ADR Case Updates
Class Action Waivers Are Valid, But Do Not Preclude PAGA Claims; Mediation Privilege Does Not Protect Agreement; Delegation Clause Authorizes Arbitrator to Decide Arbitrability, 09/17/2014
California Supreme Court Holds That Class Action Waivers Are Valid, But Do Not Preclude Representative Actions Under Private Attorney General Act
In Iskanian v. CLS Transportation of Los Angeles, LLC (2014) 59 Cal. 4th 348, the California Supreme Court held that the Federal Arbitration Act (9 U.S.C. § 1 et seq.; "FAA") preempts California law. As a result, class action waivers in arbitration agreements are valid and enforceable. However, such waivers do not preclude representative actions under the Private Attorney General Act (Labor Code § 2698 et. seq.; "PAGA") that allows employees to bring representative actions on behalf of themselves and others to recover civil penalties for Labor Code violations.
Arshavir Iskanian worked as a driver for CLS Transportation of Los Angeles. He signed an arbitration agreement requiring "any and all claims" arising out of his employment were to be submitted to binding arbitration before a neutral arbitrator. The agreement included a class action and representative action waiver. In 2006 he brought a wage and hour class action and a representative action under PAGA. The trial court granted CLS' motion to compel arbitration and the court of appeal affirmed.
Reversed in part and remanded. The California Supreme Court's earlier holding in Gentry v. Superior Court (2007) 42 Cal. 4th 443, finding class action waivers unconscionable, was abrogated by the U.S. Supreme Court. In AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, 131 S. Ct. 1740, the high court found class action waivers enforceable under the FAA, which preempted California law. Because class action waivers are valid under Concepcion, Iskanian cannot bring a class action against CLS. However, he may proceed with his PAGA claim. Allowing employees to waive their right to bring a PAGA claim would serve to prevent representative actions - one of the primary mechanisms for enforcing the Labor Code - and thereby limit PAGA's effectiveness. Therefore, an employee's right to bring a PAGA claim is unwaivable, and the court of appeal's decision to the contrary was reversed.
Ex-Wife May Enforce Mediated, Unfiled Settlement Agreement After Dismissal Of First Divorce Petition, Because Agreement Was Not Protected By Mediation Privilege
In Marriage of Daly and Oyster (2014) 228 Cal. App. 4th 505, Joanne Daly petitioned to divorce her husband, David Oyster. They participated in mediation that resulted in a proposed stipulated judgment that resolved all marital rights, including child custody and support, spousal support, and the division of property. Although Daly believed the mediator would file the proposed stipulated judgment with the court, it was never filed. As a result, the trial court dismissed her petition for lack of prosecution. Within two weeks, she filed another petition and requested the court to adopt the proposed stipulated judgment. Oyster objected on the ground that the stipulated judgment was protected by the mediation privilege and made inadmissible. The trial court concluded that the stipulated judgment was an enforceable marital settlement agreement and entered judgment thereon.
Affirmed. Evidence Code § 1119 provides that anything said or any writings prepared in the course of a mediation are inadmissible "[e]xcept as otherwise provided in this chapter." Section 1123 states the exceptions applicable to written settlement agreements and makes them admissible if their terms state that they are admissible, subject to disclosure, enforceable, binding, or "words to that effect." Here, the parties characterized the stipulated judgment as a marital settlement agreement and agreed it would operate as a judgment in the divorce proceeding. The stipulated judgment included language that made clear the parties' intent that it was not confidential, but subject to disclosure. Therefore, the trial court correctly admitted the stipulated judgment into evidence and entered judgment accordingly.
Court Upholds Delegation Clause Authorizing Arbitrator (Not Court) To Decide Enforceability of Agreement
In Malone v. Superior Court (2014) 226 Cal. App. 4th 1551, Keeya Malone was employed as a "wires specialist" with defendant California Bank & Trust in 2007. The Bank's employee handbook contained an arbitration clause, which included a "delegation clause," stating that any issues related to the enforceability of the agreement would also be submitted to arbitration. She brought a wage and hour action after her employment was terminated in 2010. The Bank moved to compel arbitration. The trial court ruled in favor of enforcing the delegation clause and compelled arbitration. Malone filed a petition for writ of mandate challenging the trial court's order.
Petition denied. Under California case law, delegation clauses may be rendered substantively unconscionable under three criteria: (1) the clause is outside the reasonable expectation of the parties; (2) the clause is not bilateral; and (3) the arbitrator has a self-interest in finding the agreement arbitrable. Here, under the second criteria, the clause was bilateral because it delegated all issues to the arbitrator, not just the ones favorable to the Bank. The third criteria was preempted by the Federal Arbitration Act (9 U.S.C. § 1 et seq.). Under the first criteria, the delegation clause may not have been within the reasonable expectation of the parties. However, that factor alone was not enough to render the entire agreement unconscionable. Therefore, Malone's petition was denied.
Nordstrom May Compel Arbitration of Wage and Hour Dispute With Employee Based Upon Revision in Employee Handbook
In Davis v. Nordstrom, Inc., 755 F. 3d 1089 (9th Cir. 2014), Faine Davis worked for Nordstrom. At the time of her employment, the employee handbook required employees to arbitrate their individual disputes, but allowed them to bring class actions. Nordstrom had to provide 30 days written notice of any substantive changes. After the U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, 131 S. Ct. 1740, Nordstrom revised the arbitration provision in the employee handbook to preclude most class actions and provided Davis with notice. Weeks later, Davis filed a wage and hour class action. Nordstrom moved to compel individual arbitration of the claims. The district court held the revisions were invalid and denied the motion.
Reversed and remanded. It is well settled in California that an employer may unilaterally amend the terms of an employment arrangement, unless the change violates the Labor Code. If an employee continues her employment after receiving notice of new conditions, she is deemed to have accepted them. The employer is under no duty to inform the employees that their continued employment constitutes acceptance of the new terms. Here, Nordstrom may compel arbitration of Davis' wage and hour dispute based upon the revision in the employee handbook that prohibited most class action lawsuits because continuation of Davis' employment after notice constituted her acceptance of the revision. Therefore, the district's court's denial of Nordstrom's motion to compel individual arbitration was error and reversed.
Former Employee Must Arbitrate Wage and Hour Claims Because She Did Not Choose To Opt Out Of Arbitration Agreement That Waived Class Action Right
In Johnmohammadi v. Bloomingdale's, Inc., 755 F. 3d 1072 (9th Cir. 2014), Fatemeh Johnmohammadi worked as a sales associate for Bloomingdale's, Inc. At the inception of her employment, Bloomingdale's provided her a set of documents describing the company's dispute resolution program, which included an arbitration agreement that provided employees with the right to opt out by submitting an opt-out form. The agreement prohibited arbitration on a class-wide basis. Employees who failed to opt out waived their right to pursue employment-related claims on a collective basis. Johnmohammadi failed to opt out. She later filed a class action in state court against Bloomingdale's to recover unpaid overtime wages. Bloomingdale's removed the case to federal court and moved to compel arbitration. The district court granted the motion.
Affirmed. As a matter of public policy, the Norris-LaGuardia Act (29 U.S.C. § 1 et seq.) states that employees shall be free from interference, restraint, or coercion of employers in the designation of representatives, or in their self-organization for the purpose of collective bargaining or other mutual aid or protection. The National Labor Relations Act (29 U.S.C. § 151 et seq.) provides a similar right to engage in "other concerted activities" for the purpose of collective bargaining. Here, Johnmohammadi argued that her class action was a "concerted activity" protected my both Acts. However, Bloomingdale's never coerced her. Rather, she willingly waived her right to file a class action by failing to opt out of the arbitration agreement. Since no coercion was involved, the district court was correct in compelling arbitration of her individual claim.
Independent Contractor May Not Avoid Arbitration Of Misclassification Claims Against Employer Under California Labor Code By Asserting Claims Were Statutory And Not Contractual
In Galen v. Redfin Corp., (2014) 227 Cal. App. 4th 1525, Redfin Corp., a real estate broker, hired Scott Galen as an agent under a "Field Agent Independent Contractor Agreement." Galen filed a wage and hour class action against Redfin alleging that he had been misclassified as an independent contractor. Rather, he claimed that he was an employee under California law entitled to overtime and asserted Labor Code violations for missed meal and rest periods. Redfin moved to compel arbitration under the independent contractor agreement that included an arbitration clause. Galen argued that the arbitration clause did not apply to his statutory claims that were "extra-contractual." The trial agreed and denied the motion.
Reversed. Because California law favors the enforcement of arbitration, this appellate court declined to follow those cases holding that a challenge to employer classification falls outside the scope of arbitration provisions in independent contractor agreements. To the contrary, Galen's actions and employment status necessarily arose under the independent contractor agreement that governed his relationship with Redfield. To hold otherwise would amount to a judicial rule barring arbitration in any wage and hour claim made with an independent contractor, even if the contract affects interstate commerce. Therefore, Galen, as an independent contractor may not avoid arbitration of misclassification claims under the California Labor Code by asserting the claims were statutory and not contractual. The trial court should have granted Redfin's motion to compel arbitration.
Employer Cannot Compel Employee To Arbitrate Wage And Hour Claims Where Arbitration Agreements Excluded Labor Law Violations Within Labor Commissioner's Jurisdiction
In Rebolledo v. Tilly's, Inc., (2014) 228 Cal. App. 4th 900, Maria Rebolledo filed a wage and hour class action against Tilly's, her former employer. Tilly's moved to compel arbitration based upon arbitration agreements Rebolledo purportedly signed in 2001, 2004, and 2005. The trial court found that the 2001 and 2004 agreements, by their own terms, excluded any matter within the jurisdiction of the California Labor Commissioner, including wage and hour claims. The 2005 agreement did not have such an exclusion, but was unenforceable because it had not been signed by three executives for the modification to be effective. Therefore, it denied the motion.
Affirmed. The 2001 and 2004 arbitration agreements exempted matters within the jurisdiction of the Labor Commissioner. The Labor Code authorizes the Commissioner to enforce labor laws - including the filing of civil actions to recover unpaid wages for workers â€" that are clearly within his jurisdiction. Since the subject wage and hour claim fell squarely within the Labor Commissioner's jurisdiction, it was exempted from arbitration. The 2005 arbitration agreement, which did not include such an exemption, was unenforceable because it had not been properly executed. Thus, the trial court correctly refused to compel arbitration.
TV Station Cannot Compel Reporter To Arbitrate Under Collective Bargaining Agreement Because It Failed To Follow Three-Step Grievance Procedure
In Knutsson v. KTLA LLC, (2014) 228 Cal. App. 4th 1118, Kurt Knutsson signed a contract with KTLA to work as a technology reporter. Knutsson belonged to a union that had a collective bargaining agreement ("CBA") with KTLA. The CBA included a three-step grievance procedure culminating in arbitration. Knutsson's employment contract was subject to the CBA. Knutsson filed suit after being terminated prematurely. KTLA moved to compel arbitration. The trial court denied the motion finding that KTLA had waived its right to compel arbitration because it had not followed the first two steps of the three-step grievance procedure.
Affirmed. Where a contract includes grievance procedures that culminate in arbitration, those procedures are prerequisites to arbitration. Here, step one of the three-step grievance required the union and a KTLA supervisor to meet informally to resolve the dispute. If dissatisfied, the union was entitled to present the dispute to a department manager under step two. Under step three, the union could pursue arbitration if it remained dissatisfied with the first two steps. KTLA waived or forfeited the right to compel arbitration because it never required Knutsson or the union to complete steps one and two. Therefore, the trial court properly denied KTLA's motion to compel arbitration.
Website Cannot Compel Arbitration Based Upon Terms Of Use Posted Via Hyperlink
In Nguyen v. Barnes & Noble, Inc., 763 F. 3d 1171 (9th Cir. 2014), Kevin Nguyen purchased two Hewlett-Packard Touchpads on a Barnes & Noble ("B&N") website at a significantly discounted price. The next day, B&N notified Nguyen that his order had been cancelled due to unexpectedly high demand. Nguyen sued B&N in California state court for deceptive business practices and false advertising. B&N removed the action to federal court and moved to compel arbitration based upon the website's Terms of Use that were viewable via a hyperlink located at the bottom of each page of the website. Nguyen claimed he never clicked on the hyperlink and, therefore, did have notice of the arbitration provision in the Terms of Use. The district denied the motion to compel arbitration because B&N did not provide reasonable notice of its Terms of Use.
Affirmed. Contract principles require mutual manifestation of assent to the terms of the agreement. Here, B&N did not produce any evidence that Nguyen had actual notice of and agreed to the arbitration agreement. As to constructive notice, Internet contracts fall into two categories: "browsewrap" and "clickwrap" (also known as "clickthrough") agreements. The B&N website used a "browsewrap" agreement where the terms are posted via a hyperlink at the bottom of the screen. Even if a hyperlink is conspicuously placed on every page, no prompting to take action is required and constructive notice does not necessarily result. On the other hand, clickwrap agreements require users to click on an "I agree" box after being presented with a list of terms and conditions of use. Where websites use a clickwrap agreement, the courts have been more amenable to enforcing the websites' terms and condition. Since B&N did not use a clickwrap agreement, and B&N did not provide any evidence that Nguyen had actual notice of the arbitration provision, the district court was correct in denying the motion to compel arbitration.
Arbitration Award Is Improperly Vacated For Arbitrator's Failure To Disclose, Where Counsel May Have Forfeited Right To Vacate On That Basis
In United Health Centers of the San Joaquin Valley, Inc., v. Superior Court (Jennifer Vradenburg-Haworth, Real Party in Interest), (2014) 229 Cal. App. 4th 63, United Health Centers of the San Joaquin Valley, Inc., ("UHC") hired Jennifer Vradenburg-Haworth ("Haworth") as a part-time physician. Haworth's employment agreement included an arbitration clause. After her termination, she filed suit for wrongful termination and retaliation. UHC compelled arbitration. The parties selected Retired Judge Howard Broadman to arbitrate the matter, who issued an arbitration award in favor of UHC. Haworth moved to vacate the award under Code of Civil Procedure § 1285.2 based upon Judge Broadman's failure to comply with the mandatory disclosure requirements of § 1281.9 and the ethics standards for arbitrators. UHC argued that Haworth was aware of facts that gave her the right to object to Judge Broadman before the arbitration hearing. Because she did not, she waived her right to object. The trial court agreed with Haworth and vacated the award. UHC sought a petition for writ of mandate.
Petition granted. A party aware that an arbitrator's disclosure is incomplete, or otherwise fails to meet the statutory disclosure requirements, cannot passively reserve the issue for consideration after the arbitration award is issued. Rather, the party must disqualify the arbitrator before the arbitration hearing commences. Here, a factual question exists as to whether Haworth's attorneys had actual knowledge of a basis upon which to disqualify Judge Broadman before the arbitration hearing. The trial court must make that factual determination. If Haworth's attorneys were aware of grounds to disqualify the arbitrator, Haworth waived her right to object, and the trial court must grant UHC's petition to confirm the award. If the attorneys did not have that actual knowledge, then the trial court must grant Haworth's petition to vacate the award.
California Arbitration Act Governs Arbitration Procedure Where Provision In Employment Application Incorporates Employer's Arbitration Policy, But Employer Is Unable To Prove Contents of Policy
In Cruise v. Kroger, 176 Cal. Rptr. 3d 612, Stephanie Cruise filled out and signed an employment application with a Kroger Co. company that included an arbitration provision governing any employment-related disputes and incorporated by reference Kroger's arbitration policy. After her termination, she sued Kroger for discrimination, retaliation, and other claims. Kroger moved to compel arbitration based upon the arbitration policy in the employment application. The trial court denied the motion because Kroger was unable to prove the existence of any written arbitration agreement or policy.
Reversed. Under both federal and state law, the threshold question is whether there is an agreement to arbitrate. Here, it was undisputed that the parties agreed to arbitrate any employment-related disputes pursuant to Cruise's employment application. Although Kroger could not establish the precise language of its arbitration policy in effect at the time Cruise was hired, it was error for the trial court to deny the motion to compel. Rather, the parties' agreement to arbitrate had to be governed by the procedures set forth in the California Arbitration Act (Cal. Code of Civil Procedure § 1282 et seq.), instead of Kroger's arbitration policy.
The California opinions are posted at: click here, and the Ninth Circuit opinions at: click here.
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