Oral Argument Scheduled In Iskanian v. CLS Transportation

The California Supreme Court has scheduled oral argument for April 3, 2014 in Iskanian v. CLS Transportation, a case involving the enforceability of class/representative action waivers in employment arbitration agreements under California law.  The Iskanian court ruled that California's "Gentry" test for invalidating class action waivers was no longer good law in light of the United States Supreme Court's decision in AT&T Mobility v. Concepcion, and that employers may not be compelled to arbitrate on a class wide basis where they have not specifically agreed to do so.  The Iskanian court also held that the contractual waiver of the right to pursue a PAGA representative action in arbitration was similarly enforceable.  Finally, the Iskanian court rejected the NLRB's D.R. Horton decision invalidating class action waivers in arbitration agreements on the ground that such waivers violate the NLRA.  Our prior posts on the Iskanian case are here.  Following oral argument in April, a decision by the California Supreme Court should issue by early July.  California employers that have, or are considering, employment arbitration agreements will want to stay tuned for this key decision.

NLRB Continues Reliance on D.R. Horton to Attack Employment Arbitration Agreements

As many predicted, the Fifth Circuit’s recent invalidation of the NLRB’s D.R. Horton decision has not caused the NLRB to revise its enforcement position on the subject of class action waivers in employment arbitration agreements.  The NLRB basically takes the position that, unless overruled by the United States Supreme Court (as opposed to a circuit court of appeal), Board decisions (such as D.R. Horton) remain in effect and are binding on the NLRB’s administrative law judges (“ALJ”).  A decision last week from an ALJ in Leslie’s Poolmart, Inc. and Keith Cunnigham evidences the NLBR’s continued adherence to its D.R. Horton decision and policy.  Indeed, the Leslie’s Poolmart decision actually expands D.R. Horton by holding that an arbitration agreement that was silent on the issue of class and collective claims still violated Section 7 of the NLRA by interfering with employees’ rights to engage in collective, concerted activity for mutual aid and protection.    

In Leslie’s Poolmart, employees were required to sign an arbitration agreement upon hire, whereby they agreed that they would arbitrate any employment-related disputes.  The agreement said nothing about whether an employee could pursue class or representative relief in arbitration.  Notwithstanding his agreement to arbitrate, employee Cunningham filed a class action lawsuit in California state court against Leslie’s, alleging various wage and hour violations.  Leslie’s removed the case to federal court and then filed a motion to compel arbitration of Cunningham’s individual claims and requested that the class claims be dismissed.  The court granted the motion (with the exception of a PAGA claim, which the court held was exempt from individual arbitration). 

Not to be deterred, Cunningham filed a charge with the NLRB alleging that Leslie’s arbitration agreement and efforts to enforce it violated section 7 of the NLRA.  Last week, a NLRB ALJ agreed.  The ALJ held that she was still bound by D.R. Horton regardless of the fact that the Fifth Circuit effectively overruled the decision.  The ALJ further held that D.R. Horton applied even though the arbitration agreement in this case (unlike the one at issue in D.R. Horton) did not expressly preclude arbitration of class or representative claims.  The ALJ reasoned that even though the agreement did not expressly foreclose class claims, it effectively foreclosed such claims because the employer required all employees to sign the agreement and responded to court actions by making motions to compel individual arbitration and to dismiss any class allegations.  Thus, the ALJ found that the agreement interfered with employees’ ability to engage in collective concerted activity.  The ALJ further held that a single employee's filing of a class action claim (even without active participation of any other employee) constituted protected concerted activity.  The ALJ ordered Leslie’s to rescind its arbitration policy and/or to revise it to make clear that employees can pursue class claims either in arbitration or in court.  The ALJ further ordered Leslie’s to file a motion with the district court requesting that it vacate its order compelling Cunningham to arbitrate his individual claims.  The January 17, 2014 Leslie’s Poolmart decision is available in full on the NLRB’s website here.

Unless and until the United States Supreme Court overrules D.R. Horton, it appears, at least for now, that some plaintiffs' class action lawyers may continue using unfair labor practice charges as a last ditch effort to try to avoid dismissal of their class claims.  Given the wide rejection by courts of the NLRB's D.R. Horton decision, the ultimate success of this type of tactic is doubtful. 

Fifth Circuit Invalidates NLRB’s D.R. Horton Ruling

Today, the Fifth Circuit issued its decision in D.R. Horton v. NLRB, invalidating the NLRB's holding that D.R. Horton's arbitration agreement violated the NLRA by prohibiting employees from pursuing employment claims on a class or collective basis.  The NLRB had reasoned that disallowing class and collective claims in arbitration and in court precludes employees from exercising their right under the NLRA to engage in collective, concerted activity for mutual aid and protection.  The Fifth Circuit disagreed. 

Relying on recent United States Supreme Court decisions starting with AT&T Mobility v. Concepcion, the Fifth Circuit held that the Federal Arbitration Act (FAA) requires that arbitration agreements be enforced according to their terms and that a provision prohibiting class-wide arbitration is an enforceable term.  The Fifth Circuit further held that nothing in the NLRA or its legislative history evinces any Congressional intent to ovveride the FAA, and that general language in the NLRA relating to "mutual aid and protection" could not be interpreted as an expression of Congress' intent to override the FAA. 

The NLRB argued that its ruling was valid because it did not require employers to allow class-wide arbitration.  Instead, it simply required employers to allow employees to pursue relief on a class-wide basis either in arbitration or in court.  The Fifth Circuit held that there was nothing in the NLRA suggesting that a prohibition on class-wide claims violates the NLRA.  The court also held that requiring employers to allow employees to pursue class-wide claims (either in court or in arbitration) has the effect of disfavoring arbitration, in contravention of the FAA.

The Fifth Circuit's decision was not an all-out win for D.R. Horton, however.  The Fifth Circuit held that D.R. Horton's arbitration policy reasonably could be interpreted as preventing employees from pursuing administrative claims with the NLRB (based on broad language explaining that the employee was waiving the right to file a lawsuit "or other civil proceeding" relating to an employment dispute).  As a result, the court held that the NLRB properly ordered D.R. Horton to take corrective action to revise its policy to clarify that employees are not prohibited from filing charges with the NLRB.

The Fifth Circuit's decision in D.R. Horton is the first circuit court decision addressing the D.R. Horton issue in a direct appeal from a NLRB action.  However, many courts throughout the country, including many in California and in the Ninth Circuit have similarly rejected the NLRB's D.R. Horton analysis and refused to follow it.  It remains to be seen what the NLRB will do in response to the Fifth Circuit's decision.  The NLRB could petition for review to the United States Supreme Court.  In the meantime, the NLRB may continue to follow and apply its D.R. Horton analysis to invalidate class waivers in jurisdictions outside the Fifth Circuit.  Alternatively, the NLRB could abandon its attack on class waivers consistent with the weight of court decisions rejecting the NLRB's analysis in this regard.  Time will tell.

For now, arbitration agreements with class action waiver provisions remain an effective tool for employers to prevent class-wide employment claims. 

The Fifth Circuit's decision is available here.

Ninth Circuit Further Weighs In on Arbitration Agreements

This week, the Ninth Circuit has issued two new decisions on the enforceability of arbitration agreements post-Concepcion.  In the first case, Ferguson v. Corinthian Colleges, the court issued an opinion favoring enforcement of arbitration agreements by striking down over a decade of California-based precedent holding that arbitration may not be compelled where the action is one seeking public injunctive relief.  This precedent was widely known as the “Broughton-Cruz” rule (which was also adopted by the Ninth Circuit in Davis v. O’Melveny & Myers).  The Ninth Circuit correctly held that, in light of the Supreme Court’s instruction in Concepcion, courts cannot carve out particular types of claims (such as claims for public injunctive relief) from arbitration.  In the Corinthian Colleges case, the plaintiffs were vocational students who alleged that the college misled them through misrepresentations about future employment opportunities.  The plaintiffs sought an injunction to preclude the college from continuing to make such misrepresentations to recruit future students.  Corinthian sought to compel arbitration of the plaintiffs’ claims, but a federal district court refused to enforce the arbitration agreement.  The Ninth Circuit reversed, holding that the claims were arbitrable regardless of the fact that they sought public injunctive relief.  While not an employment case, the Corinthian Colleges case provides further federal precedent preventing California district courts from refusing to enforce arbitration simply because a specific type of claim is at issue.  This principle applies equally to disputes concerning arbitration agreements in employment cases.  The Corinthian Colleges case is available here

The Ninth Circuit’s second arbitration decision this week was less arbitration-friendly.  That case, Chavarria v. Ralphs Grocery, involved an employment arbitration agreement between a grocery store employee and the grocery chain.  The employee filed a putative class action for alleged Labor Code violations and Ralphs sought to compel arbitration of the individual employee’s claim based on an arbitration policy the employee accepted as part of her employment application.  The district court found the arbitration agreement unconscionable under California law and refused to compel arbitration.  This week, the Ninth Circuit agreed with the district court’s holding that the agreement was unconscionable and unenforceable under California law (i.e. Armendariz and its progeny).  The court specifically held that Concepcion and subsequent United States Supreme Court decisions do not affect the continued validity of state law unconscionability doctrine as a means for invalidating an arbitration agreement.  Applying California’s unconscionability law, the court held that Ralphs’ arbitration agreement was procedurally unconscionable because it was presented to employees on a “take it or leave it” basis with no ability to negotiate, and the arbitration terms were not provided to employees until three weeks after they signed the agreement (i.e. the employment application).  The court also agreed with the district court’s finding that the agreement was substantively unconscionable, meaning that it was unfairly one-sided so as to “shock the conscience.”  The court focused on two provisions of the arbitration policy—the arbitrator selection provision and the costs provision.  With respect to arbitrator selection, the court determined that the process would always result in the arbitrator being one proposed by Ralphs, which was unfairly one-sided.  That is because the policy provided that each side could propose three arbitrators, followed by an alternating strike method allowing the party not demanding arbitration to strike first.  In the court’s view, the party not demanding arbitration would always be Ralphs in any employee-initiated claim and that would always result in the last arbitrator standing being on Ralphs' list.  (In this author’s view, that interpretation is a little tortured because in a typical case, the employee files a lawsuit in state court rather than “demanding” arbitration.  The employee opposes arbitration and the employer has to “demand” it by making a motion to compel arbitration with the court.  Ralphs also made this argument, but the Ninth Circuit rejected it.)  The policy also specifically disallowed the use of AAA or JAMS arbitrators, which meant that those institutions’ rules for neutral arbitrator selection could not be used.  

As to the costs provision in the policy, the Ninth Circuit held that this too was unconscionable.  The policy itself is somewhat unclear, but generally provides that the arbitrator is to apportion arbitration-related fees to the parties at the outset of the proceeding subject to United States Supreme Court precedent on the subject and that if such precedent requires Ralphs to pay up to all of the arbitration fees, Ralphs would do that, but if United States Supreme Court precedent did not require such a result, then the arbitrator could apportion the arbitration fees/costs equally between the parties. The Ninth Circuit interpreted this provision as requiring the arbitrator in every case to impose substantial and prohibitive fees on the employee at the outset of the arbitration, so as to effectively preclude the employee from continuing with arbitration at all.  On this basis, along with the unfair arbitrator selection provision, the court held that the agreement was substantively unconscionable.  Having found that the agreement was both procedurally and substantively unconscionable, the court held that the arbitration agreement as a whole was unenforceable and that the employee could proceed with her claims in court.  The Ralphs Grocery decision is available here.

The Ralphs Grocery decision, coupled with last week’s California Supreme Court decision in Sonic Calabasas, confirms that California state and federal courts will continue to recognize and apply California unconscionability law to review and potentially refuse to enforce employment arbitration agreements.  Thus, litigation over the enforceability of these agreements is certain to continue, even though there have been huge employer-friendly gains in the last couple of years strengthening the enforceability of these agreements.  The continued validity of the unconscionability doctrine serves as an important reminder to employers to review their arbitration policies and agreements to ensure that they pass muster under these standards.  Employers are also reminded that important cases are still pending before the California Supreme Court on the issue of the enforceability of class action waivers in employment arbitration agreements and whether California's "Gentry" analysis for evaluating the enforceability of these waiver provisions is still valid in the wake of Concepcion.  We will keep you updated on further developments in this area.

California Supreme Court Follows Concepcion and Holds That Administrative Wage Claims Are Arbitrable

Today the California Supreme Court issued its opinion in Sonic-Calabasas v. Moreno, holding that an employment arbitration agreement is enforceable even where an employee is pursuing administrative remedies (typically for alleged unpaid wages) through the California Labor Commissioner. 

The California Supreme Court had previously held in this same case that an arbitration agreement is unconscionable to the extent it seeks to preclude an administrative hearing before the Labor Commissioner.  Following that ruling, however, the United States Supreme Court issued its decision in in AT&T Mobility v. Concepcion, striking down a similar California Supreme Court ruling that had found class action waivers is consumer contracts generally unconscionable and unenforceable.  The United States Supreme Court thereafter ordered the California Supreme Court to reconsider its ruling in Sonic-Calabasas in light of Concepcion.

Today the California Supreme Court issued its new decision in "Sonic II."  The Court held that Concepcion precludes a finding that an arbitration agreement is unconscionable simply because it requires parties to arbitrate a Labor Code dispute instead of permitting the employee to first proceed with an administrative hearing before the Labor Commissioner.  Thus, an arbitration agreement now may still be enforced even in Labor Commissioner proceedings and require the parties to arbitrate their dispute.  However, the California Supreme Court held that while there is no categorical unconscionability rule for arbitration agreements that preclude an administrative hearing before the Labor Commissioner, an arbitration agreement can still be deemed unenforceable if determined to be procedurally and substantively unconscionable (based on unfair terms above and beyond precluding an administrative hearing).  The Court stated:  "As with any contract, the unconscionability inquiry requires a court to examine the totality of the agreement's substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided."  The Court further stated that the agreement "must provide an employee with an accessible and affordable arbitral forum for resolving wage disputes."  The Court basically held that the unconscionability standards it long ago set forth in Armendariz remain good law even after Concepcion.

The Court held that it did not have sufficient information to rule on the unconscionability issue as to the arbitration agreement between Moreno and Sonic-Calabasas.  It therefore remanded the issue to the trial court to determine.  The Court provided guidance to trial courts to assist in making unconscionability determinations, characterizing the inquiry as a detailed factual inquiry that still permits the court to consider (among other factors) the effect of the waiver of certain benefits of an administrative proceeding before the Labor Commissioner.  The Court's opinion basically precludes a bright line rule on when an arbitration agreement will be deemed unconscionable and instead ensures that trial courts will continue to come out all over the map on these issues.

Justice Chin, joined by Justice Baxter, authored a vigorous dissent in which he criticized the majority's unconscionability analysis and stated that the Court's analysis contravenes Concepcion

The full 100-plus page opinion is available here.

Supreme Court Issues Another Strong Decision Upholding Class Waivers in Arbitration Agreements

Today the United States Supreme Court issued its opinion in American Express Co. v. Italian Colors Restaurant, holding that courts may not invalidate a contractual waiver of class arbitration simply because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery he or she might receive.  This case is not an employment case, but a case involving a merchant with a credit card contract with American Express.  The merchant brought a class action against American Express, alleging violation of antitrust laws resulting in merchants being charged excessively high rates.  The contract between American Express and its merchants contained an arbitration agreement whereby the merchants had to agree that any disputes would be resolved by binding arbitration and that there would be no right to have claims decided on a class basis in arbitration.  Pursuant to this contractual agreement, American Express sought to compel individual arbitration of the merchant’s claim.  The trial court granted the motion to compel arbitration but the court of appeal reversed, holding that the prohibitive costs the merchant would face in arbitration to prove an antitrust violation precluded effective vindication of statutory rights and rendered the class waiver unenforceable.  Specifically, the individual merchant only stood to recover between $12,000-$38,000 in damages, but it would cost at least several hundred thousand dollars, and possibly more than one million dollars, to prove the violation through expert analysis.  The court of appeal concluded that requiring an individual to bear such cost in arbitration while precluding class wide relief, effectively eviscerated the right to pursue the action in the first place.  The United States Supreme Court granted certiorari and reversed.

In today’s decision (a 5-3 decision authored by Justice Scalia), the Supreme Court held that the Federal Arbitration Act (FAA) requires that arbitration agreements be enforced according to their contractual terms, even for claims alleging a violation of a federal statute, unless the FAA's mandate has been overridden by a contrary congressional command.  The Court made clear that neither the antitrust laws nor Rule 23 of the Federal Rules of Civil Procedure contains any congressional command that individuals be permitted to pursue antitrust violations on a class basis.  The court further rejected application of an "effective vindication" exception used by some courts to invalidate class waivers in arbitration agreements.  Under that exception, which the Court emphasized originated from dicta in an earlier Supreme Court decision, courts sometimes invalidate arbitration agreements that operate to prospectively waive a party's rights to pursue a statutory remedy.  The Court held that there was no reason to apply any such exception in this case because the arbitration agreement did not result in a waiver of the merchant's right to pursue an antitrust claim.  The merchant could still pursue the claim in arbitration, even though not on a class basis.  "[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."  The court further reasoned that if courts could invalidate arbitration agreements based on a principle of cost versus benefit analysis of individual versus class wide claims, this would require courts, in ruling on a motion to compel arbitration, to undertake an analysis of the legal requirements for success on the merits on a claim, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success.  "Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure."  The Court thus held that the arbitration agreement, including its class waiver, was enforceable as written under the FAA.

Today's Supreme Court decision is yet another example of the Court's strong position on enforcing arbitration agreements, including class waivers, according to their terms and the parties' intentions.  While this is not an employment action, the analysis and reasoning in the decision carries over to cases interpreting the enforceability of arbitration agreements and class waivers in the employment context and may well impact the California Supreme Court's upcoming analysis in important employment cases pending before it on the issue of enforceability of employment arbitration agreements in California, including on the issue of class waivers.  As readers of this blog know, the California Supreme Court is expected to decide this year whether the United States Supreme Court's recent decision in AT&T Mobility v. Concepcion (and the FAA) preempt California laws relating to the enforceability of arbitration agreements and class waivers in such agreements in employment cases, particularly in wage and hour class actions and PAGA representative actions. 

Courts Continue to Weigh in on Impact of Arbitration Agreements on Class Proceedings

Last week the United States Supreme Court issued its decision in Oxford Health Plans LLC v. Sutter, refusing to vacate an arbitrator’s finding that a doctor’s arbitration agreement with a health plan permitted class-wide arbitration.  Sutter, a pediatrician, had entered into a fee for service contract with Oxford Health, whereby Oxford Health agreed to pay Sutter certain rates for services he provided patients.  Sutter initiated a lawsuit on behalf of himself and other doctors also under contract with Oxford Health, alleging that Oxford Health failed to pay the doctors in accordance with the contract terms.  Oxford Health moved to compel arbitration, relying on the following arbitration provision in the contract with Sutter: 

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association before one arbitrator.”

The agreement did not expressly authorize nor expressly prohibit claims from proceeding in arbitration on a class-wide or collective basis.  However, the parties agreed that the arbitrator should decide whether the agreement permitted  class-wide arbitration or whether Sutter would be limited to pursuing only his individual claim in arbitration.  The arbitrator thereafter concluded that the agreement permitted class-wide arbitration.  The arbitrator reasoned that the agreement’s use of the term “civil action” was not limited to only certain types of civil actions, that a class action is a common type of civil action, and that by agreeing that all “civil actions” (without limitation) would be resolved by way of arbitration, the parties must have intended to include class claims in its scope. 

Oxford Health petitioned to vacate the arbitrator’s decision, but its efforts were unsuccessful.  While the arbitration process continued, the United States Supreme Court issued its decision in Stolt-Nielsen v. Animal Feeds International, 559 U.S. 662 (2010), holding that a party cannot be compelled to arbitrate claims on a class basis unless there is a contractual basis for concluding that the party agreed to do so.  In Stolt-Nielsen, the parties (very unusually) stipulated that they had no agreement concerning the use of class-wide arbitration.  Notwithstanding this fact, a panel of arbitrators ordered class-wide arbitration.  In those circumstances, the Supreme Court held that the arbitration panel exceeded its authority because it did not conclude class-wide arbitration was appropriate based on interpretation of the parties’ contract.  It could not have done so, given that the parties stipulated their contract did not cover the issue of class arbitration.  Instead, the panel ordered class arbitration as a matter of public policy.  According to the Supreme Court, this was not a proper exercise of the arbitrator’s power and as, such, the order was overturned.

Relying on Stolt-Nielsen, Oxford Health renewed its efforts to undo the arbitrator’s decision that the claims against it could proceed on a class basis in arbitration.  This time the challenge made its way to the Supreme Court, which issued its decision last week, disagreeing with Oxford Health’s position and limiting the scope of Stolt-Nielsen.  In its unanimous opinion, the Supreme Court held that this case was different than Stolt-Nielsen because in Stolt-Nielsen the parties had stipulated that they had no agreement concerning the use of class arbitration.  Here, by contrast, the parties simply disagreed about whether or not the subject was covered by the arbitration provision in their contract.  More significantly, the parties specifically agreed that the arbitrator should decide, as a matter of pure contract interpretation, whether the agreement permitted class arbitration.  By giving the arbitrator this power, the parties largely forfeited any meaningful judicial review of the arbitrator’s decision.  The Supreme Court explained that judicial review of an arbitrator’s rulings is extremely limited under the Federal Arbitration Act and a decision will only be vacated if clearly in excess of the arbitrator’s authority.  A decision that is simply a “wrong interpretation” is not in excess of authority.  The arbitrator was authorized to interpret the contract and did so.  The fact that he may have gotten the result wrong is not a proper ground for reversal. 

The Supreme Court hinted that had Oxford Health not stipulated that the arbitrator should decide the issue of class arbitration, Oxford Health could have argued that the issue was an issue of arbitrability in the first instance and one that a court, not an arbitrator, must decide.  If a court had issued the decision, judicial review would have been broader and the outcome quite possibly different. 

The Oxford Health case is a good reminder that employers must carefully review the language of their arbitration agreements to ensure that the subject of class/collective arbitration is expressly addressed and prohibited.  Employers should also consider and address in their agreements the issue of whether an arbitrator or a court will decide issues of arbitrability pertaining to the agreement.  Limited judicial review is great when the decision is in your favor, but cuts the other way too—as the Oxford Health case demonstrates.  The Oxford Health case is available here.

In a related development in California, yet another California has weighed in on the issue of whether a class waiver provision in an arbitration agreement precludes an employee from pursuing a representative claim under PAGA.  California state and federal courts have disagreed on this issue, with some concluding that class and representative claims, including those brought under PAGA, may be barred by an arbitration agreement, and others concluding that an arbitration agreement cannot preclude an employee from pursuing a representative action under PAGA.  Earlier this month, the Sixth District Court of Appeal handed down a decision in the Plaintiffs’ camp, holding that a plaintiff may pursue a representative claim under PAGA, notwithstanding an otherwise valid arbitration agreement precluding class/collective claims.  The decision is Brown v. Superior Court (Morgan Tire & Auto) and the decision is here.  Employers should note that the California Supreme Court is expected to resolve the issue of whether representative PAGA claims are excluded from the scope of an otherwise valid class waiver provision in an arbitration agreement sometime in the next year in Iskanian v. CLS Transportation (which reached the opposite conclusion with respect to the impact of a class waiver provision on a PAGA claim).  In the meantime, employers can expect continued assertion of PAGA claims by Plaintiffs’ lawyers in an effort to circumvent applicable arbitration agreements with class waivers. 

We will continue to post developments as they arise in this important area.

Courts Continue to Weigh in on Employment Arbitration Agreements

Today, another California court weighed in on the enforceability of an employment arbitration agreement in the context of a class action wage and hour lawsuit.  In Compton v. Superior Court, the court refused to compel arbitration of an employee's wage and hour claims, based on the court's finding that the employee's arbitration agreement was unconscionable and unenforceable.  The court relied on California unconscionability caselaw, including the seminal California Supreme Court decision in Armendariz.  The court held that AT&T v. Concepcion did not preempt Armendariz and that California unconscionability standards remain a proper ground for refusing to enforce an arbitration agreement.   Applying those standards, the court held that the arbitration agreement at issue was procedurally unconscionable because it was required to be signed as a condition of employment, and that it was substantively unconscionable because it was insufficiently bilateral.  Specifically, the agreement required the employee to arbitrate virtually all claims employees typically bring against an employer, but excluded from arbitration claims an employer is most likely to bring against an employee (e.g. claims for injunctive or equitable relief for trade secret misappropriation).  The agreement also provided a shortened statute of limitations for employee claims (one year).  As such, the court held that the agreement was "permeated" with unconscionability and refused to sever the unconscionable provisions and otherwise enforce the agreement.  The Compton decision is available here

As California employers should know, there are several cases pending before the California Supreme Court on the issue of whether and to what extent Concepcion preempts California law relating to enforceability of employment arbitration agreements.  This case may well be taken up for review as well, on a grant and hold basis.  Stay tuned for guidance to be issued from the California Supreme Court on this important issue, hopefully later this year.

Latest Activity from the California Supreme Court

This week the California Supreme Court was busy deciding whether to review some notable employment decisions.  In favorable news for employers, the Court denied review in See's Candy Shops v. Superior Court (Silva), the time rounding case in which a California Court of Appeal recently held that time rounding policies are permitted under California law.  Our prior post on the See's Candy case is here.   The Court granted review of Richey v. Autonation, a case addressing whether employers can assert an "honest belief" defense to liability on a claim under the California Family Rights Act.  In the Richey case, the employer had a somewhat ambiguous policy prohibiting employees from engaging in other employment while on CFRA leave.  An employee took a CFRA leave of absence, but while on the leave, engaged in his own self-employment.  The employer believed the employee was abusing his CFRA leave and terminated his employment.  The employee sued, the case was ordered to arbitration pursuant to an arbitration agreement between the parties, and the arbitrator found in favor of the employer on the ground that the honest belief defense provides a complete defense to liability.  The employee appealed, and a California court reversed, which is unusual given the narrow standards for review and reversal of arbitration decisions.  The court of appeal held that the employer could not avoid liability under CFRA based solely on an "honest" belief that the employee was abusing the leave.  The court held that the employer must produce evidence demonstrating that the employee actually was abusing the leave.  The California Supreme Court has now granted review of that decision. 

Finally, the Court this week granted review of Franco v. Arakelian, another case addressing enforceability of employment arbitration agreements in California.  (See our prior post here.)  The Franco court held, contrary to some other California courts, that PAGA claims cannot be compelled to arbitration and that the United States Supreme Court decision in AT&T v. Concepcion does not preempt California law on enforceability of class action waivers in the employment context.  The California Supreme Court has granted review in several similar cases, and this week's grant of review in Franco was on a "grant and hold" basis pending the Court's decision in Iskanian v. CLS Transportation.  Stay tuned for guidance from the California Supreme Court on these important employment law issues.

More From the NLRB—Facebook Firings, Arbitration and Confidentiality of Witness Statements

The NLRB was busy in December issuing more decisions that are noteworthy and concerning for unionized and non-unionized employers alike.  First, the NLRB issued a new decision (Supply Technologies, LLC, 359 NLRB No. 58) finding that a non-union employer’s policy requiring arbitration of employment disputes violated Section 7 of the NLRA.  The NLRB relied on its prior decision and reasoning in D.R. Horton to invalidate the agreement, determining that the language of the agreement was ambiguous and would reasonably lead employees to believe they could not file unfair labor practice charges with the NLRB.

The Supply Technologies decision is not particularly surprising, given the NLRB’s prior decision in D.R. Horton which the NLRB is currently defending on appeal before the Fifth Circuit.  Employers should note that several courts in many different states, including California, have rejected D.R. Horton’s analysis. Oral argument before the Fifth Circuit is scheduled for February 5, 2013.  The ultimate decision and outcome in the D.R. Horton case may well impact the NLRB’s future handling of this issue.

In other December news, the NLRB upheld an earlier decision of an ALJ, finding that the termination of several employees for improper Facebook posts violated the NLRA.  In Hispanics United of Buffalo, 359 NLRB No. 37 (Dec. 14, 2012), the NLRB held that a non-union employer’s termination of five coworkers based on certain Facebook posts was unlawful, and awarded the employees reinstatement and backpay.  In this case, one coworker spoke critically of the work of several co-workers.  One of those co-workers responded by posting a comment on her Facebook page about the criticism and inviting comments from her fellow criticized co-workers.  Four co-workers posted their own responses to the criticism and about the co-worker who initiated the criticism.  The employee who initiated the criticism asked the co-workers to stop their “harassing and bullying” posts, and made a complaint to her supervisor regarding the harassment and bullying.  The employer ultimately terminated the five co-workers for bullying and harassing behavior.  The NLRB found the terminations unlawful, reasoning that the Facebook posts were protected activity engaged in for mutual aid and benefit (banding together to defend against job-related criticism).  This NLRB decision is a reminder to employers (union and non-union alike) to carefully consider discipline and terminations relating to social media in light of the NLRB’s continuing anti-employer posture on these issues.

Lastly, in December, the NLRB overturned decades-old precedent categorically exempting witness statements gathered during an employer’s internal investigation from disclosure to a union in response to a union request for information (which typically arises in connection with a grievance).  In Piedmont Gardens, 359 NLRB No. 46 (Dec. 15, 2012), the NLRB held that witness statements are not automatically exempt from disclosure to unions.  Instead, employers must consider the confidentiality interests in each specific case and apply a balancing test to evaluate whether there is a “legitimate and substantial confidentiality interest” and, if so, whether it outweighs the union’s need for the information.  In addition, the employer must “raise its confidentiality concerns in a timely manner and seek an accommodation from the other party.”  The Piedmont Gardens case muddies the waters in this area and obliterates any bright-line rule for treatment of witness statements as confidential.  Each case will instead have to be decided on its unique facts.

Further muddying the waters in this area, the NLRB issued a similar decision the day before Piedmont Gardens, this time addressing what constitutes a witness statement in the first place.  (If something isn’t a witness statement, it isn’t exempt from disclosure in response to the union’s request for information).  In Hawaii Tribune Herald, 359 NLRB No. 39 (Dec. 14, 2012), the NLRB held that a document is only a witness statement if (1) the witness, in some way, either through reading or reviewing the statement or having it read to him, adopted the statement as his own; and (2) the witness received an assurance that the statement would remain confidential.  In the Hawaii Tribune case, the NLRB held that an employer’s refusal to turn over a statement to the union was unlawful because the document did not constitute an actual “witness statement.”  The statement in question was documentation of an employee’s account of an event he witnessed in the workplace.  Although the statement was prepared by a supervisor, the employee was given the opportunity to make changes to the statement and then signed it as revised.  Sounds like a witness statement, right?  Not so, said the NLRB.  According to the NLRB, the employee was not assured the statement would remain confidential and, as such, it did not qualify as a witness statement. 

Stay tuned for more unusual developments from the NLRB, which we will endeavor to timely post on this blog.