California Courts Remain Hostile to Arbitration Agreements Post-AT&T Mobility v. Concepcion

First Quarter 2012Newsletters California Update

Last year, the U.S. Supreme Court held in AT&T Mobility v. Concepcion (Concepcion) that a class action waiver in an arbitration agreement is enforceable. The court explained that the Federal Arbitration Act (FAA) prohibits states from imposing unique hurdles for the enforcement of arbitration agreements that are not required of any other type of contract. Though Concepcion concerned an arbitration agreement in the consumer context, many would argue that the decision places in doubt the whole body of California case law relating to the enforceability of arbitration agreements, especially those in the employment context. Despite this popular reading of Concepcion, California courts generally have responded to the decision in one of two ways: (1) Concepcion is completely ignored, or (2) Concepcionis deemed irrelevant in cases not involving a consumer arbitration agreement’s class action waiver.

Here are some highlights of California’s post-Concepcion employment arbitration decisions:

  • Brown v. Ralphs Grocery Company (Oct. 18, 2011): Plaintiffs brought a class action under the California Labor Code’s Private Attorneys General Act (PAGA) alleging wage and hour labor violations. The employer moved to compel individual arbitration of the dispute pursuant to an arbitration provision, which included a class action waiver and a waiver of PAGA representative actions. The Court of Appeal, held that Concepcion “does not apply to representative actions under the PAGA,” and the arbitration agreement was unenforceable under California law. On October 18, 2011, the California Supreme Court denied defendant’s petition for review. Defendant has filed a petitioned for review with the U.S. Supreme Court.
  • Sonic-Calabasas A., Inc. v. Moreno (Oct. 31, 2011): On February 24, 2011, a divided California Supreme Court (4-3) ruled that a provision in an arbitration agreement that the employee enters as a condition of employment requiring waiver of the option of a Berman hearing (an informal hearing before the Labor Commissioner) is contrary to public policy and unconscionable. However, on October 31, 2011, the U.S. Supreme Court vacated the California Supreme Court’s decision, and remanded the case “for further consideration in light of AT&T Mobility LLC v. Concepcion.”
  • Wisdom v. AccentCare, Inc. (Jan. 3, 3012): The Court of Appeal for the Third Appellate District refused to enforce an employment arbitration agreement, finding it was procedurally unconscionable because, among other things, the agreement stated that the arbitration would be governed by the rules of the American Arbitration Association, but did not attach those rules. The court also determined that the agreement was substantively unconscionable because its language did not sufficiently indicate that the employer also promised to arbitrate its potential claims against the employee, resulting in a lack of mutuality.
  • Mayers v. Volt Management Corp. (Feb. 2, 2012): A Court of Appeal held that an employment arbitration agreement was unenforceable because it was procedurally and substantively unconscionable. The court held that agreement was deficient because the employer did not provide the employee with the applicable rules under which the arbitration would proceed, or identify the specific set of rules that would apply. Further, the agreement provided for an award of attorney's fees to the prevailing party, which is contrary to statutory remedies available under California Fair Employment and Housing Act (“FEHA”). The employer has asked the California Supreme Court to review this decision.
  • Ajamian v. CantorCO2e, L.P. (Feb. 16. 2012): A Court of Appeal held that a court must decide whether an arbitration provision is unconscionable, unless there is “clear and unmistakable” proof that the parties intended the question to be decided by an arbitrator. The court also determined that the arbitration agreement at issue was unconscionable and therefore unenforceable.

Until the U.S. or California Supreme Court clarifies the reach of Concepcion, employers are advised to tread with caution when drafting and litigating arbitration agreements. Some lessons from recent decisions are:

  • Provide any applicable arbitration rules to the employee at the time the agreement is presented or at least direct the employee to where to find the specific rules.
  • Make sure fee provisions do not contradict California law.
  • Avoid any provision limiting the employee’s remedies, or preserving judicial remedies just for the employer.
  • Ensure the arbitration agreement clearly states that it is mutual and applies to claims either party may have against each other.
  • Do not delay in moving to compel arbitration after a lawsuit has been filed.
  • Consult an experienced employment lawyer when drafting arbitration provisions.