Posts belonging to Category Arbitration



Perez v. U-Haul: PAGA Claims Cannot Be Separated Into “Arbitrable” and “Inarbitrable” Components

The 2nd District Court of Appeal recently affirmed a ruling by Los Angeles Superior Court Judge Jane Johnson in Perez v. U-Haul Co. of California, denying the defendant company’s move to compel its workers to arbitrate their representative Private Attorney General Act claims for wage-and-hour violations. Perez, No. B262029 (2nd Dist. Div. 7 Sept. 16, 2016) (slip op. available here). Following the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), the three-judge appellate panel rejected U-Haul’s argument that it could force employees first to arbitrate whether they have individual standing to bring a PAGA claim.

While the California Supreme Court in the prominent Iskanian decision upheld the enforceability of class action waivers, it held that waiver of PAGA claims through a similar “representative action” waiver is unenforceable. In Perez, U-Haul attempted to circumvent this distinction by arguing that the issue of whether the plaintiffs were “aggrieved employees” as defined by the PAGA statute was a severable “threshold question” that should proceed to arbitration first, to determine standing. The appellate court disagreed, stating that “[g]iven that the parties did not agree to arbitrate representative claims, and that a PAGA action is by definition a form of representative claim, we conclude that PAGA claims are categorically excluded from the arbitration agreement.” Slip op. at 11. U-Haul’s lawyers tried to convince the court that the defendant was not seeking to prevent the plaintiffs from pursuing their PAGA claims entirely, but rather that it simply wanted to enforce its arbitration agreements to determine the plaintiffs’ “underlying employment claims” which could ultimately render the PAGA claims moot. However, the Court of Appeal held that the arbitration agreement did not contain any language suggesting that the parties had agreed to arbitrate whether the plaintiff had standing to bring a representative claim in court. Id. The court also added that, even if the agreement did contain such a provision, it would be unenforceable under California law since there is no authority supporting that a PAGA action can be split into individual “underlying claims” brought in arbitration and separate “representative” claims brought in court. Id. at 11-14.

PAGA is a vital enforcement mechanism for employees in California who work for companies that have implemented arbitration agreements banning class actions. Perez is another in the growing line of cases that shut down employers’ attempts at implementing arbitration agreements that seek to impede employees’ ability to bring PAGA claims.

Authored By:
Rebecca Labat, Partner
CAPSTONE LAW APC

Nguyen v. Applied Medical Resources: Availability of Class Arb is a Q for the Arbitrator

In October 2016, the California Court of Appeal held that a trial court erred in dismissing class claims due to a governing arbitration agreement. The court found that class arbitration may, in fact, be available—but that this was a question for the arbitrator to decide.

The Court of Appeal in Nguyen v. Applied Medical Resources Corporation, No. G052207 (4th Dist. Div. 3, Oct. 4, 2016) (slip op. available here), heard an appeal from Da Loc Nguyen, a former employee of surgical equipment manufacturer Applied Medical Resources Corporation (“Applied”), who had brought individual and class claims against her employer for violations of the California Labor Code and the Unfair Competition Law, and claims for civil penalties under the Private Attorneys General Act (“PAGA”). The trial court had granted Applied’s motion to compel arbitration due to an arbitration clause in Nguyen’s employment application, and had dismissed Nguyen’s class claims without prejudice, allowing only the PAGA claims to remain.

The Court of Appeal issued a writ of mandate ordering the trial court to vacate the portion of its order dismissing the class claims. Although arbitration could be compelled, the appellate court found, the trial court could not simply dismiss the class claims outright. The court’s analysis relied heavily on the California Supreme Court’s decision in Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233 (2016), which involved a very similar arbitration clause. Sandquist addressed the question of “‘who decides whether the [arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator[?]’” Nguyen, slip op. at 24, emphasis in original (citing Sandquist, 1 Cal.5th at 241).

First, the Nguyen court followed Sandquist’s holding that state law, rather than federal law, applied to the question of “who decides” whether class arbitration is available, as this is a question of contract interpretation that is usually subject to state law. Slip op. at 26. Next, the court examined the language of the arbitration clause and found that it was similar in two key respects to Sandquist: (1) the arbitration clause contained “inclusive” language, that is, it provided that all disputes (as opposed to specific, enumerated disputes) should go to arbitration; (2) the provision extended to all claims “arising from, related to, or having any relationship or connection whatsoever” with the employment relationship within the parties. Id. at 26-28 (citing Sandquist, 1 Cal. 5th at 245-46). These factors weighed in favor of allowing the arbitrator to make all decisions regarding the case—including the arbitrability of class claims. Id.

Finally, Nguyen followed Sandquist in applying two general principles of law: first, “when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration.” Slip op. at 28. Second, ambiguous terms in written contracts should be construed against the drafter—especially when the contract is one of adhesion. Id. Thus, because Applied, the employer, drafted the arbitration clause in its take-it-or-leave-it employment application, Applied could have expressly stated whether class claims could be arbitrated. It did not, so it could not benefit from that ambiguity after the fact. Id. at 28-29 (citing Sandquist, 1 Cal. 5th at 247-48). Consequently, Nguyen held that the arbitration agreement gave the arbitrator—not the trial court—the power to decide whether class arbitration may occur.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

Morris v. Ernst & Young: 9th Cir. Strikes Down Concerted Action Waiver Under Federal Labor Law

In the ongoing fight over the use and enforceability of collective action waivers, the stage has been set for the United States Supreme Court to weigh in and hopefully offer clarity to labor law practitioners and employers. In 2012, two former employees filed a class and collective action lawsuit against Ernst & Young in the Southern District of New York, alleging violations of the Fair Labor Standards Act (FLSA) due to the company misclassifying them as exempt. Morris, et al. v. Ernst & Young, LLP, et al., No. C-12-04964-RMW. As a condition of their employment, plaintiffs Stephen Morris and Kelly McDaniel were required to sign agreements requiring them to pursue legal claims solely through arbitration and only individually, in “separate proceedings.” The case was then transferred to the Northern District of California, where the court granted the defendant’s motion to compel arbitration, enforced the arbitration agreement’s de facto class action waiver, and ordered the plaintiffs to individual arbitration. Order Granting Defendants’ Motion to Dismiss and Compel Arbitration, Morris, et al. v. Ernst & Young, LLP, et al., No. C-12-04964-RMW (July 9, 2013). The plaintiffs appealed the decision to the Ninth Circuit.

In 2012, in D.R. Horton, 357 NLRB No. 184 (2012), the National Labor Relations Board held that class action waivers violate federal labor law by frustrating employees’ right to engage in concerted activity to improve their working conditions. On appeal in Morris, the issue was whether the district court had properly rejected the plaintiffs’ reliance on federal labor law (specifically the National Labor Relations Act), as interpreted by the NLRB, as a basis for invalidating the arbitration agreement’s class action waiver. A divided Ninth Circuit reversed, thereby joining the Seventh Circuit in adopting the NLRB’s position that collective action waivers do in fact interfere with an employee’s right under the NLRA to engage in concerted activity, and are therefore unenforceable. Morris, No. 13-16599 (9th Cir. Aug. 22, 2016) (slip op. available here); Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016) (available here).

The Morris majority concluded, after examining the statutory language of the NLRA and the NLRB’s decision in D.R. Horton, that an employer violates the NLRA when it requires covered employees to sign an agreement precluding them from “filing joint, class, or collective claims.” Slip op. at 6-7, citing D.R. Horton, 357 NLRB No. 184 (2012). The court emphasized that the problem with the agreement was not that it called for arbitration of disputes, but that it prevented employees from acting in concert in any forum to address labor concerns, which undermines the substantive federal right of employees to collectively pursue work-related legal claims:

It would equally violate the NLRA for Ernst & Young to require its employees to sign a contract requiring the resolution of all work-related disputes in court and in “separate proceedings.” The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings.

Id. at 16 (emphasis in original). Had Ernst & Young’s arbitration agreement permitted concerted activity, the court held that it would have been enforceable. See id. Further, the panel reasoned that its holding in Morris did not contradict the Federal Arbitration Act (FAA) because the rights in NLRA section 7—including the employees’ right to collective action—are substantive; “when an arbitration contract professes the waiver of a substantive federal right, the FAA’s saving clause prevents a conflict between the statutes by causing the FAA’s enforcement mandate to yield.” Id. at 18-19.

In her dissent, Judge Ikuta sided with the Second, Fifth, and Eighth Circuits, calling the Ninth Circuit majority’s decision “breathtaking in its scope and in its error; . . . [and] directly contrary to Supreme Court precedent.” Slip op., Ikuta dissenting op. at 27. Judge Ikuta’s dissent focused on the existence of a “contrary congressional command,” CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669 (2012), i.e. that Congress expressly intended to preclude waiver of the judicial forum, and took the position that, absent an express contrary congressional command, an arbitration agreement’s terms (including those that waive the use of class or collective mechanisms) should be enforced. Id. at 30-36. According to Judge Ikuta, the text of the federal statute at issue, here, the NLRA, must “expressly preclude the use of a predispute[s] arbitration agreement for the underlying claims at issue” to trump the FAA. Id. at 35-36. She found that the NLRA’s right to “concerted activities” did not meet this standard, and that “the Supreme Court consistently rejects claims that a ‘contrary congressional command’ precludes courts from enforcing arbitration agreements according to their terms . . . .” Id. at 36.

At the heart of the dispute seems to be a disagreement over whether the FAA and NLRA can co-exist, or whether one must override the other, and whether the NLRA creates substantive rights. In the past, when the U.S. Supreme Court has weighed in on class action waivers and class arbitration, it has been outside of the employment context and has not involved interpretation of two co-equal federal laws. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the Court held that under the FAA, arbitration on a class basis could not be ordered absent evidence that the parties agreed to such procedure in the arbitration agreement. A year later, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Court again expansively interpreted the FAA, holding that state laws prohibiting class action waivers in consumer arbitration agreements were preempted by the FAA.

If the Supreme Court grants certiorari to address the circuit split, how it balances employees’ rights to engage in concerted activity under the NLRA with the “national policy favoring arbitration” under the FAA will surely have tremendous impact on workplace rights throughout the country. Ernst & Young’s petition for review has been joined by several amicus curiae briefs, and the Supreme Court has issued an order extending the time for Morris to file his response to the petition to November 14, 2016.

Authored by:
Jamie Greene, Associate
CAPSTONE LAW APC

Uber Drivers Seek En Banc Review of 9th Cir.’s Arbitration Ruling

Uber drivers suing the ride-hailing company have urged an en banc review of the Ninth Circuit panel’s recent decision that drivers must arbitrate their claims, including any challenges to that they might have to the arbitration agreements themselves. Plaintiffs-Appellees’ Petition for Rehearing En Banc, Mohamed v. Uber Technologies, Inc., et al., 15-16178, Gillette v. Uber Technologies, Inc., 15-16181, and Mohamed v. Hirease, LLC, 15-16250 (9th Cir. Sept. 7, 2016) (available here). The request to re-examine the decision stems from appeals by Uber in three proposed class actions in which drivers alleged that Uber misclassified them as independent contractors, rather than as employees, and violated the Fair Credit Reporting Act and analogous state statutes by running criminal background and credit checks on drivers without proper authorization and then improperly utilizing their consumer credit reports. The at-issue arbitration agreements were contained in two driver agreements, a 2013 agreement and a 2014 agreement, both of which contained opt-out clauses that none of the plaintiffs had utilized.

On September 7, 2016, a three-judge panel partly reversed U.S. District Judge Edward M. Chen’s June 2015 ruling that Uber’s arbitration agreements were unenforceable, and clarified that the 2013 and 2014 contracts clearly delegated the question of arbitrability to the arbitrator. Mohamed, at 6-7 (slip op. available here). The panel found that “[t]he 2013 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator except as pertained to the arbitrability of class action, collective action, and representative claims.” Id. at 14. Furthermore, “the 2014 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator under all circumstances.” Id. at 11. The panel also held that neither delegation provision was unconscionable, because the ability to opt-out of both agreements within 30 days essentially rendered both agreements procedurally conscionable, per se. Id. at 18. Indeed, although the panel acknowledged that it was likely more burdensome to opt out of the arbitration provision by overnight delivery service or in person (as required by the 2013 agreement) than it would have been by email (as allowed by the 2014 agreement), “there were some drivers who did opt out and whose opt-outs Uber recognized. Thus, the promise was not illusory.” Id. at 17. Accordingly, the court rejected Judge Chen’s finding that Uber’s arbitration provision was procedurally and substantively unconscionable on these grounds. Id. at 17-18.

In their petition for rehearing, the drivers first argue the panel’s ruling unlawfully permits otherwise unconscionable arbitration agreements to be upheld, so long as the agreement contains a “meaningful” opt-out clause, even where the terms of the clause are difficult to comply with or are purposely buried in the fine print to prevent an individual from opting out. Petition for Rehearing, at 4-7 (internal citations omitted). Second, they contend that the panel’s finding that questions of arbitrability be decided by an arbitrator conflicts with the U.S. Supreme Court’s requirement that valid delegations of arbitrability be “clear and unmistakable,” insofar as the at-issue delegation provisions contained exceptions, conflicted with other arbitration terms, and were generally ambiguous. Id. at 7-10 (internal citations omitted). Third, the drivers argue that the panel’s holding that the presence of opt-out clauses renders the agreements’ class action waivers lawful under federal labor laws is incorrect and conflicts with contrary holdings of the Seventh Circuit. Id. at 10-12. Specifically, in Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), the Ninth Circuit recently held that class action waivers violate employees’ right to engage in “concerted action” under the National Labor Relations Act (NLRA). However, this panel (in Mohamed) held that the availability of limited and burdensome opt-out provisions rendered the class action waivers non-mandatory, and thus lawful. Mohamed, slip op. at 18 n.6. The plaintiffs point out that this conclusion conflicts with the Seventh Circuit’s ruling in Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016), where the court held that an employee cannot prospectively waive the right to engage in protected concerted action under the NLRA, notwithstanding an opt-out provision. Finally, the drivers argue that the panel’s determination that a cost-sharing provision that would require drivers to pay substantial fees was negated by Uber’s mid-litigation offer to pay such costs, runs contrary to Sixth Circuit precedent which held such a provision unenforceable if it “deter[s] potential litigants, regardless of whether . . . the employer agrees to pay a particular litigant’s share of the fees and costs to avoid such a holding.” Petition for Rehearing, at 12-15 (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 676-77 (6th Cir. 2003) (en banc)).

It remains to be seen whether the Ninth Circuit will accept this petition for rehearing en banc.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC