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.
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.
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.
Following the California Supreme Court's long-awaited decision in Brinker last year, lower courts were left to resolve the numerous meal and rest break cases that had been held pending Brinker. As we recently reported, a number of these cases have been favorably decided for California employers, with courts holding that class certification was improper on meal break claims due to the predominance of individual issues bearing on a determination of liability. We reported on two of these specific cases, In re Lamps Plus Overtime Cases and Hernandez v. Chipotle here and here. Following their losses, the plaintiffs in each of these cases petitioned for review to the Supreme Court. Yesterday, the Supreme Court denied review but depublished both cases--suggesting that the Supreme Court did not agree with the court of appeals' analysis in some fashion. This is unfavorable news for California employers and possibly an indicator that the highest court in this state will continue to view class certifcation standards in wage and hour cases with an employee-friendly eye.
In related news, the California Supreme Court granted review yesterday of Reyes v. Liberman Broadcasting--another case addressing the enforceability of employment arbitration agreements and issues of FAA preemption (see our post here). Review was granted on a "grant and hold" basis pending the Court's decision in Iskanian v. CLS (see our related posts here). It appears the Court will continue to grant review on a grant and hold basis of cases dealing with these same issues until the lead case is decided.
On Friday, the United States Supreme Court granted review in Oxford Health Plans, LLC v. Sutter, which presents the question of whether class wide or collective arbitration may be imposed where the parties' arbitration agreement is silent on the issue of class claims. In the Oxford Health case, the Third Circuit upheld an arbitrator's determination that the arbitration agreement permitted claims to be resolved on a class basis in arbitration. Many readers of this blog are probably scratching their heads reading this, thinking that the Supreme Court already resolved this issue (and favorably for employers) a couple of years ago in Stolt-Nielsen v. AnimalFeeds International. Those thoughts are well taken. In Stolt-Nielsen, the Supreme Court held that arbitration fundamentally is a matter of contract and that a party to an arbitration agreement could not be compelled to arbitrate claims on a class or collective basis "unless there is a contractual basis for concluding the parties agreed to do so." In the Stolt-Nielsen case, the parties stipulated that their arbitration agreement was silent on the issue of class arbitration and that there was not any agreement to arbitrate on a class basis. As such, the Supreme Court in that case did not analyze what contractual circumstances would be sufficient to conclude that the parties agreed to arbitrate on a class basis. Since Stolt-Nielsen, a split has developed among the circuit courts, with the Second and Third Circuits holding that an agreement may be inferred from other language in the agreement, and the Fifth Circuit rejecting that reasoning and holding that there must be more explicit language authorizing class arbitration in order for an agreement to be found. With its grant of review in the Oxford Health case, the Supreme Court is expected to resolve this conflict and provide more clarity in this oft-litigated area.
California employers should also be aware that the California Supreme Court has several cases pending review that address the enforceability of class action waivers in employment arbitration agreements in California. Additionally, the NLRB's anti-class waiver decision in D.R. Horton is similarly pending review. For now, employers should stay the course and continue including express class waiver language in their arbitration agreements pending further guidance from the courts in this unsettled area.
The debate among California courts rages on concerning the enforceability of class action waivers in employment arbitration agreements. 2012 has brought many employer-friendly decisions on this subject, with several courts enforcing class action waivers and compelling individual claims to arbitration and effectively precluding classwide relief. However, most courts have been reluctant to directly answer the question everyone really wants to know--does the United States Supreme Court opinion in AT&T v. Concepcion preempt California decisions limiting the enforceability of class action waivers in employment arbitration agreements and instead compel that these waivers be categorically enforced? One California court answered that question in the affirmative in Iskanian v. CLS Transportation--a very favorable opinion for California employers. Our prior posts on the Iskanian case are here.
Yesterday, another California court disagreed with Iskanian and expressly held that Concepcion does not preempt California law on enforceability of class action waivers in the employment context, specifically the California Supreme Court's decision in Gentry v. Superior Court. The court held that Gentry is not preempted because it does not categorically preclude enforcement of class action waivers in employment arbitration agreements, but rather sets forth a multi-factor test for determining whether such waivers are enforceable as still permitting unwaivable statutory rights to be vindicated. The court also held that a waiver of the right to seek representative relief under PAGA was unenforceable to the extent tied to the same Gentry analysis. This newest decision is Franco v. Arakelian and the decision is here. (For employers who closely follow developments in this area, this case is actually a reincarnation of a prior case, Franco v. Athens Disposal Co., which resulted in a prior unfriendly published decision on the same subject).
Notably, the California Supreme Court recently granted review of the Iskanian case (along with a couple of other similar arbitration cases dealing with the scope of Concepcion preemption). It seems likely that the Court will also grant any petition for review in this newest case. The bottom line is that employers should expect guidance from the California Supreme Court in 2013 on the continued validity and enforceability of class action waivers in employment arbitration agreements so stay tuned.
November 8, 2012
Posted by Cal Labor Law in Arbitration Agreements
Ealier this year, we posted about a complaint filed by the NLRB against 24 Hour Fitness, alleging that the company's arbitration policy (including a class waiver) violated the NLRA. This week, an NLRB administrative law judge ruled that the 24 Hour Fitness policy indeed violates the NLRA, following the NLRB's earlier (and oft-criticized) decision in D.R. Horton. In the case of 24 Hour Fitness, the factual twist is that the arbitration policy and agreement expressly allows employees to opt out of the agreement to arbitrate. 24 Hour Fitness argued that this opt out right distinguished the case from D.R. Horton because arbitration was not a condition of employment (since employees could opt out if they wanted to preserve their right to engage in concerted, collective action). The ALJ disagreed and found that the policy, even with the opt-out right, violated the NLRA. The ALJ found the opt out right to be an "illusion" and a right easily overlooked or unconsciously forfeited by employees, thus still abridging the right to engage in collective action. The decision is available on the NLRB website here.
While it seems clear that the NLRB's focus and attack on employer arbitration agreements will continue unless and until overruled, employers are reminded that the NLRB's initial decision in this area, D.R. Horton, is still on appeal and pending decision by the Fifth Circuit Court of Appeal. Stay tuned.
September 20, 2012
Posted by Cal Labor Law in Arbitration Agreements
Yesterday the California Supreme Court granted review of Iskanian v. CLS Transportation, the first published California case holding that Concepcion invalidates Gentry and that arbitration agreements containing class and representative (PAGA) action waivers are enforceable in California. For more detail on the Iskanian case and the court of appeal decision, see our prior post here. The grant of review by the Supreme Court means that Iskanian is no longer citable authority, pending final decision by the Supreme Court. With the grant of review, it appears that employers will get the California Supreme Court's guidance on the impact of Concepcion on California jurisprudence relating to enforceability of class action and representative action waivers in employment arbitration agreements. A decision is unlikely for at least 12-24 months. In the meantime, it is likely that California's appellate courts will continue to weigh in on the subject. We will keep you posted.
Last week, another California court issued an employer-friendly decision compelling individual arbitration of a case brought as a wage and hour class action. In Reyes v. Liberman Broadcasting, Inc., the plaintiff signed an arbitration agreement as a condition of his employment, agreeing to arbitrate any and all disputes arising out of the employment relationship, including wage claims. Notwithstanding his agreement to arbitrate, the plaintiff later filed a putative class action in state court alleging various Labor Code violations. The employer filed an answer to the complaint, failing to assert any defense that the claims were subject to arbitration. The employer then proceeded to litigate the case in state court for about a year. After the Supreme Court issued its decision in Concepcion in April 2011, breathing new life into the enforceability of employment arbitration agreements and class action waivers, the employer in this case decided to move to compel arbitration. The trial court denied the motion, finding that the employer had waived the right to arbitrate. The employer appealed.
The court of appeal reversed and held that the employer had not waived the right to arbitrate, despite having engaged in the litigation process for a year and not raising arbitration during that time. The court reasoned that the employer's conduct in not raising arbitration pre-Concepcion was reasonable in light of the state of the law in California at the time. Based on that law, the employer likely would not have prevailed on the motion and/or would have risked having an arbitration ordered on a classwide basis. The court also reasoned that even though the litigation had been going on for a year, not much of substance had really occurred. There were no dispositive motions and little discovery had actually been conducted. Ultimately, the court found that there was no prejudice to the plaintiff in the one year delay in compelling arbitration.
The court went beyond its finding of no waiver and addressed the enforceability of the arbitration agreement itself. The court held that although the agreement did not include an express class action waiver, such a waiver had to be implied because of United States Supreme Court law (Stolt-Nielsen) making clear that class claims cannot be compelled to arbitration unless the parties to the agreement expressly agreed to arbitrate class claims. The court then addressed the enforceability of the class waiver, finding it enforceable under Concepcion. The court noted conflict among California state and federal courts on whether Concepcion preempts California's previous test (set forth in Gentry) for determining whether a class waiver in an employment arbitration agreement is enforceable. The court held that in this case, the plaintiff had not made any showing why the agreement would fail under Gentry, even if Gentry is still good law. As such, the court held that it did not need to decide whether Gentry is still good law. The court held that under Gentry and Concepcion, the agreement was enforceable.
Finally, the court addressed the argument that the agreement was unenforceable under the NLRB's decision in D.R. Horton. The court rejected this argument, holding (like other California courts) that the NLRB's reasoning in D.R. Horton was "unpersuasive."
The Reyes decision is a favorable case for employers to cite in moving to compel arbitration in wage and hour class actions. The decision is also a useful one for refuting arguments that the employer has waived the right to arbitrate by participating in state court litigation. Employers are cautioned, however, that they should assert the right to arbitrate at the earliest opportunity (e.g. as an affirmative defense in the answer to the civil complaint) and avoid conduct inconsistent with the right to arbitrate, to prevent the possiblity of a finding of waiver.
A California state court decision issued this week reminds California employers that arbitration policies set forth in employee handbooks generally do not amount to an enforceable agreement to arbitrate claims. In Sparks v. Vista Del Mar Child & Family Services, the employer had an employee handbook containing, among many other policies, a policy requiring arbitration of employment disputes. The handbook (like most) elsewhere included language making clear that the handbook was not an express or implied contract. Employees were required to sign a form acknowledgement indicating they had received the handbook. However, the acknowledgement did not specifically allude to the arbitration policy or separately include any agreement to arbitrate. A former employee filed an employment-related claim against the employer, and the employer moved to compel arbitration, arguing that the employee had agreed to arbitrate the dispute by virtue of his signed acknowledgement of receipt of the employee handbook. The court refused to compel arbitration, holding that there was no evidence that the employee had agreed to arbitrate. The court reasoned that the arbitration provision was buried in a lengthy employee handbook, the handbook itself stated that it was not intended to create a contract, the acknowledgement form made no specific mention of arbitration, and the handbook also stated that the employer could modify the policies therein at any time, making any agreement to arbitrate illusory. The court also noted that even if there was a valid agreement to arbitrate, it would be still be unenforceable due to unconscionability because the arbitration policy did not provide for adequate discovery and incorporated AAA arbitration rules that were not included nor provided to the employees.
The Sparks case is a good reminder that to be enforceable, employment arbitration agreements ideally should be free-standing agreements signed by employees. They may be included on acknowledgement forms or in broader agreements, but the arbitration provision should be a prominent provision, making the employee's knowledge of the provision and agreement thereto unmistakeable.