Are Arbitration Agreements Enforceable?

ArbitrationWhen you were hired by your current employer, were you required to sign an arbitration agreement? The agreement stated you would use an arbitrator to deal with any workplace-related legal claims, rather than going through the courts. At the time, it seemed a minor issue—just another piece of paper you signed in order to get the job you wanted. Now, you may find yourself regretting that signature. Perhaps a group of employees has asked you to join in a class action lawsuit against your employer, fighting for employee rights. You believe in the cause—but there is the matter of that pesky arbitration agreement you signed. What now? An experienced employment lawyer can help you to understand both your rights and your responsibilities in this situation.

The Arbitration Process

Pursuing a remedy to workplace issues through an arbitration process has benefits, to be sure.  For instance, the proceedings are often much speedier. Disputes among parties can be raised over the phone with an arbitrator, instead of through the motions required in the court system. Besides saving time, arbitration can save everyone a lot of money. Employees, in particular, save money because employers are required to pay all arbitration fees in California. Arbitration is also a more private venue than the court, and no public records will be filed.

Federal Ruling

The 9th Circuit court recently issued an opinion striking down mandatory class waivers (Morris v. Ernst & Young). In this case, the plaintiff had signed an arbitration agreement spelling out that “covered disputes pertaining to different employees will be heard in separate proceedings.”  Nonetheless, the plaintiff claimed that he and others had been wrongfully labeled as exempt from overtime pay, and filed a class and collective action against his accounting firm, Ernst & Young.  The court found that agreements that take the rights of the worker to obtain federal relief from a work-related claim are untenable, and ruled for the plaintiff.

Arbitration Agreement Uncertainty in California Law

On the other hand, the California Supreme Court has upheld arbitration agreements that include class action waivers (Iskanian  v. CLS Transportation Los Angeles, LLC.).

This leaves us with some ambiguity regarding the enforceability of arbitration agreements that include class action waivers. The federal court clearly states that employees do have a right to band together to pursue work-related claims. The state court differs. So, is an arbitration agreement enforceable in the state of California?

In general, a well-drafted agreement that is implemented fairly and appropriately should be enforceable. What makes an agreement unenforceable? The courts have found certain factors to be non-starters such as:

  • Agreements that require employees to waive statutory damages;
  • Agreements that require employees to waive statutory remedies;
  • Agreements that do not allow the employee to recover attorney’s fees if successful;
  • Agreements that contain class action waivers, precluding employees’ rights to band together to ensure their rights are preserved and protected.

[Read more…]

The Private Attorney General Act of 2004

private attorney general actBinding Arbitration and the Private Attorney General Act. Suppose, as a condition of employment, you signed an arbitration agreement, waiving your right to litigate future disputes or join class action suites. But then, after securing employment, you have an experience that causes you to consider filing a civil claim against your employer. What are your rights?

The intricacies of this situation and the use of the Private Attorney General Act may require the experienced guidance of California labor and employment attorneys; you want the aggressive team at Beck Law P.C., on your side.

Private Attorney General Act and the Uber Case

The situation described above is not unlike the position that Uber drivers found themselves in. Despite signing an arbitration agreement prior to hire, many drivers joined together to attempt to get the courts to support their efforts to be reimbursed for costs, such as gasoline, and to object to the company’s policy of telling customers that tips are included in the price of a ride.

What empowered these drivers to think they could bypass a signed arbitration agreement and go straight to the courts for relief? The Private Attorney General Act (PAGA) allows private citizens, or workers, in California to pursue legal remedies that might otherwise be initiated by the state itself.  In other words, aggrieved employees may file a civil claim against employers who violate California employment law. Uber drivers filed suit, reasoning that PAGA would outweigh arbitration requirements. The final outcome in the courts is yet to be determined; at present the 9th Circuit Court is siding with Uber on the arbitration issue. But if drivers are able to get traction with their PAGA suit, what can they expect?

How Does Private Attorney General Act Work?

Private Attorney General Act has two requirements:

  • The complainant must notify the California Labor and Workforce Development Agency (LWDA) of alleged violations;
  • The LWDA does not itself pursue the case or issue citations.

If these criteria have been met, the employee is essentially “deputized” and may file suit, with the understanding that any civil penalties will be split, with the LWDA receiving the lion’s share of 75%, and the employee taking the remaining 25%.

Notably, when an employee brings this type of action against his employer, he does so on behalf of all employees who experienced the violation. For example, in the Uber case, if the employee sues on the basis of gas reimbursement costs, the final judgment would take into account the total number of Uber employees who had a similar experience.

Employer violations fall into three classes:  

  • Serious violations.
  • Health and Safety violations.
  • All other labor code violations.  

Each category of violations has its own set of procedures and prescriptions. [Read more…]

California Court Holds Class Action Waiver Violates Federal Law

Class Action WaiverA new federal class action waiver decision could have major ramifications for arbitration agreements. The opinion in Morris v. Ernst & Young declares that arbitration agreements violate the National Labor Relations Act (NLRA) if they require employees to arbitrate separately.

The Forbidden Class Action Waiver

The arbitration agreement at the heart of the case stated that employees of Ernst & Young were required to pursue any legal claims against their employer through arbitration, and that they could arbitrate only as individuals in “separate proceedings.” The employees were required to sign these class action waiver agreements as conditions of employment.

An Ernst & Young employee named Stephen Morris filed a class action against his employer, in spite of the class action waiver arbitration agreement. He alleged that the company had misclassified him, and denied him overtime wages. When Ernst & Young filed a motion to compel arbitration, Morris (and another plaintiff named Kelly McDaniel) argued that the arbitration agreement’s requirement that proceedings take place separately violated the NLRA.

The case made its way to the U.S. District Court for the Northern District of California. The Court found that the clause against separate proceedings violates the “essential, substantive right” of the NLRA – the right of employees to pursue work-related legal claims together. The Court ruled that the waiver in Ernst & Young’s arbitration agreements dealing with separate proceedings is unenforceable.

The Rationale for the Class Action Waiver Decision

The Court pointed to Sections 7 and 8 of the NLRA. Section 7 states that employees have a right to join labor organizations, bargain collectively, and “to engage in other concerted activities for the purpose of collective bargaining, or other mutual aid or protection.” The Court held that the right to engage in concerted activities, as laid out in Section 7, is the NLRA’s primary substantive provision.

Section 8 bars efforts by employers to interfere with the rights guaranteed by Section 7. According to the court, an employer violates Section 8 by including a waiver in an arbitration agreement that prevents concerted activities by employees – and it violates Section 8 a second time if it requires employees to sign such an arbitration agreement as a condition of employment.

The Court highlighted the distinction between procedural rights and substantive rights. One of the differences between procedural rights and substantive rights is that substantive rights cannot be waived in arbitration agreements. According to the ruling, the right of employees to pursue their claims together is a substantive right – and thus the Federal Arbitration Act does not require the “separate proceedings” waiver in the arbitration agreement to be enforced.

The Effect of the Ruling

The U.S. District Court for the Northern District of California has jurisdiction over Alameda, Contra Costa, Del Norte, Humboldt, Lake, Marin, Mendocino, Monterey, Napa, San Benito, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma Counties. If you operate a business in one of these counties, and you have been requiring your employers to sign arbitration agreements that contain a “separate proceedings” waiver, it may be time to speak to an attorney. [Read more…]

Forever 21 Arbitration Agreement Upheld by California Supreme Court

Arbitration AgreementCalifornia Supreme Court clarifies what counts as an “unconscionable” Arbitration Agreement. When Maribel Baltazar took a job with the clothing retailer Forever 21, she signed an employment application that contained an arbitration agreement. The agreement stated that any employment-related disputes she might become involved in would be resolved via arbitration. It also included specific examples of disputes that would be subject to arbitration, such as wage claims, breach of contract claims, and discrimination claims.

In 2011, Baltazar quit her job, and filed a claim against Forever 21 in superior court, alleging discrimination based on sex and race, verbal and physical harassment, and retaliation. Forever 21 moved to compel arbitration, as specified by the arbitration agreement. Baltazar argued that the arbitration agreement was unconscionable, and thus could not be enforced.

The case made its way to the California Supreme Court, and on March 28, 2016, the Court ruled in favor of Forever 21. The decision,  Maribel Baltazar v. Forever 21 Inc. et al., sets important precedents regarding when an arbitration agreement should be considered unconscionable.

The Court’s Arbitration Agreement Reasoning

Baltazar initially won at trial. The trial court ruled that the arbitration agreement in the contract was an unconscionable contract of adhesion, being as it was written on a preprinted form and offered on a take-it-or-leave-it basis. However, both an appeals court and the California Supreme Court disagreed on the issue of unconscionability. The Supreme Court pointed out that while it was a contract of adhesion, it was not unconscionable because there was no element of surprise involved in the agreement, and that Baltazar was not lied to, place under duress, or manipulated into signing it.

One of Baltazar’s arguments was that the arbitration agreement should be considered invalid because it allowed the parties to seek temporary restraining orders or preliminary injunctions. She claimed that this clause was unfair because her employer was more likely than an employee to seek a restraining order or a preliminary injunction. The Supreme Court held that the clause did not confer an advantage on either party because it simply confirmed rights that the parties hold under California law.

Another argument Baltazar made in favor of the agreement being unconscionable was that it listed examples of what kinds of claims are subject to arbitration, and the only examples cited were employee claims. The Supreme Court held that it is acceptable for an employer to list only these types of claims as examples, so long as the wording of the contract makes it clear that all employment-related claims are subject to arbitration. The Court pointed out that the arbitration agreement stated that the claims subject to arbitration “include but are not limited to” the examples given. [Read more…]

CA Appeals Court Arbitration Waiver Ruling

arbitration waiverMario Garrido signed and arbitration waiver when he was hired as a truck driver for American Air Liquide, Inc. in Santa Fe Springs, California. The arbitration waiver required him to resolve any disputes with his employer via arbitration and included a provision prohibiting class arbitration.

After Garrido lost his job, however, he filed a class action complaint against Air Liquide, alleging that he and his co-workers were subjected to a variety of unfair labor practices. Air Liquide responded by filing a motion to compel arbitration, but the trial court denied the motion, holding that Garrido had a right to file a class action claim. Air Liquide appealed.

On October 26, 2015, a California Court of Appeal upheld the decision, siding with Garrido. The ruling, Garrido v. Air Liquide Industrial U.S. LP, established several important precedents for cases involving arbitration waivers in the following areas:

To Whom Does the Federal Arbitration Act Apply?

The arbitration agreement that Garrido signed when he began working for Air Liquide stated that it was governed by the Federal Arbitration Act (FAA). Garrido argued that this provision was invalid because the FAA itself states that it does not apply to transportation workers. Air Liquide argued that Garrido should not be considered a transportation worker because Air Liquide is not in the transportation industry.

The Court of Appeal agreed with Garrido and held that as a truck driver, he was excluded from the FAA. The ruling states that a truck driver is a transportation worker, regardless of who owns the goods that the driver transports.

Can the CAA Apply Automatically?

The California Arbitration Act (CAA) was not mentioned in the arbitration waiver. Garrido argued that, in light of this, it could not apply to his case, but the court disagreed. The ruling holds that the CAA can be enforced even when it has not been explicitly mentioned in an arbitration agreement.

Garrido argued that because Air Liquide’s motion to compel arbitration dealt with the FAA, and not the CAA, Air Liquide lost its right to compel arbitration under state law. The court disagreed with this, as well, pointing out that Air Liquide had never argued that the CAA would not apply.

Can the State Refuse to Enforce a Class Arbitration Waiver in a Non-FAA Case?

Garrido argued that, even though the arbitration agreement contained a class waiver, his class action suit should nonetheless be allowed to proceed. While the California Supreme Court recently held the FAA prevents the state from striking down class waivers for public policy reasons, that decision did not address whether it would be appropriate in a CAA case.

The Court of Appeal used the four-factor test applied in Gentry v. Superior Court, which is based on:

  • The size of potential individual recovery,
  • The potential for retaliation against class members,
  • Whether absent members of the class may be unaware of their rights, and
  • Obstacles to the use of individual arbitration.

After applying the test, the Court of Appeal agreed with the trial court that a class proceeding would be more effective than individual arbitration. [Read more…]

Will Mandatory Arbitration Agreements Become a Thing of the Past in California?

binding arbitration, arbitrationIn a previous blog post, we discussed a decision by the Ninth Circuit regarding mandatory arbitration agreements for employees. A major change to this area of law may be on the way in the state of California, if Assembly Bill 425 is signed into law. This bill would altogether prohibit employers from requiring their employees to sign arbitration agreements as a condition of their employment.

AB 425 was passed by the California Assembly and Senate in August 2015. If it is signed into law by Governor Jerry Brown, it will take effect on January 1, 2016. The bill would become Section 925 of the California Labor Code.

What Does the Bill Require?

AB 465, if enacted, will prohibit any employer from requiring an employee, as a condition of employment, to agree to the waiver of “any legal right, penalty, forum, or procedure for any employment law violations.” It also prohibits employers from threatening, retaliating against, or discriminating against employees for refusing to sign such waivers. In addition, it stipulates that if a waiver of this type will be unenforceable if it is required from an employee (or a potential employee) as a condition of employment or continued employment.

You may be wondering how, under those regulations, an employee’s agreement to arbitrate would be legally valid. The statute stipulates that any waiver of employment rights (such as an agreement to arbitrate) must be “knowing and voluntary and in writing, and expressly not made as a condition of employment.” If the employer seeks to enforce the waiver, then the employer would have the burden of proof to show that the waiver was knowing and voluntary.

There are several other important aspects of AB 465:

  • If the bill is enacted, it will apply only to waivers that were signed on or after January 1, 2016 – so you do not have to worry that this legislation will render any current contracts invalid.
  • It authorizes reasonable attorney’s fees to the prevailing claimant.
  • It exempts organizations that are considered self-regulatory under the Securities Exchange Act of 1934, and it does not apply to regulations adopted under that Act pertaining to any requirement of a self-regulatory organization that a person arbitrate disputes between an employer and an employee.
  • It does not apply to employees who were individually represented by legal counsel when negotiating the terms of an agreement to “waive any right, penalty, remedy, forum or procedure for a violation of this code.”

Binding Arbitration and Preparing for the Future

If AB 465 is passed into law, it will have major ramifications for employers who require their employees to sign arbitration agreements. If you are an employer in California, and you would like your employees to commit to arbitration, it may be in your best interests to begin thinking now about how you will revise your policies if the bill is enacted. [Read more…]

The Ninth Circuit Rules on Binding Arbitration Agreements

binding arbitration, arbitrationsIt has become extremely common for employers to encourage their new employees to sign binding arbitration agreements, in which they waive their right to a jury trial. (These agreements are intended to compel the employees to resolve any future disputes they have with the company via arbitration, which is generally cheaper than going to court.)

Some employers request that their employees sign a binding arbitration agreement directly, but others take a different approach. They simply include an arbitration agreement in their employee handbook, and then ask their employees to sign a statement agreeing to the terms of the handbook.

The advantage to the latter approach is that if the employer decides to update certain aspects of its arbitration agreement, it can revise the handbook, and then ask employees to acknowledge the changes – rather than asking them to sign brand new arbitration agreements.

Court Challenges to Binding Arbitration Clauses in Employee Handbooks

However, one problem that employers have had with this approach is that in some cases, courts have ruled that it is insufficient. One such case was Nelson vs. Cyprus Bagdad Copper Corporation, in which the Ninth Circuit Court of Appeals held that an employee was not compelled to arbitrate, despite an arbitration clause in the company’s employee handbook.

When the employee was hired, he signed the following statement:

“I have received a copy of the Cyprus Bagdad Copper Corporation Handbook…and understand that the Handbook is a guideline to the company’s policies and procedures. I agree to read it and understand its contents. If I have any questions regarding its contents I will contact my supervisor or Human Resources Representative.”

The Court ruled that arbitration cannot be compelled unless the employee has knowingly agreed to waive his or her right to a jury trial. And because the statement above did not mention that the handbook contains an arbitration clause – or that signing the statement constituted a waiver of the right to a judicial forum – the Court ruled that the employee had not knowingly made such a waiver.

Ashbey vs. Archstone Prop. Mgmt.

But what if an employee signs an agreement to abide by the terms of a handbook, and the agreement itself mentions the duty to arbitrate? In May 2015, the Ninth Circuit ruled that such an agreement is enough to compel arbitration.

In Ashbey vs. Archstone Prop. Mgmt., the Court ruled that an employee waived his right to a jury trial when he signed an agreement that contained the following language:

“I acknowledge that I have received directions as to how I may access the Archstone Company Policy Manual, including the Dispute Resolution Policy. I understand that Archstone can administer, interpret, discontinue, supplement, amend or withdraw any of the employment and personnel policies and procedures set forth in this Company Policy Manual. I understand that it is my responsibility to understand the Archstone Company Policy Manual, including the Dispute Resolution Policy, and to adhere to all of the policies contained herein.”

The Court held that because the agreement “expressly notified” the employee about the dispute resolution policy – and did so twice – it was sufficient to compel arbitration. The Court also held that it is not a requirement for the statement to actually list the terms of the policy.

Crafting an Effective Binding Arbitration Agreement Policy

If you want to feel secure that your company’s arbitration agreements will stand up in court, the employment and labor law attorneys at Beck Law P.C., in Santa Rosa can help. You can call or email our office today to schedule a consultation.


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