Posts belonging to Category Caselaw Developments

Embracing a narrow interpretation of the U.S. Supreme Court’s decision in Concepcion, the National Labor Relations Board (NLRB) recently held that a class action waiver was unenforceable under the National Labor Relations Act (NLRA).  D.R. Horton, 357 NLRB No. 184 (Jan. 3 2012) (available here).  At issue was D.R. Horton’s practice of requiring employees to sign an arbitration agreement and class action waiver as a condition of their continued employment.  Id. at 1.  The NLRB held that an agreement proscribing class and representative actions violates section 7 of the NLRA, which gives employees “the right ‘to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .’”  Id. at 2, quoting 29 U.S.C. §157.   

In what may be the decision’s most significant divergence from Concepcion, the NLRB held that there was no conflict between the NLRA and the Federal Arbitration Act (FAA).  See id. at 7-13.  The FAA protects the right of parties to arbitrate statutory claims, provided that “a party does not forego the substantive rights provided by the statute.”  Id. at 9.  Because the NLRA provides a right to engage in concerted activity, any waiver of joint, class, or collective actions may not be enforced.  Id. at 9. 

The decision also limited Concepcion to the facts at issue in that case.  The NLRB recognized that the Supreme Court’s holding was influenced by a desire to maximize the efficiencies of informal arbitration proceedings arising from consumer contracts covering thousands of potential claimants.  Id. at 11.  In contrast to the purported logistical difficulties of arbitrating consumer claims, the NLRB emphasized that arbitration of employment class actions would be less cumbersome and more efficient, because employment claims typically involve relatively smaller classes, which are often further divided into subclasses.  Id. at 11-12.  Other employment class actions are likely to benefit from similar reasoning when confronted with Concepcion.

The California Court of Appeal has issued a ruling confirming the continuing viability of the doctrine of unconscionability in California, notwithstanding the U.S. Supreme Court’s ruling in AT&T v. Concepcion.  See Wisdom v. Accentcare, No. C065744 (Cal. Ct. App. Jan. 3, 2012) (available here).  In Wisdom, a unanimous Third Appellate District panel held that an arbitration agreement contained in an employment application was both procedurally and substantively unconscionable.  Id.

Relying on the California Supreme Court’s decision in Armendariz v. Foundation Health Psychcare Services, 24 Cal 4th 83 (2000), the Wisdom panel held that the pre-hire agreement at issue was procedurally unconscionable “because its language implied there was no opportunity to negotiate, because the rules of any arbitration were not spelled out in the agreement . . . and because plaintiffs did not understand they were waiving their right to a trial.”  Slip op. at 2.  

Further, the panel concluded that the agreement was substantively unconscionable because it lacked mutuality of obligation.  See Slip op. at 16.  While the job application required the applicant to promise to arbitrate any claims against the defendant, there was no corresponding pledge by the defendant to arbitrate potential claims against the applicant.  Slip op. at 13-14.  To underscore this point, the panel noted the language of another arbitration agreement used by the defendant, which expressly provided that both the company and employee would arbitrate any disputes.  Slip op. at 14.

The panel rejected defendants’ argument that the pre-hire agreement was merely “ambiguous” as to mutuality and therefore enforceable because of public policy favoring arbitration.  Slip op. at 16.

The stage has been set for the California Supreme Court’s first major ruling interpreting AT&T v. Concepcion.  The U.S. Supreme Court recently vacated a judgment invalidating arbitration provisions in Sonic-Calabasas v. Moreno, and remanded the case back to the California high court for further consideration in light of Concepcion.  Sonic-Calabasas v. Moreno, 80 U.S.L.W. 3260 (U.S. Oct. 31, 2011), reversing and remanding 51 Cal. 4th 659 (2011). 

In its now-vacated ruling, the California Supreme Court held that provisions in an arbitration agreement that purportedly waived an employee’s right to seek an administrative “Berman” hearing before the Labor Commissioner are substantively and procedurally unconscionable.  Sonic-Calabasas v. Moreno, 51 Cal. 4th 659, 686 (2011) (available here).  The court also found that the Berman hearing waiver violated public policy by infringing upon the employee’s statutory rights to the hearing and “the possible protections that follow from it.”  Id. at 678.  Lastly, the court concluded that the Federal Arbitration Act does not preempt either holding.  Id. at 695. 

Now that Sonic-Calabasas has been remanded with the directive to apply Concepcion, the California Supreme Court seems poised to issue a ruling that limits Concepcion to its factual circumstances.  The court previously denied the petition for review in Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), thereby sustaining the Court of Appeal’s holding that that Concepcion is inapplicable to claims brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act. 

Los Angeles Superior Court Judge Daniel J. Buckley has ruled that PAGA (the Labor Code Private Attorneys General Act of 2004) is constitutional.  The ruling came in response to a demurrer filed by defendant Whole Foods, in which the company claimed that PAGA is void on separation-of-powers grounds.  See Hamilton v. Whole Foods, No. BC461746 (L.A. Super. Ct. Dec. 22, 2011) (order denying demurrer) at 1 (available here). 

Rejecting Whole Foods’ arguments, the Court ruled that “the PAGA statute does not significantly impair judges’ functions, or contain anything unique to necessitate prosecution only by neutral government lawyers.  The absence of any real interference with the separation of powers knocks out the critical leg of defendant’s arguments.”  Id. at 5-6. 

Judge Buckley also emphasized that courts have consistently approved of private attorneys general enforcing Labor Code provisions under PAGA, most notably in Brown v. Ralphs, 197 Cal. App. 4th 489 (2011).  Id. at 6-7.  Moreover, the role of private attorneys general in enforcement of statutes beyond PAGA has long been recognized.  Id. at 7.  This further underscores the constitutionality finding. 

The Hamilton lawsuit challenges Whole Food’s alleged failure to provide adequate seating to employees pursuant to Labor Code Section 1198.