Young Lawyers Division Bar Passage and Beyon · to my employment and to forgo any right to bring claims on a class basis. The Company also agrees to submit all claims and disputes

ORANGE COUNTY

www.ocbar.org AN OFFICIAL PUBLICATION OF THE ORANGE COUNTY BAR ASSOCIATION July 2013 Vol, 55 No.7 $4.00

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To Waive or Not to Waive? California Employers Question Whether to Include Class-Action Waivers in Employment Contracts by CHRISTOPHER P. WESIERSKI and ASHLEY A. REAGAN

Over the past few years, courts have been replete with cases seeking to compel arbitration pursuant to arbitration clauses contained within written contracts. Recently,

the issue of whether employment contracts may include arbitration agreement class-action waivers has become a hot-button issue. The United States Supreme Court has looked favorably upon the parties' right to freely contract and has found arbitration to be a matter of contract with the duty of the courts to honor the parties' expectations. However, the Supreme Court has not addressed this issue in the specific context of employment contracts.

The class-action waivers that are the subject of this article are those that force an employee to submit any employment-related claim to binding arbitration, but do not permit class-wide arbitration. Such an agreement purportedly waives the employee's right to bring a class action in the court system and before an arbitrator. The typical language found in these waivers is:

I agree to submit to final and binding arbitration any and all claims related to my employment and to forgo any right to bring claims on a class basis. The Company also agrees to submit all claims and disputes it may have with me to final and binding arbitration.

These agreements effectively waive an employee's ability to adjudicate statutory rights, such as the right to paid meal periods, rest breaks, and overtime. California courts specifically have addressed this issue, finding such agreements to be unenforceable. In addition, federal agencies such as the National Labor Relations Board (NLRB) have held

these agreements to be invalid. With this variance in opinions, it is

difficult for California employers to ascertain whether it is appropriate to include such waivers in their employment contracts. Currently, controlling case law in California is adverse to these waivers. However, pending cases before the United States Supreme Court and the California Supreme

Court could change the landscape of class-action waivers in California and place them on more friendly terrain.

This article will provide a brief history of the treatment of class-action waivers in general, in both California and the United States Supreme Court, and will contemplate the manner in which this case law is applied to employment contracts, will highlight

key pending cases, and will anticipate the direction of these upcoming decisions. Significantly for California employers, the outcome of these decisions will determine an employer's ability to contract with employees upfront as a condition of employment on the issue of whether employees can assert class-action claims.

Class-Action Waivers in Employment Contracts Are in Murky Waters After Recent California Decisions

You may recall the United States Supreme Court cases of Stolt-Nielsen S.A. v.

AnimalFeeds Intl Corp) and AT&T Mobility LLC v. Concepcion2 which generated much discussion. Many viewed these cases as a victory for the arbitration agreement and a beacon of hope for an employer's right to freely contract with its employees. Significantly, these cases involved consumer contracts and not employment contracts. In direct contrast with these decisions, the California case of

Gentry v. Superior Court' addressed an arbitration agreement in an

employment contract, finding a class-action waiver of unpaid overtime claims

to be unenforceable. California courts now face the predicament of reconciling these conflicting decisions.

The recent California case of Franco v. Arakelian Enterprises, Inc.' brought these decisions under review and addressed whether Gentry was overruled by Stolt-Nielsen and Concepcion. Franco ultimately applied the Gentry decision to invalidate a class-action waiver which waived an employee's rights to bring meal and rest break violation claims on a class-wide basis. The court

18 Orange County Lawyer

concluded that Gentry was still good law in California because Gentry does not establish a categorical rule against class-action waivers but utilizes a case-by-case analysis.5 Gentry is distinguishable from Concepcion because it does not invalidate a class-action waiver unless: (1) a class action is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration; and (2) the disallowance of the class action will likely lead to a less comprehensive enforcement of wage-and-hour laws for the employees alleged to be affected by the employer's violations. The Franco court concluded that Stolt-Nielsen and Concepcion did not overrule Gentry.

['Me upcoming year should

prove to be an exciting time in

California wage- and-hour class- action litigation.

As a result, the class-action waiver in the Franco employer's arbitration agreement was unenforceable as applied to the employees' missed rest break and meal period claims. The primary factor in the court's decision was that employee Franco lacked the means to pursue his rest break and meal period claims on an individual basis in arbitration because of the low damages present in his case. The rights to receive rest breaks and meal periods were found to be nonwaivable statutory rights, and the agreement prevented employees from vindicating such rights.

As Franco illustrates, California courts remain hostile toward arbitration agreements in employment contracts, especially when they involve a waiver of the right to assert class claims of unpaid wages, unpaid overtime, missed meal periods, or missed rest breaks. California courts continue to differentiate employment cases from the United States Supreme Court precedent of Concepcion by carving out further exceptions to its holding or by applying it only to consumer contracts. However, employers should not yet despair. The California Supreme Court just granted review of Franco. Further, other case law in California which predates Franco has applied

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the pro-arbitration language in Concepcion to employment contracts and deemed Concepcion to be binding authority. For example, the second district case of Arshavir Iskanian v. CLS Transportation Los Angeles, LLC enforced the type of class- action waiver at issue.6 Iskanian involved an arbitration agreement between an employee driver and his employer. The agreement contained a waiver of any and all class-action procedures arising from the driver's employment. The Iskanian court upheld the waiver, finding that the arbitration agreement needed to be enforced on its terms. The court specifically stated that the argument that class-action waivers waived an employee's ability to vindicate statutory rights was irrelevant in the wake of Concepcion.' This case is also pending review by the California Supreme Court.

Although not a steadfast rule as it applies to employment agreements, Concepcion's embrace of a company's right to contract and limit arbitration remains positive for California employers. Perhaps the California Supreme Court will be influenced by the favorable approach to arbitration taken by the

United States Supreme Court and streamline the state's inconsistent holdings.

Silence May Not Always Be Golden in Employment Arbitration Agreements The topic of class-

action waivers in arbitration agreements is scheduled to come

before the United States Supreme Court again in its review of the Third Circuit decision, John Ivan Sutter, M.D. v. Oxford Health Plans, LLC.8 In particular, the Court will examine arbitration agreements that are silent on whether class-wide arbitration is permitted or prohibited. While Sutter does not focus on employment law, the Court's decision will likely set forth the contractual circumstances which give rise to an agreement to arbitrate class claims. This will effectively establish the permissible breadth of an employer's arbitration agreement and the circumstances under which an employer will be forced to arbitrate class claims.

The holding that is under review in Sutter affirmed an arbitrator's authorization of class arbitration based on a broadly constructed arbitration agreement. The language of the subject agreement provided as follows: "No

civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration." In light of its breadth and the absence of a class arbitration exclusion, the arbitrator determined that this clause embraced all conceivable court actions, including class actions. The court of appeal affirmed the arbitrator's order based on the determination that the lack of an express exclusion was corroborative of a holding that this clause sanctioned class arbitration.

Review by the highest Court on the proper interpretation of arbitration agreements silent on the subject of class-action proceedings is vital given the split in opinion that has developed among the circuit courts on the issue. The Second and Third Circuits infer an agreement to arbitrate class matters based on the language of the contract, while the Fifth Circuit requires explicit language before deciding the parties have agreed to arbitrate. Which rule the Court will follow in Sutter is unknown. For now, it is best to include an express exclusion of class arbitration in any arbitration agreement that is intended to act as a waiver of an employee's right to bring employment claims on a class basis.

National Labor Review Board Strikes Down Employment Matter Class-Action Waivers as Contrary to the National Labor Relations Act

In the National Labor Review Board (NLRB) case In re D.R. Horton, Inc., the NLRB held that class-action waivers in employment agreements are unenforceable under the National Labor Relations Act (NLRA).9 Pursuant to Section 7 of the NLRA, employees have the right to self-organize, bargain collectively, and engage in other concerted activities. Class-action waivers effectively bar an employee's rights under the NLRA. Despite the fact that D.R. Horton is on appeal before the Fifth Circuit, the NLRB persists to invalidate class-action waivers in arbitration agreements. Recently, the NLRB relied on its reasoning in D.R. Horton to strike down as contrary to the NLRA an agreement waiving an employee's right to file unfair labor practice charges)"

Complicating the issue even further, the D.R. Horton analysis has been rejected by some California courts of appeal. For example, the previously discussed case of Iskanian declined to follow D.R. Horton, finding that the NLRB is not charged with interpreting the FAA and that California state courts are not obligated to defer to statutory

analysis made by the NLRB. It is hopeful that the D.R. Horton appeal will unify the stances taken by local courts and the NLRB.

All in all, the upcoming year should prove to be an exciting time in California wage-and-hour class-action litigation. While the outcome of these pending cases is undetermined, California employers can only hope that the United States Supreme Court finds similarly to its holding in Concepcion and that California courts follow suit. These decisions will significantly affect the structure of the California employment contract and the future adjudication of class issues in the court system.

ENDNOTES (1) Stolt-Nielsen S.A. v. AnimalFeeds

Corp., 559 U.S. 662 (2010) (holding class arbitration is not permitted unless the parties have expressly or impliedly agreed to it).

(2) AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) (holding the FAA prohibits California from conditioning the enforceability of certain arbitration agreements on the availability of class-wide arbitration procedures).

(3) Gentry v. Superior Court, 42 Cal. 4th 443, 455-63 (2007).

(4) Franco v. Arakelian Enters., Inc.,

211 Cal. App. 4th 314 (2012), as modified (Dec. 4, 2012), review granted and opinion superseded by 294 P.3d 74 (2013).

(5) Franco, 211 Cal. App. 4th at 325. (6) Iskanian v. CLS Transp. Los Angeles,

LLC, 206 Cal. App. 4th 949 (2012), reh'g denied (June 26, 2012), review granted and opinion superseded by Iskanian v. CLS Transp. of Los Angeles LLC, 286 P.3d 147 (Cal. 2012).

(7) Iskanian, 206 Cal. App. 4th at 960. (8)John Ivan Sutter, M.D. v. Oxford

Health Plans LLC, 675 F.3d 215 (3d Cir. 2012).

(9) In re D.R. Horton, Inc., 357 N.L.R.B. 184 (2012).

(10) Supply Thchs., LLC, 359 N.L.R.B. 58 (2012).

Christopher P. Wesierski is the founding partner of Wesierski & Zurek LLP, a civil litigation defense firm with offices in Irvine and Los Angeles. He can be reached at [email protected]. Ashley A. Reagan is an associate at the Irvine office of Wesierski 6. Zurek, LLP, where she primarily practices employment law and business litigation. She can be reached at [email protected].

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