up their legal rights to a fair process in order to work for the defendant. The California state court ultimately agreed with the plaintiff, finding that the defendant was violating public policy by forcing their employees to adhere to an unfair arbitration agreement. The defendant appealed the ruling to the state Court of Appeals, where the lower court’s ruling and reasoning was affirmed. Specifically, the court ruled that several provisions of the arbitration agreement were unconscionable and unenforceable, and as a result, the plaintiff’s claim shall proceed in the state court.

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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