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.