Arbitration Issues and Updates presented by Jenna H. Leyton-Jones, Esq. jleyton@pettitkohn.com (858) 509-5696 www.pettitkohn.com
Federal Arbitration Act (FAA) Enacted in 1925 Section 2: a written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Federal Arbitration Act (FAA) cont d Arbitration agreement must be enforced if both contracting parties agree to it States cannot enact laws that force parties to resolve disputes in court instead Savings Clause: permits courts to invalidate arbitration agreements on the basis of generally applicable contract defenses (e.g., fraud, duress, unconscionability, etc.)
Armendariz v. Foundation Health Psychcare Services All mandatory pre-employment arbitration agreements are enforceable, unless unconscionable Procedural unconscionability = unequal bargaining power Substantive unconscionability = overly harsh or onesided terms
Armendariz v. Foundation Health Psychcare Services Additional required safeguards: Neutral arbitrator More than minimal discovery Written arbitration award All types of relief that would otherwise be available in court Employer must bear all arbitration-specific expenses
Class Action Waivers Waiver prevents employee from bringing a class action complaint; forces employee to bring and arbitrate claims on only his or her own behalf
Class Action Waivers AT&T Mobility v. Concepcion 2011 U.S. Supreme Court decision Court ruled that class arbitration interferes with the fundamental attributes of arbitration and therefore runs afoul of the FAA Court explicitly overruled previous California Supreme Court case (Discover Bank) that effectively struck down class waivers Court confirmed that arbitration agreements can still be invalidated by generally applicable contract defenses (e.g., unconscionability)
Class Action Waivers Iskanian v. CLS Transportation 2014 California Supreme Court decision Arbitration agreement included class waiver: Except as otherwise provided under applicable law, (1) Employee and the Company expressly intend and agree that class and representative action procedures shall note be asserted, nor will they apply, in any arbitration pursuant to this policy; (2) Employee and Company agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of Employee and the Company shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.
Class Action Waivers Iskanian v. CLS Transportation Court held that the FAA preempts prior California cases holding class waivers unenforceable Court also ruled on enforceability of PAGA waivers California s Private Attorneys General Act ( PAGA ): allows employees to bring civil actions personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations
Class Action Waivers Iskanian v. CLS Transportation Court held that employees cannot waive right to bring representative PAGA claims
Sonic-Calabasas v. Moreno 2013 California Supreme Court decision Issue: Is an employee entitled to a Berman (DLSE) hearing regardless of whether (s)he has signed an arbitration agreement?
Sonic-Calabasas v. Moreno Court held that arbitration agreement containing a waiver of Berman hearing are not categorically prohibited However, general unconscionability remains a valid defense to a petition to compel arbitration
Recent CA Appellate Decisions Carmona v. Lincoln Millennium Car Wash: arbitration agreement procedurally unconscionable because (1) it was a contract of adhesion presented on take-itor-leave-it basis; (2) employer failed to translate all parts of agreement into Spanish; and substantively unconscionable because it lacked mutuality with no justification
Recent CA Appellate Decisions Rebolledo v. Tilly s: affirmance of denial of petition to compel arbitration where agreement expressly excluded from its scope any matter within the jurisdiction of the Labor Commissioner.
Recent CA Appellate Decisions Malone v. Superior Court: arbitration agreement held NOT unconscionable where it delegated to arbitrator exclusive authority to resolve disputes concerning interpretation, applicability, or enforceability of agreement itself
Recent CA Appellate Decisions Galen v. Redfin: arbitration agreement held NOT unconscionable even though arbitration rules not attached and agreement included forum selection clause unfavorable to employee
Recent CA Appellate Decisions Sandquist v. Lebo Auto: where arbitration agreement is silent as to whether or not class arbitration is permitted, arbitrator decides that issue
Recent 9 th Circuit Decisions Johnmohammadi v. Bloomingdale s: arbitration agreement (including class action waiver) enforced where employee failed to voluntarily opt out
Recent 9 th Circuit Decisions Davis v. Nordstrom: arbitration agreement enforced even though Nordstrom did not specifically inform employee that her continued employment would constitute acceptance of new policy terms
Remaining Questions Whether individual wage claims should be arbitrated at the same time as non-arbitrable PAGA claims Whether any determination of individual claims will have preclusionary (res judicata) effect on pending PAGA claims, or vice versa The extent to which the general unconscionability standard has been altered by Concepcion and subsequent cases
A.B. 802 Effective January 1, 2015 Requires private arbitration companies to publish a report making available to the public: The name of the non consumer party (i.e., defendant), if the non consumer party is a corporation or business entity, and whether the non consumer party was the initiating party or responding party; The nature of the dispute involved; If the dispute involves an employment matter, the employee s (approximate) annual wage; Whether the non consumer was the prevailing party; The total number of occasions on which the non consumer has previously been a party in an arbitration or mediation administered by that arbitration company; The type of disposition of the dispute (e.g., settlement, award after hearing, etc.); and The amount of monetary award
Practical Tips Remember that Armendariz is still good law (i.e., arbitration agreements must be both procedurally and substantively conscionable) Agreement should: Be a separate document Require employee s signature Be printed in the appropriate language Clearly state what claims are covered
Practical Tips Be mutual in its terms Identify the governing law and arbitration rules Employer should provide adequate notice to employees of any policy modifications Meet the five specific Armendariz requirements (neutral arbitrator, written arbitration award, more than minimal discovery, all types of relief otherwise available in court, employer must pay all arbitration specific fees)
Other Considerations Carve-out for DLSE claims? Class action waiver? Specify forum for PAGA claims? Specify PAGA claim stayed pending adjudication of individual claims in arbitration? Consult employment counsel!
Jenna H. Leyton-Jones, Esq. Jenna H. Leyton-Jones represents a diverse spectrum of business entities in all aspects of employment litigation, including defense of claims involving discrimination, retaliation, harassment, wrongful termination, wage and hour disputes and trade secret misappropriation. She also provides counseling to employers on a variety of day-to-day employment matters, and routinely lectures on employment law trends and developments at human resource seminars. Jenna is also a co-founder of the firm s appellate practice group. Jenna currently serves as the Vice President of Legislation for the San Diego Society for Human Resource Management, and is a recipient of the San Diego Daily Transcript s Young Attorney award. Practice Areas Employment & Labor Appellate Contact jleyton@pettitkohn.com Direct (858) 509-5696 www.pettitkohn.com
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