A federal court in Sacramento explained last week its rationale for temporarily barring the State of California from enforcing a new law, AB 51, that would curtail employment arbitration agreements. The rationale set forth in that written order of February 7, 2020, strongly suggests (but does not guarantee) that the court is inclined to permanently
The October 13, 2019 deadline for Governor Newsom to take his final actions in the 2019 legislative season has come and gone and as expected, he signed into law a number of employment-related bills. Below is a summary of just a few of those bills that will have a significant impact on employment litigation in California. To read the full article, please click here.
A. Assembly Bill 51
AB 51 was introduced by Assemblymember Lorena Gonzales and will severely restrict the use of mandatory arbitration agreements in employment. The Bill adds section 12953 to the California Government Code (“FEHA”) and states that it is an unlawful employment practice for an employer to violate section 432.6 of the California Labor Code.
B. Senate Bill 707
In Armendariz v. Foundation Health Psychcare Services, Inc. case (2000) 24 Cal. 4th 83, the California Supreme Court concluded, among other things, that “when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” In a number of cases after Armendariz, courts have held that an employer’s failure to pay the arbitration costs [and thus delaying or preventing the arbitration of the dispute] constitutes a material breach of the arbitration agreement.
In line with this case law, SB 707, introduced by Senator Wieckowski, provides that a company’s failure to pay the fees of an arbitration service provider in accordance with its obligations contained within an arbitration agreement or through application of state or federal law or the rules of the arbitration provider hinders the efficient resolution of disputes and contravenes public policy. According to SB 707, a company’s strategic non-payment of fees and costs severely prejudices the ability of employees [or consumers] to vindicate their rights. This practice is particularly problematic and unfair when the party failing or refusing to pay those fees and costs is the party that imposed the obligation to arbitrate disputes.
Therefore, among other things, SB 707 adds section 1281.97 to the California Code of Civil Procedure and provides that in an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration administrator, the drafting party to pay certain fees and costs before the arbitration can proceed, if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration. As a result, the employee [or consumer] may do either of the following:
- Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction; or
- Compel arbitration in which the drafting party shall pay reasonable attorney’s fees and costs related to the arbitration.
If the employee withdraws the claim from arbitration and proceeds with an action in a court of appropriate jurisdiction, the statute of limitations with regard to all claims brought or that relate back to any claim brought in arbitration shall be tolled as of the date of the first filing of a claim in any court, arbitration forum, or other dispute resolution forum. Further, if the employee proceeds with an action in a court, the court shall impose sanctions on the drafting party in accordance with Civil Code section 1281.99, which requires the drafting party to the reasonable expenses, including attorney’s fees and costs, incurred by the employee as a result of the material breach. The court may also impose additional sanctions against a drafting party including, but not limited to, discovery sanctions and terminating sanctions.
Continue Reading New Laws that Will Significantly Impact the Litigation of Employment Disputes
On September 12, 2019, the California Supreme Court issued it decision in ZB, N.A., and Zions Bancorporation v. Superior Court [Lawson, real party in interest] (“Lawson”). In analyzing whether the Plaintiff’s lawsuit could be compelled to binding arbitration under the arbitration agreement she entered into with her employer, the Supreme Court clarified that under Labor Code section 558, employees are not entitled to recover underpaid wages in a Private Attorneys General Act (“PAGA”) claim.
(1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
(2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
(Labor Code §558, italics added.)
The Lawson case concerned a PAGA action seeking civil penalties under Labor Code section 558. Lawson brought the representative action against her employer, ZB, N.A. — with whom she agreed to arbitrate all employment claims and forego class arbitration — and its parent company, Zions Bancorporation (collectively, “ZB”). ZB filed a motion compelling that Lawson individually arbitrate her “unpaid wages” claim under section 558 because it was not a PAGA civil penalty claim.
The trial court generally agreed, bifurcating Lawson’s action and granting ZB’s motion to compel arbitration of the “unpaid wages” issue. However, it ordered the issue to arbitration “as a representative action” for the unpaid wages of all aggrieved ZB employees. ZB responded by filing both an appeal and petition for writ of mandate with the Court of Appeal. After consolidating the two, the appellate court dismissed the appeal, holding that Code of Civil Procedure section 1294 only gave it appellate jurisdiction over an order dismissing, not granting, a motion to compel arbitration. However, ZB persuaded the Court of Appeal to issue the writ of mandate, but the court did so on a different ground from the one ZB asserted. The appellate court concluded that Lawson’s request for “unpaid wages” under section 558 in fact could not be arbitrated at all. Relying on Thurman v. Bayshore Transit Management (Thurman), the Court of Appeal interpreted section 558 to expressly include “underpaid wages” within the scope of its “civil penalty” provision. In the appellate court’s view, an employee could pursue the entire, indivisible civil penalty through the PAGA action, and that pursuant to Iskanian v. CLS Transportation Los Angeles, LLC, her employer could not compel the PAGA claim to arbitration.
Continue Reading The California Supreme Court Clarifies Wages are NOT Part of the “Civil Penalty” under Labor Code Section 558 in a PAGA Action
In this age of expensive class-action litigation, many California companies have found solace in their arbitration agreements. Under certain circumstances, the enforcement of such agreements includes the dismissal of class action claims. This has largely been made possible by the Federal Arbitration Act (FAA) which requires judges to enforce a wide range of written arbitration agreements notwithstanding contrary state law. California courts have a long history of delivering rulings that attempt to narrow the scope and effect of the FAA. As one of the latest examples, the California Court of Appeal for the Fifth District held that truck drivers who complete only intrastate deliveries are exempt from the FAA because their work was part of a “continuous stream of interstate travel.”…
Continue Reading Certain Delivery Drivers Are Exempt from the Federal Arbitration Act and May Proceed with Class Actions
On May 21, 2018, the United States Supreme Court issued its much anticipated decision in Epic Systems Corp. v. Lewis. In a 5-4 decision written by the newest jurist, Justice Gorsuch, the Court declares that employers can require employees to arbitrate their employment disputes individually and waive their rights to resolve those disputes through class or collective actions.
The case was a consolidation of three cases (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc.). In each case, the employees brought a class action under the federal Fair Labor Standards Act (“FLSA”) and related state law against their employer on behalf of themselves and similarly situated employees for wage and hour violations. However, in each of the cases, the employees had entered into an agreement with their employer providing for individualized arbitration proceedings to resolve employment disputes between the parties. Although the Federal Arbitration Act (“FAA”) generally requires courts to enforce arbitration agreements as written, the employees argued that the FAA’s “savings clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements they signed violated the National Labor Relations Act (“NLRA”).
Continue Reading GOOD NEWS EMPLOYERS – The U.S. Supreme Court Says You Can Require Class Action Waivers In Your Arbitration Agreements