California Labor &
Employment Law Blog

Mar. 20 2009

Another Employment Arbitration Agreement Found Unenforceable

Topics: Arbitration Agreements, Court Decisions

Earlier this week, another California Court of Appeal ruled that an employment arbitration agreement was unconscionable and unenforceable based in part on the agreement's inclusion of a class action waiver. In Sanchez v. Western Pizza Enterprises, Inc., the plaintiff worked as a delivery driver for a pizza restaurant. The plaintiff alleged that the employer violated California law by failing to reimburse the plaintiff and other employees for all mileage expenses. Plaintiff filed a putative class action and the employer moved to compel arbitration based on a signed employment arbitration agreement between the employer and the plaintiff. The trial court denied the motion to compel arbitration, finding that the agreement was unconscionable and unenforceable. The employer appealed, but the appellate court agreed with the trial court's ruling. The court first held that the determination of the enforceability of the arbitration agreement was an issue for the court, not the arbitrator, to decide. The court distinguished a number of cases holding that this is an issue for an arbitrator to decide, finding that in those cases the arbitration agreement expressly provided for arbitrator determination of issues of enforceability. The court found that the arbitration agreement before it did not clearly provide for arbitrator determination of this issue.

Further analyzing the arbitration agreement before it, the court held that the agreement's inclusion of a class action waiver was unenforceable under the four-factor test set forth by the California Supreme Court in Gentry v. Superior Court, 42 Cal.4th 443 (2007). The court also found the agreement procedurally unconscionable, notwithstanding the fact that the agreement on its face made clear that execution of the agreement was "not a mandatory condition of employment." Finally, the court found that the agreement was substantively unconscionable in that the arbitrator selection process was not sufficiently mutual. The decision is here.

The Sanchez case is another reminder that employment arbitrationagreements remain a subject of much litigation and close judicial scrutiny inCalifornia. In addition,litigation over expense reimbursement policies is increasing in popularity. Employersshould review their policies related to these subjects.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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