Elijahjuan v. Superior Court: California Court of Appeal Reverses Trial Court, Deems Arbitration Clause Unconscionable

California’s intermediate appellate courts continue to fashion a post-AT&T v. Concepcion jurisprudence that largely mirrors the pre-Concepcion era, with arbitration clauses regularly being deemed unenforceable. Most recently, California’s influential Second Appellate District was called on to consider a trial court’s granting of a defendant’s motion to compel arbitration in a prospective class action in which the plaintiffs alleged they were misclassified as exempt from overtime pay and other employer obligations. See Elijahjuan v. Superior Court, ___ Cal. App. 4th ____ (Cal. Ct. App. 2012). The Court of Appeal reversed, holding the at-issue arbitration clause to be “outside the ambit of the arbitration provision” that the defendant had relied on and that the trial court applied to the alleged workplace violations. Slip op. at 6.

The at-issue arbitration clause was within a contract signed by plaintiffs that stated: “the terms and procedures set forth herein shall be controlling if a dispute arises with regard to its application or interpretation.” Slip op. at 3. Though the trial court held that the clause required the plaintiffs to arbitrate their misclassification claims, the panel’s majority concluded that “Petitioners’ lawsuit does not concern the application or interpretation of the Agreements, but instead seeks to enforce rights arising under the Labor Code . . . The parties’ dispute therefore cannot be characterized as regarding the application or interpretation of the Agreements.” Slip op. at 6.

The Elijahjuan decision analogized to similar reasoning applied by the Ninth Circuit, in a circumstance where the at-issue arbitration clause plainly applied to a choice of law provision to which the parties had contractually agreed, but not to the plaintiff’s claims arising under the California Labor Code. See Slip op. at 6, citing Narayan v. EGL, Inc., 616 F.3d 895, 899 (9th Cir. 2010).

The takeaway from the Elijahjuan decision is straightforward: In California state and federal courts alike, where an arbitration clause is not expressly applicable to wage-and-hour claims but instead concerns other circumstances, the arbitration clause should not be applied beyond its scope, notwithstanding either Concepcion or the FAA’s “liberal policy favoring arbitration agreements.”