As with prior years, the appellate courts issued multiple opinions relating to arbitration in the labor and employment context. Yet again, the courts showed an inclination to refuse to enforce arbitration provisions for most labor and employment claims based on unconscionability. And even for those cases that were compelled to arbitration, the courts made clear that an employer’s failure to pay the arbitration fees within the required time period constitutes a “material breach” of the arbitration agreement justifying withdrawal from arbitration and proceeding in court. As expected, the courts grappled with the interplay between the United States Supreme Court’s decision in Viking River with the later California Supreme Court decision in Adolph v. Uber in cases involving arbitration of PAGA claims. The courts also provided guidance in cases involving the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act recently enacted by Congress. Finally, the courts were faced with interpretations of the Federal Arbitration Act’s “transportation worker exemption” with mixed results for employers.

Court of Appeal holds that employment arbitration agreement is unconscionable and ineligible for severance where the agreement was not discussed with the employee when she accepted a verbal employment offer and contained an invalid PAGA waiver

In Hasty v. AAA Aljarice Hasty, was employed by the American Automobile Association of Northern California, Nevada & Utah (“AAA”). After her employment ended, Hasty sued AAA for race discrimination, disability discrimination, retaliation, harassment, wrongful discharge, and retaliation. AAA moved to compel arbitration pursuant to provision in Hasty’s employment contract, but the trial court found the arbitration agreement was unconscionable and declined to sever the unconscionable terms. AAA appealed the trial court’s ruling.

The Court of Appeal affirmed the trial court’s decision. The Court found the arbitration agreement to be both procedurally and substantively unconscionable. Procedural unconscionability was found due to the adhesive nature of the agreement, the lack of negotiation, and the hidden nature of the unconscionable provision within the complex document. Substantive unconscionability was found due to the agreement’s one-sided nature, the overly broad confidentiality provision, and the waiver of the employee’s right to bring representative actions under the Private Attorneys General Act of 2004 (“PAGA”). The Court also found that the trial court did not abuse its discretion by refusing to sever the unconscionable terms, as the arbitration agreement was “permeated with unconscionability.”

Court of Appeal holds that an emailed arbitration fee invoice was not an “electronically served court document,” so the two-day grace period for electronic service did not apply, resulting in untimely payment and forfeited arbitration rights

In Suarez v. Superior Court (Rudolph & Sletten, Inc.) Onecimo Sierra Suarez sued his employer Rudolph & Sletten, Inc. (“R&S”) for alleged wage and hour violations. R&S successfully moved to have the case resolved through arbitration and impose a stay on the civil action, as provided in their employment agreement. On December 2, 2022, the arbitration provider, JAMS, issued an e-mail invoice for the initial filing fee to Suarez and R&S marked, “due upon receipt.” The total fee due was $1,750, allocated $400 to Suarez and $1,350 to R&S. Though it was not required to do so, JAMS followed up on December 19, 2022 to request a status of payment. It is undisputed that R&S did not pay its share of the JAMS invoice until January 4, 2023, more than 30 days after the December 2, 2022 invoice. Suarez moved to lift the stay and re-instate the civil action on the grounds that R&S has waived its right to arbitration pursuant to Code of Civil Procedure 1281.97 which requires payment of fees within thirty (30) days of the invoice. R&S disagreed, asserting that it had until the close of business on January 5, 2022 to pay the invoice, making its January 4 payment timely. While conceding that its payment would normally have been due on January 1, 2023—30 calendar days after December 2, 2022—R&S argued that Code of Civil Procedure sections 12 and 1010.6 operated in tandem to extend the due date until January 5, 2023. The trial court agreed with R&S denying Suarez’s motion to lift the stay. Suarez appealed.

In a case of first impression, The Court of Appeal reversed holding that R&S’ delay in paying the arbitration fees constituted a material breach of the arbitration agreement, thereby waiving its right to arbitration pursuant to Code of Civil Procedure section 1291.87. The Court concluded that R&S’s payment was late and that the two-day extension in the Code of Civil Procedure did not apply. The Court noted that section 1010.6 simply did not apply to the e-mail transmission of a JAMS fee invoice. “By its terms, the statute governs the service of documents in an action filed with the court.” The Court held that an arbitration proceeding is not “an action filed with the court,” and the invoice required by section 1281.97 is “provided” to the parties but is not “served.”

The Court also rejected R&S’s argument that the Federal Arbitration Act (“FAA”) preempted California’s arbitration-specific procedural rules for fee payment. Relying on recent opinions, the Court found that such rules neither prohibited nor discouraged the formation of arbitration agreements, and therefore, were not preempted by the FAA.

Court of Appeal holds that trial court properly denied employer’s motion to compel arbitration of sexual harassment claims where no wrongful conduct had been brought to the employer’s attention at the time of the agreement’s execution

In Kader v. Southern California Medical Center, Inc. Omar Kader sued his employer, Southern California Medical Center, Inc., and other defendants claiming sexual harassment and assault. After his employment commenced, Kader signed an arbitration agreement with his employer, but he did not disclose that he was subject to ongoing sexual harassment and assault. After Congress enacted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“Act”), which invalidates pre-dispute arbitration agreements under certain circumstances, Kader filed his complaint in the superior court.

The defendants filed a motion to compel arbitration, arguing that the Act does not invalidate the arbitration agreement in this case since the alleged sexual conduct constituted a “dispute” which preexisted the arbitration agreement and the effective date of the Act. The trial court denied the motion and the defendants appealed.

On appeal, the defendants contended that the Act did not invalidate the arbitration agreement in this case because the alleged sexual conduct constituted a “dispute,” which preexisted the parties’ arbitration agreement and the effective date of the Act. In affirming the Court of Appeal concluded that the date that a dispute has arisen for purposes of the Act depends on the unique facts of each case, but a dispute does not arise merely from the fact of injury. For a dispute to arise, a party must first assert a right, claim, or demand. There is no evidence of a disagreement or controversy in this case until after the date of the arbitration agreement and the effective date of the Act, when the employee filed charges with the Department of Fair Employment and Housing in May 2022. Therefore, the Court held that the pre-dispute arbitration agreement was invalid, and the order denying the motion to compel arbitration was affirmed.

Following Adolph v. Uber the Ninth Circuit holds that PAGA plaintiffs can arbitrate individual PAGA while maintaining non-individual PAGA claims in court

In Johnson v. Lowe's Home Centers, LLC a former employee of Lowe’s Home Centers, LLC (“Lowe’s”) filed a class action against Lowe’s for alleged violations of the California Labor Code and a PAGA claim on behalf of herself and other Lowe’s employees. Lowe’s moved to compel arbitration of all of the plaintiff’s claims based on a pre-dispute employment contract containing an arbitration clause. Initially, the district court granted Lowe’s motion and compelled arbitration of the plaintiff’s individual PAGA claim and dismissed the nonindividual PAGA claims, citing the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 (2022). Thereafter, the California Supreme Court published its opinion in Adolph v. Uber (2023) 14 Cal.5th 1104 (2023) which held that representative PAGA claims should not be dismissed even if the plaintiff’s individual PAGA claims are subject to arbitration. Following the publication of Adolph, plaintiff appealed.

The Ninth Circuit disagreed with the district court’s handling of the nonindividual PAGA claims. It held that while the plaintiff’s individual PAGA claim could be arbitrated, the dismissal of the nonindividual claims was incorrect pursuant to Adolph. Therefore, the Court vacated the dismissal and remanded the case to the district court to apply the principles outlined in Adolph.

For a more detailed discussion of Adolph and Viking River, please review our July 5, 2023 Ahead of the Curve article.

Court of Appeal holds that because extension for arbitration fees’ payment must be agreed to by all parties, an arbitrator’s unilateral extension of due date for late payment did not prevent waiver of right to arbitration based on untimely payment of arbitration fees

In Hohenshelt v. Superior Court plaintiff filed a lawsuit against his former employer, Golden State Foods Corp. (“Golden State”), alleging retaliation under the California Fair Employment and Housing Act, failure to prevent retaliation, and violations of the California Labor Code. Golden State moved to compel arbitration in accordance with the parties’ arbitration agreement, and the trial court granted the motion, staying the court proceedings. Arbitration began. Per the arbitrator’s fee schedule, “All fees are due and payable in advance of services rendered.” On July 29, 2022 JAMS sent an invoice to Golden State for $32,300. On August 29, 2022, JAMS sent another invoice for $11,760. Both invoices were due to be paid within 30 days of their respective due dates; both invoices provide that payment is “due upon receipt.” Golden State did not make the payments within thirty days of the invoice as required by Code of Civil Procedure section 1291.98. However, on September 30, 2022, JAMS sent a letter stating: “Pursuant to our fee and cancellation policy, all fees must be paid in full by October 28, 2022, or your [arbitration] hearing may be subject to cancellation.” In other words, JAMS appeared to have unilaterally extended the payment deadline. On September 30, 2022, Hohenshelt advised that he was “unilaterally elect[ing]” to withdraw his claims from arbitration and to proceed in court since Golden State had failed to pay its fees within the deadlines. On October 5, 2022, Golden State paid all outstanding fees in full.

Citing Golden State’s failure to timely pay the arbitration fees as a material breach of the arbitration agreement under section 1281.98, Hohenshelt filed a motion to withdraw his claims from arbitration and proceed in court. The trial court denied this motion, deeming Golden State’s payment, which was made after the deadline but within a new due date set by the arbitrator, as timely.

The Court of Appeal disagreed with the trial court’s decision and reversed. The Court held that the trial court had ignored the clear language of section 1281.98 which states any extension of time for the due date must be agreed upon by all parties which was not the case here. Golden State’s late payment constituted a material breach of the arbitration agreement, regardless of the new due date set by the arbitrator. The Court also rejected Golden State’s argument that section 1281.98 is preempted by the Federal Arbitration Act (“FAA”), following precedent from other courts that held these state laws are not preempted because they further the objectives of the FAA. Therefore, the Court granted Hohenshelt’s petition for writ of mandate, directing the trial court to lift the stay of litigation.

Note: Golden State filed a petition for review with the California Supreme Court. Review was granted on June 12, 2024 however, the order granting review noted that the Court of Appeal’s opinion Please note may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456 to choose between sides of any such conflict.

Ninth Circuit holds that a warehouse equipment operator qualified for the Federal Arbitration Act’s “transportation worker exemption” because he handled products along a supply chain that were moved interstate, thus the Court affirmed denial of arbitration of plaintiff’s claims

In Ortiz v. Randstad Inhouse Services, LLC plaintiff, Adan Ortiz, worked for two companies, GXO Logistics Supply Chain, Inc. (“GXO”), and Randstad Inhouse Services, LLC, which were his dual employers. Ortiz’s role involved handling goods in a California warehouse facility operated by GXO. The goods, primarily Adidas products, were received from mostly international locations and stored at the warehouse for several days to a few weeks before being shipped to customers and retailers in various states.

Ortiz filed a class action lawsuit against his former employers alleging various violations of California labor law. The defendants moved to compel arbitration pursuant to an arbitration agreement in Ortiz’s employment contract. Ortiz opposed this on the grounds that the agreement could not be enforced under federal or state law. The trial court denied the motion.

The Ninth Circuit affirmed in part the district court’s order denying the motion to compel arbitration. The Court considered the two-step analysis in Saxon v. Southwest Airlines Co. (2022) 596 U.S. 450, 455-59. Applying Saxon’s first step, the Court considered plaintiff’s job description and held that the district court properly concluded that plaintiff’s job duties included exclusively warehouse work. Applying Saxon’s second step, the Court upheld the district court’s conclusion that plaintiff belonged to a class of workers who played a direct and necessary role in the free flow of goods across borders and actively engaged in the transportation of such goods. Plaintiff’s job description met all the benchmarks laid out in Saxon for plaintiff to qualify as an exempt transportation worker. The Court thus concluded that Ortiz belonged to a class of workers engaged in foreign or interstate commerce and was therefore exempted from the Federal Arbitration Act (“FAA”) pursuant to 9 U.S.C. § 1.

According to a Court of Appeal, because parties’ previous arbitration agreement did not survive employee’s second employment stint with same employer, trial court did not err in denying arbitration

In Vazquez v. SaniSure Vazquez initially worked for SaniSure from July 2019, and as part of her employment, she signed an agreement to resort to arbitration for any disputes that might arise from her employment. She eventually terminated this employment in May 2021. She returned to work for SaniSure four months later without signing a new arbitration agreement or discussing the application of the previous arbitration agreement to her new employment. Vazquez's second employment with SaniSure ended in July 2022. Later, she filed a class-action complaint alleging that SaniSure had failed to provide accurate wage statements during her second tenure. She also threatened to add a derivative action under the Labor Code Private Attorney Generals Act (“PAGA”). SaniSure responded by submitting a “cure letter” claiming that its wage statements were in compliance with the Labor Code and requested that Vazquez submit her claims to binding arbitration, which Vazquez disputed. SaniSure then filed a motion to compel arbitration which was denied by the trial court.

The Court of Appeal affirmed finding that SaniSure failed to show that Vazquez agreed to arbitrate claims arising from her second stint of employment. The Court further concluded that there was no evidence of an implied agreement to arbitrate claims arising from the second employment period, as the agreement covering Vazquez’s first employment period terminated in May 2021.

Ninth Circuit holds that the Federal Arbitration Act’s “transportation worker exemption” does not extend to delivery services contracts between business entities for local deliveries

In Fli-Lo Falcon LLC v. Amazon.com, Inc. Amazon and its delivery service partners (“DSPs”) entered into Delivery Service Program Agreements (“Agreements”). The DSPs contracted with Amazon to provide local delivery services. The Agreements contained an arbitration provision, stipulating that disputes arising from the Agreements would be resolved by binding arbitration conducted by the American Arbitration Association, rather than in court. Three DSPs filed a federal class-action complaint in the District Court for the Western District of Washington on behalf of all current and former DSPs seeking damages and declaratory and injunctive relief.

Amazon filed a motion to compel arbitration. In opposition, plaintiffs argued that the Federal Arbitration Act’s (“FAA”) “transportation worker exemption” applied to them, which would exempt them from the FAA's coverage and allow them to bring their dispute to court. The district court disagreed with plaintiffs, granted the motion to compel arbitration and dismissed the case without prejudice. Plaintiffs appealed.

The Ninth Circuit affirmed the district court’s decision holding that the FAA’s “transportation worker exemption” did not extend to business entities or to commercial contracts like the DSP Agreement since the Agreements related to local delivery services as opposed to “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” to whom the exemption applies. The Court also rejected the plaintiffs’ argument that the arbitration agreement was unconscionable. The Court found that the arbitration agreement contained a delegation provision, which incorporated American Arbitration Association (“AAA”) rules delegating threshold issues to the arbitrator. The Court concluded that the delegation provision was between sophisticated parties, incorporated the AAA rules, and therefore must be enforced. Thus, the Court held that the plaintiffs’ remaining unconscionability arguments directed at the arbitration agreement as a whole must be decided by the arbitrator.

SCOTUS holds that a transportation worker need not work in the transportation industry to be exempt from arbitration under the “transportation worker exemption” of the Federal Arbitration Act

In Bissonette v. LePage Bakeries Park St., LLC Bissonnette and Wojnarowski were franchisees who owned the rights to distribute Flowers Foods, Inc. (“Flowers Food”) products (specifically Wonder Bread) in certain parts of Connecticut pursuant to Distributor Agreements. Flowers baked the bread and buns and sent them to a warehouse in Waterbury, Connecticut. Bissonnette and Wojnarowski picked them up and distributed them to local shops. They allegedly spent at least forty hours a week delivering Flowers Food products in their territories. But their jobs extended beyond carrying the products from Point A to Point B. They also found new retail outlets, advertised, set up promotional displays, and maintained their customers’ inventories by ordering baked goods from Flowers Food, stocking shelves, and replacing expired products.

Bissonnette and Wojnarowski sued Flowers Food for alleged violations of state and federal wage laws. Flowers Foods moved to compel arbitration under the Federal Arbitration Act (“FAA”) pursuant to an arbitration provision in the Distributor Agreements. Plaintiffs opposed the motion claiming they are exempt from arbitration under the Section 1 of the FAA since they are in the “class of workers engaged in foreign or interstate commerce.”

The district court granted the motion and dismissed the case stating that in order for Bissonnette and Wojnarowski to be exempt from the FAA, they must be “transportation workers” which they were not. The court noted that their broader scope of responsibility under the Distributor Agreements belied the claim that they were primarily truck drivers.

The Second Circuit affirmed the district court’s decision on the alternative ground that Bissonnette and Wojnarowski “are in the bakery industry” and, according to the Second Circuit, section 1 of the FAA exempts only “workers involved in the transportation industries.”

The United States Supreme Court disagreed with the Second Circuit’s interpretation of the transportation worker exemption. The Court held that a transportation worker does not need to work for a company in the “transportation industry” to be exempt under section 1 of the FAA. The Court emphasized that the relevant question is what the worker does for the employer, not what the employer does generally.

Court of Appeal holds that employer waived its right to arbitrate claims by delaying its motion to compel until nine months after the SCOTUS opinion in Viking River was published which purportedly gave it a new right to compel

In Semprini v. Wedbush Securities Inc. Joseph Semprini filed a class action lawsuit against his employer, Wedbush Securities, Inc. (“Wedbush”), alleging 11 personal causes of action and seven class claims for alleged wage and hour violations. Semprini and Wedbush agreed that Semprini’s personal claims would be arbitrated, while the remaining claims would proceed in court. The class was certified and the parties litigated Semprini’s class and Private Attorneys General Act (“PAGA”) claims in court over the next several years. In 2022, SCOTUS ruled in Viking River Cruises, Inc. v. Moriana that an employer may enforce an employee’s agreement to arbitrate individual PAGA claims. Wedbush asked its workforce to sign arbitration agreements, and 24 class members, including the second named plaintiff, Bradley Swain, agreed to do so. Nine months after Viking River was published, Wedbush then filed a motion to compel arbitration of the named plaintiffs’ individual PAGA claims and the claims of the 24 class members who signed arbitration agreements.

The trial court denied Wedbush’s motion to compel arbitration and Wedbush appealed.

The Court of Appeal affirmed holding that even if Viking River decision or the 2022 arbitration agreements gave Wedbush a new right to move to compel certain claims to arbitration, Wedbush waited too long to make its motion, particularly in light of the looming trial date. Specifically, the Court found that Wedbush had waived its right to compel arbitration by waiting nine months after the Viking River decision and five to six months after select class members signed the new arbitration agreements to file its motion to compel arbitration.

Court of Appeal holds that a former employee may continue his individual PAGA claims in court when circumstances surrounding arbitration agreement did not evidence parties’ clear intent for arbitrator to decide arbitrability issues and the arbitration provision did not include PAGA claims

In Mondragon v. Sunrun Inc. Angel Mondragon, an employee of Sunrun Inc., was required to sign an arbitration agreement as a condition of his employment. The agreement covered most disputes related to Mondragon’s employment but excluded claims brought under the Private Attorney General Act of 2004 (“PAGA”). After his employment ended, Mondragon filed a complaint asserting several causes of action under PAGA. Sunrun filed a motion to compel arbitration of Mondragon’s claims, which the trial court denied. The trial court ruled that it, not the arbitrator, should decide questions of arbitrability. The court also ruled that the arbitration agreement unambiguously excluded PAGA claims and did not differentiate between individual PAGA claims and PAGA claims brought on behalf of other employees. Sunrun appealed.

The Court of Appeal affirmed concluding that Mondragon, an unsophisticated party, did not delegate arbitrability decisions to the arbitrator. The Court also concluded that the language of the arbitration agreement did not require Mondragon to arbitrate his individual PAGA claims.

Court of Appeal holds that an employee was not barred from withdrawing from arbitration by continuing to participate in the arbitration after employer failed to timely pay arbitration fees

In Reynosa v. Superior Court Andrew Reynosa was an employee of Advanced Transportation Services, Inc. (“ATS”). During the course of his employment, Reynosa signed an arbitration agreement. After leaving the company, he filed a complaint for damages against ATS, which was then moved to arbitration as per the agreement. However, Reynosa later filed a motion to withdraw from arbitration pursuant to Code of Civil Procedure section 1281.98, arguing that ATS had twice failed to pay the required arbitration fees within the stipulated 30-day period, thereby waiving its right to compel him to proceed with arbitration.

The trial court denied Reynosa’s motion finding that the parties had mutually agreed to extend the deadline for payment of the arbitration fees, and ATS had paid the fees within the extended deadline. Therefore, the court concluded that ATS had not materially breached the arbitration agreement. Reynosa appealed.

The Court of Appeal reversed finding that ATS had materially breached the arbitration agreement by failing to pay the arbitration fees within the stipulated 30-day period. In particular, as to one payment the Court noted that ATS was required to pay $27,380 by October 29, 2021. ATS timely made a payment, but the payment was short $250. ATS paid the remaining $250 nearly 16 months after the due date. The second payment was made after the 30-day period but within a payment schedule set by the arbitrator. As to this payment, the Court found that Reynosa did not agree to the extension which is required to extend the deadline under section 1281.98. Thus, the Court held that Reynosa was entitled to withdraw from arbitration and proceed in a court of appropriate jurisdiction.

Ninth Circuit holds that district court erred by compelling arbitration of non-individual PAGA claims

In Diaz v. Macys West Stores Yuriria Diaz sued her former employer, Macy’s West Stores, Inc. (“Macy’s”) under California’s Private Attorneys General Act (“PAGA”) for violations of California’s Labor Code. Macy’s filed a motion to compel arbitration of all of plaintiff’s claims including her individual and representative PAGA claims based on an arbitration agreement signed by plaintiff. The district court granted the motion, and Diaz appealed.

The Ninth Circuit affirmed the district court’s ruling compelling arbitration of Diaz’s individual PAGA claims since such claims were clearly covered by the arbitration agreement. However, the Court reversed the ruling compelling arbitration of Diaz’s representative PAGA claims. The Court relied on the California Supreme Court’s decision in Adolph v. Uberwhich held that an aggrieved employee maintains standing to prosecute a representative PAGA claim in court even if her individual PAGA claims are ordered to arbitration.

SCOTUS holds that when a lawsuit involves an arbitrable dispute and a party requests a stay pending arbitration, the Federal Arbitration Act compels courts to issue a stay rather than dismissing the action

In Smith v. Spizzirri plaintiffs were current and former delivery drivers for an on-demand delivery service operated by defendants. They sued defendants in Arizona state court, alleging violations of federal and state employment laws. In particular, plaintiffs claimed that defendants misclassified them as independent contractors, failed to pay required minimum and overtime, wages, and failed to provide paid sick leave.

After removing the case to federal court, defendants moved to compel arbitration based on agreements that all plaintiffs signed. Defendants also sought to dismiss the suit. In opposition, plaintiffs conceded that all of their claims were arbitrable, but they argued that section 3 of the Federal Arbitration Act (“FAA”) required the district court to stay the action pending arbitration rather than dismissing it entirely. The district court noted that “the text of 9 U.S.C. § 3 suggests that the action should be stayed,” but that precedent in the Ninth Circuit “instructed that ‘notwithstanding the language of § 3, a district court may either stay the action or dismiss it outright when, . . . the court determines that all of the claims raised in the action are subject to arbitration.’” The district court, following precedent, granted the motion to compel arbitration, and dismissed the case without prejudice.

The Ninth Circuit affirmed. While that court likewise acknowledged that “the plain text of the FAA appears to mandate a stay,” the court explained that it was bound by circuit precedent recognizing the district court’s “discretion to dismiss.” Plaintiffs appealed to the United States Supreme Court (“SCOTUS”).

SCOTUS reversed holding: “When a district court finds that a lawsuit involves an arbitrable dispute, and a party requests a stay pending arbitration, section 3 of the FAA compels the court to stay the proceeding.” SCOTUS relied on the text of section 3 of the FAA, its structure, and purpose. According to SCOUTUS, “[t]he plain text of § 3 requires a court to stay the proceeding upon request. The statute’s use of the word ‘shall’ ‘creates an obligation impervious to judicial discretion.’”

In employment sexual discrimination case, Court of Appeal holds that trial court properly found that no agreement to arbitrate existed where differences between the purported signed arbitration agreement and other signed documents impugned the agreement’s authenticity

In Garcia v. Stoneledge Furniture LLC Isabel Garcia, an employee of RAC Acceptance East, LLC (“RAC”), filed a lawsuit against RAC, Stoneledge Furniture LLC (“Stoneledge”), and Inderjit Singh (“Singh”) (collectively “Defendants”), alleging ten claims related to sexual harassment. Defendants filed a motion to compel arbitration based on an arbitration agreement they claimed Garcia electronically signed during her employment onboarding process. Garcia denied signing the agreement and argued that RAC failed to prove she executed the agreement.

The trial court denied the motions to compel arbitration finding that while RAC had initially shown an agreement to arbitrate by providing the agreement, Garcia’s denial of signing the agreement shifted the burden back to RAC to prove by a preponderance of the evidence that her electronic signature was authentic. The court found that RAC failed to meet this burden as the declaration provided by RAC did not present sufficient details of the onboarding process to establish how Garcia must have signed the agreement. The court also found that the agreement did not have the appearance of an electronically signed document created in Taleo, the third-party electronic workforce management platform used by RAC. Defendants appealed.

The Court of Appeal affirmed finding that the trial court did not err in deciding whether any agreement to arbitrate existed in the first place, rather than delegating that decision to an arbitrator. The Court also found that RAC failed to prove the existence of the arbitration agreement. The Court concluded that RAC’s evidence did not show that only Garcia could have placed the electronic signature on the arbitration agreement.

Court of Appeal holds that an employee who promptly rejects an employer’s modification to its policy requiring arbitration of disputes will not be bound by the arbitration provision, even if he continues to work for the company

In Mar v. Perkins plaintiff Mar was a partner in SierraConstellation Partners, LLC (“Sierra”). Plaintiff filed a lawsuit against Sierra and the other partners seeking a buyout of his partnership interest pursuant to Corporations Code section 16405. The defendants moved to compel arbitration of Mar’s action, based on an arbitration agreement included in Sierra’s employee handbook. Mar had refused to sign the arbitration agreement, stating that he would not be bound by it and that Sierra could terminate his employment if it objected. Sierra argued that Mar’s continued employment for 19 months after the introduction of the arbitration agreement constituted assent to the agreement.

The trial court denied the defendants’ motion to compel arbitration finding that defendants failed to meet their burden to establish the existence of an arbitration agreement because Mar clearly stated that he refused to sign the arbitration agreement and Sierra could terminate his employment if it objected. Defendants appealed.

The Court of Appeal affirmed holding that while an employee’s continued employment can generally be taken as assent to an arbitration agreement, this is not the case when the employee promptly rejects the arbitration agreement and makes clear he or she refuses to be bound by the agreement. In this case, Mar promptly and unequivocally rejected the arbitration agreement, and thus, there was no mutual assent to arbitrate.

Court of Appeal holds that federal arbitration standards preempted California arbitration laws when the arbitration agreement expressly adopted the Federal Arbitration Act but was silent as to adopting California requirements

In Hernandez v. Sohnen Enterprises plaintiff Hernandez worked for Sohnen Enterprises (“Sohnen”) as a “product handler” from February 2015 to August 2020. At the time she was hired, plaintiff executed an arbitration agreement with Sohnen that stated, “[t]his Agreement is governed by the Federal Arbitration Act (‘FAA’), 9 U.S.C. [section]1, et seq.” The agreement provided that “any disputes regarding the enforceability, interpretation, scope, applicability or coverage of this Agreement are reserved solely for the Court, not for arbitration.” After she was terminated Hernandez filed a complaint against Sohnen for disability discrimination, Labor Code violations, and related causes of action. The parties then stipulated to stay the trial court proceedings and arbitrate pursuant to their arbitration agreement. The stipulation stated that the Federal Rules of Civil Procedure applied to the arbitration.

Sohnen failed to pay the arbitration fees within 30 days of the due date. Hernandez then filed a motion to withdraw from arbitration and litigate in state court, as permitted under Code of Civil Procedure section 1281.97. The trial court granted the motion, finding that Sohnen had breached the arbitration agreement.

Sohnen appealed, arguing that the Federal Arbitration Act (“FAA”), not California law, governed the arbitration agreement and preempted section 1281.97. The Court of Appeal agreed with Sohnen. The Court found that the arbitration agreement was governed by the FAA, including both its substantive and procedural provisions. As a result, the procedures of section 1281.97 did not apply, and the trial court’s order was reversed. The Court also held that even if section 1281.97 did apply, it would still reverse the order because the FAA preempts the provisions of section 1281.97 that mandate findings of breach and waiver when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws.

Note: in August of 2024, the California Supreme Court granted review of the Court of Appeal’s opinion. The Court noted that further “action in this matter is deferred pending consideration and disposition of a related issue in Hohenshelt v. Superior Court (Golden State Foods Corporation), The Court further noted that the opinion of the Court of Appeal may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, to choose between sides of any such conflict.

Court of Appeal holds that an employment arbitration agreement’s “indefinite scope and duration” rendered it unconscionable

In Cook v. University of Southern California et al. Pamela Cook filed a lawsuit against her employer, the University of Southern California (“USC”), and two coworkers, alleging discrimination and harassment. USC moved to compel arbitration based on an arbitration agreement signed by Cook as a condition of her employment. The agreement required Cook to arbitrate all claims against USC, its agents, affiliates, and employees, regardless of whether they arose from the employment relationship.

The trial court denied the motion finding that that the arbitration agreement was both procedurally and substantively unconscionable. Procedurally, the court found the agreement to be a contract of adhesion since signing the agreement was made a condition of Cook’s employment. Substantively, the court found the agreement to be unconscionable due to its infinite scope, covering all of Cook’s claims regardless of their relation to her employment, and its infinite duration, surviving the termination of Cook’s employment indefinitely. The court also found a lack of mutuality in the agreement, as it required Cook to arbitrate her claims against USC and all of USC’s “related entities,” but did not require USC’s “related entities” to arbitrate their claims against Cook. USC appealed this decision.

The Court of Appeal affirmed finding both procedural and substantive unconscionability. The Court found that the arbitration agreement was one-sided, overly broad in scope, and indefinite in duration. The Court also agreed with the trial court’s refusal to sever the unconscionable provisions and enforce the remainder of the agreement, finding that the agreement was permeated with unconscionability.

Court of Appeal holds that trial court should have granted employer’s motion to compel arbitration when the employee failed to dispute the authenticity of his handwritten signature on the arbitration agreement

In Ramirez v. Golden Queen Mining Co. Carlos Ramirez, an employee, filed a class action lawsuit against his former employer, Golden Queen Mining Company (“Golden Queen”), alleging various violations of the Labor Code and unfair competition. Golden Queen moved to compel arbitration, but the trial court denied the motion, stating that the employer failed to demonstrate the existence of an executed arbitration agreement. The court found that Golden Queen’s evidence, which included an unsigned arbitration agreement and a handbook acknowledgement purportedly signed by Ramirez, was insufficient to establish the existence of an arbitration agreement.

Golden Queen appealed, arguing that it had made a prima facie showing that a written arbitration agreement existed and that Ramirez’s statements that he did not recall being presented with or signing an arbitration agreement were insufficient to rebut its initial showing.

The Court of Appeal reversed holding that Ramirez did not provide sufficient evidence to rebut the employer’s initial showing that an arbitration agreement existed. The Court found that Ramirez’s failure to recall signing the document did not create a factual dispute about the signature’s authenticity. The Court also noted that Ramirez’s declaration did not state whether he had reviewed the arbitration agreement or other documents purportedly signed by him, nor did it address whether he recalled signing the handbook acknowledgement, which included a statement that he agreed to the terms of the arbitration agreement. The Court reversed the order denying the motion to compel arbitration and remanded the case for further proceedings to address Ramirez’s unconscionability defense.

Court of Appeal affirms trial court’s decision that the doctrine of equitable estoppel does not apply to compel arbitration where the party requesting arbitration was a nonsignatory to the arbitration agreement and the signatory was not a party to the lawsuit

In Soltero v. Precise Distribution Soltero, who was placed at Precise Distribution by a temporary staffing agency, Real Time Staffing Services (“Real Time”), filed a class action complaint against Precise Distribution (“Precise”) for alleged failure to provide required meal periods and rest breaks to employees, among other claims. Precise filed a motion to compel arbitration based on an arbitration agreement between Soltero and Real Time. Precise contended that it should be able to compel arbitration under the agreement between Soltero and Real Time, despite not being a party to it, based on theories of equitable estoppel, third-party beneficiary, or agency. However, Real Time was not a party to the lawsuit. The trial court denied Precise’s motion.

The Court of Appeal affirmed finding that Precise was not a signatory to the arbitration agreement between Soltero and Real Time and could not compel arbitration based on the theories it proposed. The Court found that Soltero’s claims against Precise were not dependent upon or founded in the underlying contractual obligations of the agreement containing the arbitration clause. Furthermore, Precise was not an intended third-party beneficiary of the arbitration agreement, and there was no evidence of an agency relationship between Precise and Real Time.

Court of Appeal holds that Tesla materially breached an arbitration agreement by paying pre-hearing arbitration deposit three days late because Code of Civil Procedure section 1281.90’s payment requirement must be strictly construed

In Keeton v. Tesla Dominique Keeton, an employee of Tesla, Inc., filed a lawsuit against her employer alleging discrimination, harassment, and retaliation. The parties agreed to resolve the dispute through arbitration as per their employment agreement. However, when Tesla paid its arbitration fees three days after the stipulated 30-day window, Keeton moved to vacate the order submitting the dispute to arbitration pursuant to Code of Civil Procedure section 1281.90. The trial court granted Keeton’s motion, ruling that Tesla had materially breached the arbitration agreement, thereby allowing Keeton to proceed with her claims in court as allowed by the statute.

Tesla appealed the decision, arguing that the trial court erred in granting Keeton’s motion to vacate. Tesla’s arguments were threefold: (1) the arbitration agreement delegated issues of arbitrability to the arbitrator; (2) the Federal Arbitration Act (“FAA”) preempts section 1281.90 of the California Code of Civil Procedure; and (3) the same section of the California Code of Civil Procedure constitutes an unconstitutional impairment of the arbitration agreement.

The Court of Appeal affirmed holding that the arbitration agreement did not clearly delegate issues of arbitrability to the arbitrator. The Court also held that the FAA did not preempt the relevant section of the California Code of Civil Procedure (section 1281.90), and that this section did not unconstitutionally impair the arbitration agreement. The Court concluded that Tesla had materially breached the arbitration agreement by failing to pay its arbitration fees within the stipulated time, and thus Keeton was entitled to proceed with her claims in court. As required by precedent, the Court held that the payment deadlines in section 1281.90 must be strictly construed.

California Supreme Court provides guidelines for severing unconscionable arbitration terms, including consideration whether the unconscionable terms indicate an intent to secure a forum that works to the stronger party’s advantage

In Ramirez v. Charter Communications a former employee sued her employer, Charter Communications, Inc. (“Charter”), alleging discrimination, harassment, and retaliation under the Fair Employment and Housing Act (“FEHA”), as well as wrongful discharge. Charter moved to compel arbitration based on an agreement the employee had signed during the onboarding process. The employee opposed, arguing the arbitration agreement was procedurally and substantively unconscionable.

The trial court denied the motion on the grounds that the agreement was a contract of adhesion and substantively unconscionable as a result of provisions that shortened the time for filing claims, allowed Charter to recover attorney fees contrary to FEHA, and imposed an interim fee award for compelling arbitration. The court refused to sever the unconscionable terms finding that the agreement was permeated with unconscionability.

The court of appeal affirmed, identifying additional unconscionable provisions. Charter filed a petition for review with the California Supreme Court.

The California Supreme Court agreed that certain provisions of the arbitration agreement were substantively unconscionable, including the lack of mutuality in covered and excluded claims, the shortened limitations period for filing claims, and the potential for an unlawful award of attorney fees. The Court clarified that the discovery limitations were not unconscionable, as the arbitrator had the authority to order additional discovery if necessary.

Furthermore, the Court held that the agreement’s unconscionable provisions could potentially be severed, and the matter was remanded for further consideration of whether the unconscionable provisions could be severed to enforce the remainder of the agreement. Specifically, the Court held that the decision whether to sever unconscionable provisions and enforce the balance is a qualitative one, based on the totality of the circumstances. According to the Court, the court trial “cannot refuse to enforce an agreement simply by finding that two or more collateral provisions are unconscionable as written and eschewing any further inquiry.” One of the factors to consider is “whether mere severance of the unconscionable terms would function to condone an illegal scheme and whether the defects in the agreement indicate that the stronger party engaged in a systematic effort to impose arbitration on the weaker party not simply as an alternative to litigation, but to secure a forum that works to the stronger party’s advantage.” If the answer is yes, the court should refuse to enforce the agreement.

Ninth Circuit affirms denial of motion to compel arbitration because plaintiff, an airline fuel technician, fell within the Federal Arbitration Act’s “transportation worker exemption.”

In Lopez v. Aircraft Service International, Inc. Danny Lopez, an airline fuel technician, filed a wage-and-hour lawsuit under California law against his employer, Menzies Aviation (USA), Inc. (“Menzies”). Lopez alleged that Menzies violated state requirements for meal periods, rest periods, overtime wages, minimum wages, and other employment conditions. Menzies sought to compel arbitration based on an arbitration agreement Lopez signed as part of his employment.

The district court denied Menzies’ motion to compel arbitration finding that Lopez, as a transportation worker engaged in foreign or interstate commerce, was exempt from the Federal Arbitration Act (“FAA”) under 9 U.S.C. § 1. The court reasoned that Lopez’s role in fueling airplanes used in interstate and foreign commerce was integral to the transportation process, thus qualifying him for the exemption.

The Ninth Circuit affirmed holding that a fuel technician who places fuel in planes used for foreign and interstate commerce is a transportation worker engaged in commerce. The Court emphasized that such a worker plays a direct and necessary role in the free flow of goods across borders. The Court clarified that there is no requirement for the worker to have “hands-on contact” with goods or be directly involved in their transportation to fall within the FAA exemption. Consequently, the Ninth Circuit concluded that Lopez was exempt from the arbitration requirements of the FAA and affirmed the district court’s denial of Menzies' motion to compel arbitration.

California Supreme Court overturns St. Agnes Medical Center v. PacifiCare of California and holds that a party’s waiver of the right to compel arbitration no longer requires a showing of prejudice to the other party

In Quach v. California Commerce Club, Inc. Peter Quach filed a lawsuit against California Commerce Club (“Commerce Club”) after being terminated from his job at the casino where he had worked for nearly 30 years. Quach’s complaint included claims of wrongful termination, age discrimination, retaliation, and harassment, and he demanded a jury trial. Commerce Club had previously provided Quach with a signed arbitration agreement from 2015, which mandated binding arbitration for employment-related disputes. Instead of moving to compel arbitration, Commerce Club answered the complaint and engaged in extensive discovery, including propounding interrogatories and taking Quach’s deposition. Thirteen months later, Commerce Club filed a motion to compel arbitration.

The trial court denied Commerce Club’s motion to compel arbitration, finding that Commerce Club had waived its right to arbitrate by engaging in litigation for 13 months. The court noted that Commerce Club had actively participated in discovery and requested a jury trial, actions inconsistent with an intent to arbitrate.

Commerce Club appealed and the Court of Appeal reversed holding that Quach had not shown sufficient prejudice to the employee as a result of Commerce Club’s delay in seeking arbitration as required by St. Agnes Medical Center v. PacifiCare of California. Quach filed a petition for review with the California Supreme Court.

The California Supreme Court reversed overturning St. Agnes’ arbitration-specific prejudice requirement, aligning with the United States Supreme Court’s decision in Morgan v. Sundance, Inc. The Court held that under California law, as under federal law, courts should apply the same principles to determine waiver of the right to compel arbitration as they do for other contracts. The Court concluded that Commerce Club had waived its right to compel arbitration by engaging in litigation conduct inconsistent with an intent to arbitrate, irrespective of any prejudice to plaintiff.

For a more detailed discussion of this opinion, please review our article dated August 21, 2024.

Ninth Circuit holds that district court did not abuse its discretion in declining to sever unconscionable terms of an arbitration agreement containing unfair surprise and one-sided terms

In Ronderos v. USF Reddaway Inc. Jose Emilio Ronderos applied for a job with USF Reddaway, Inc. and Yellow Corporation (collectively, “Reddaway”) and was required to sign an arbitration agreement as part of the application process. Ronderos was hired and later filed employment-related claims against Reddaway, alleging age and disability discrimination, retaliation, and other violations under California law. Reddaway filed a motion to compel arbitration which was denied by the district court. The court found that the arbitration agreement was procedurally unconscionable because it was a contract of adhesion presented on a take-it-or-leave-it basis, involved significant oppression, and contained a substantively opaque cost-splitting provision. The court also found that the agreement was substantively unconscionable due to its one-sided filing provision and preliminary injunction carve-out, which unfairly favored Reddaway. The district court also declined to sever the unconscionable provisions and enforce the remainder of the agreement. Reddaway appealed to the Ninth Circuit.

The Ninth Circuit affirmed the district court’s decision agreeing that the arbitration agreement was both procedurally and substantively unconscionable. It held that the agreement involved significant oppression and some surprise, making it procedurally unconscionable. The Court also found that the one-sided filing provision and preliminary injunction carve-out were substantively unconscionable.

Court of Appeal holds that there was no arbitration fee default where plaintiffs’ counsel erroneously paid defendant’s share of arbitration fees and defendant promptly paid after the mistake was corrected

In Anoke v. Twitter Sarah Anoke and other employees initiated arbitration proceedings against their employer, X (comprising Twitter, Inc., X Holdings I, Inc., X Holdings Corp., X Corp., and Elon Musk), for employment-related disputes. The arbitration provider issued an invoice for $27,200, which Anoke’s counsel mistakenly paid. The arbitration provider marked the invoice as paid and closed, then refunded the payment and issued a new invoice to X, which X paid within 30 days.

Anoke petitioned the trial court to compel X to pay her arbitration-related attorney fees and costs, arguing that X’s payment was untimely because it was not made within 30 days of the first invoice as required by Code of Civil Procedure section 1281.97. The court denied the petition, reasoning that since the first invoice was nullified after Anoke’s attorney mistakenly paid it and X timely paid the second invoice, X met the statutory deadline. Anoke appealed.

The Court of Appeal held that the statutory deadline for payment was tied to the due date set by the arbitration provider’s invoice. Since the first invoice was paid (albeit mistakenly) and the second invoice was paid within 30 days as required by section 1281.97, there was no default by X. The Court affirmed the trial court’s order, concluding that the arbitrator acted within its authority by issuing a second invoice and that the statute did not require the arbitrator to reinstate the first invoice after it had been paid and closed. The Court also noted that the reasons for a timely payment are irrelevant under the statute.

Court of Appeal holds that employer seeking to compel arbitration in a class action suit brought by employees waived its right to arbitration where it acted as though it intended to litigate the claim and eventually entering a joint stipulation to participate in mediation

In Campbell v. Sunshine Behavioral Health a former employee, Campbell, filed a putative class action lawsuit against her employer, Sunshine Behavioral Health, LLC (“Sunshine”), alleging wage and hour violations. Campbell claimed that employees were not paid proper overtime, were required to work through meal and rest breaks without compensation, were not paid minimum wage, and were not paid in a timely manner. Sunshine initially proceeded with litigation and agreed to participate in mediation. However, Sunshine later claimed to have discovered an arbitration agreement signed by Campbell, which included a class action waiver.

Approximately four months after the discovery, Sunshine filed a motion to compel arbitration which was denied by the trial court on the grounds that Sunshine had waived its right to compel arbitration. Despite allegedly discovering the arbitration agreement in November 2022, Sunshine continued to engage in mediation discussions and did not inform Campbell or the court of its intent to compel arbitration until March 2023. Sunshine's delay and conduct were deemed inconsistent with an intent to arbitrate, leading the court to conclude that Sunshine had waived its right to arbitration. Sunshine appealed.

The Court of Appeal affirmed finding clear and convincing evidence that Sunshine had waived its right to arbitration. The Court noted that Sunshine’s actions, including agreeing to mediation on a class-wide basis and delaying the motion to compel arbitration, were inconsistent with an intent to arbitrate. The Court determined that Sunshine’s conduct demonstrated an “intentional abandonment” of the right to arbitrate.

Court of Appeal holds that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act rendered an arbitration provision unenforceable as applied to conduct that began prior to and continued following the statute’s effective date

Doe v. Second Street Corp. involved the applicability of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”) which was passed by Congress in 2022. Also in 2022, Congress amended the Federal Arbitration Act (“FAA”) as a result of the EFAA by making arbitration agreements unenforceable at the plaintiff’s election in sexual assault and sexual harassment cases arising on or after March 3, 2022.

Jane Doe filed a lawsuit in 2023 against her employer, Second Street Corporation (“Second Street”), and two supervisors, alleging sexual harassment, discrimination, and wage-and-hour violations. The defendants moved to compel arbitration based on an arbitration provision in the employee handbook. The trial court denied the motion, concluding that the EFAA rendered the arbitration provision unenforceable for all of Doe’s claims and allowed her to file a first amended complaint adding additional claims, including constructive wrongful termination. Defendants appealed.

The Court of Appeal affirmed holding that under the EFAA’s plain language, Doe’s sexual harassment claims, which alleged continuing violations both before and after the EFAA’s effective date, were not subject to mandatory arbitration. The Court also held that the EFAA invalidated an arbitration clause as to the entire case, not just the claims alleging sexual harassment.

Court of Appeal holds that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act exempts an entire case from arbitration where plaintiff asserts at least one sexual harassment claim subject to the Act

In Liu v. Miniso Depot CA, Inc. a former employee, Liu, sued her employer, Miniso, alleging various employment-related claims, including sexual harassment, sex discrimination, and wage and hour violations. Liu claimed that she faced severe and pervasive harassment and discrimination based on her sexual orientation and gender identity, and that she was misclassified as an exempt employee, leading to unpaid wages and denied breaks. Liu also alleged that she was retaliated against for refusing to participate in illegal practices and for whistleblowing, which led to her constructive termination.

Minoso filed a motion to compel arbitration based on the employment contract. The trial court denied the motion finding that Liu had adequately stated a claim for sexual harassment and, based on the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”), ruled that the arbitration agreement was unenforceable for all of Liu’s claims. Minoso appealed.

The Court of Appeal affirmed holding that, under the EFAA, if a plaintiff's case includes at least one claim of sexual harassment, the entire case is exempt from arbitration at the plaintiff’s election. The Court emphasized that the EFAA’s language invalidates arbitration agreements with respect to the entire case, not just the sexual harassment claims. This interpretation avoids the inefficiency of having separate proceedings for different claims and aligns with the legislative intent to protect plaintiffs from being compelled into arbitration for sexual harassment disputes.

Court of Appeal holds that Code of Civil Procedure section 1281.98’s late fee arbitration waiver does not apply to parties who enter into a post-dispute stipulation to arbitrate

In Trujillo v. J-M Manufacturing Co. Stephanie Trujillo filed a complaint against her former employer, J-M Manufacturing Company (“JMM”), and four former coworkers, alleging unlawful sexual/gender discrimination, harassment, failure to prevent such acts, retaliation, and seeking injunctive relief. The parties negotiated and entered into a post-dispute stipulation for arbitration, which was approved by the trial court. Arbitration commenced, and JMM paid the arbitrator’s invoices timely for over a year. However, JMM paid one invoice late, leading Trujillo to file a motion to withdraw from arbitration under Code of Civil Procedure section 1281.98. The trial court granted the motion finding that JMM’s late payment constituted a material breach under section 1281.98, despite acknowledging that the delay did not prejudice Trujillo. The court lifted the stay on trial court proceedings, allowing the case to proceed in court. JMM appealed.

The Court of Appeal reversed holding that section 1281.98 did not apply because the parties had entered into a post-dispute stipulation to arbitrate, not a pre-dispute arbitration agreement. Additionally, JMM was not considered the “drafting party” as defined by section 1280(e), since the stipulation was primarily drafted by Trujillo.

Court of Appeal holds that claims against a group of “related entities” arose out of an employment agreement and therefore were sufficiently intertwined to merit application of the doctrine of equitable estoppel to compel arbitration of claims against all entities regardless of whether all entities were signatories to the arbitration agreement

In Gonzalez v. Nowhere Beverly Hills LLC Edgar Gonzalez worked for Nowhere Santa Monica, one of ten related LLCs operating Erewhon markets in Los Angeles. As a condition of employment, Gonzalez signed an arbitration agreement with Nowhere Santa Monica. He later filed a lawsuit against all ten LLCs, alleging various Labor Code violations and claiming they were joint employers. The non-Nowhere Santa Monica entities moved to compel arbitration based on the agreement with Nowhere Santa Monica, but Gonzalez opposed, arguing they were not parties to the agreement.

The trial court granted the motion to compel arbitration for Nowhere Santa Monica but denied it for the other entities, finding no evidence that Gonzalez’s claims against the non-signatory defendants were intertwined with the arbitration agreement. Gonzalez then dismissed his complaint against Nowhere Santa Monica, and the other entities appealed.

The Court of Appeal reversed holding that Gonzalez was equitably estopped from avoiding arbitration with the non-Nowhere Santa Monica entities because his claims against them were “intimately founded in and intertwined with” the employment agreement with Nowhere Santa Monica. The Court reasoned that Gonzalez’s joint employment theory inherently linked his claims to the obligations under the employment agreement, which contained the arbitration clause.

Ninth Circuit holds that while an arbitrator’s decision cannot preclude a Sarbanes-Oxley (“SOX”) claim, a confirmed arbitral award can preclude re-litigation of the issues underlying a SOX claim

In Hansen v. Musk Karl Hansen sued Tesla, Inc., its CEO Elon Musk, and U.S. Security Associates (“USSA”) alleging retaliation for reporting misconduct at Tesla. Hansen, initially hired by Tesla, was later employed by USSA. He reported thefts, narcotics trafficking, and improper contracts at Tesla, and filed a report with the Securities and Exchange Commission. After Musk saw Hansen at the Gigafactory and demanded his removal, USSA reassigned Hansen, which he claimed was retaliatory.

The district court ordered most of Hansen’s claims to arbitration, except his Sarbanes-Oxley Act (“SOX”) claim. The arbitrator dismissed Hansen’s non-SOX claims, finding no contractual right to work at the Gigafactory and no reasonable belief of securities law violations. The district court confirmed the arbitration award and dismissed Hansen’s SOX claim, holding that the arbitrator’s findings precluded relitigation of issues essential to the SOX claim.

The Ninth Circuit affirmed holding that while an arbitrator’s decision cannot preclude a SOX claim, a confirmed arbitral award can preclude relitigation of issues underlying such a claim. The Court found that the arbitrator’s decision, which concluded Hansen had no reasonable belief of securities law violations, precluded his SOX claim. The Court also held that the arbitrator’s findings on Hansen’s state law claims had a preclusive effect, as they were confirmed by the district court.

In a class action, Court of Appeal holds that the trial court properly refused to enforce and sever procedurally and substantively unconscionable arbitration agreement

In Jenkins v. Dermatology Management, LLC Annalycia Jenkins, a former employee of Dermatology Management, LLC (“Dermatology”), filed a class action lawsuit alleging unfair competition against her employer after resigning. Dermatology sought to compel arbitration based on an agreement Jenkins signed on her first day of work.

The trial court denied the motion finding that the arbitration agreement was substantively unconscionable due to its lack of mutuality, shortened statute of limitations, unreasonable discovery restrictions, and requirement for the parties to equally share the arbitrator’s fees and costs. The court also found the agreement to be procedurally unconscionable since it was a contract of adhesion, pre-signed by the employer months before Jenkins was hired and presented to her on a take-it-or-leave-it basis. Dermatology appealed.

The Court of Appeal affirmed holding that the arbitration agreement was procedurally unconscionable due to the inequality of bargaining power and the pre-signed nature of the agreement. It also upheld the finding of substantive unconscionability, noting the lack of mutuality, the unreasonable one-year statute of limitations, the unfair cost-sharing provision, and the restrictive discovery terms. The Court also held that the trial court did not abuse its discretion in refusing to sever the unconscionable provisions, as doing so would condone an illegal scheme and incentivize employers to draft one-sided agreements.

Court of Appeal holds that since all PAGA claims necessarily contain individual and representative components, the individual component may be compelled to arbitration, staying litigation of the representative component

In Leeper v. Shipt, Inc. Christina Leeper entered into an independent contractor agreement with Shipt, Inc. (“Shipt”) to provide services as a Shipt shopper. The agreement included an arbitration clause requiring all disputes to be resolved through binding arbitration. Leeper filed a complaint against Shipt and its parent company, Target Corporation, under the Private Attorneys General Act of 2004 (“PAGA”) alleging that Shipt misclassified her and other workers as independent contractors, violating multiple provisions of the Labor Code. Leeper sought civil penalties and injunctive relief on behalf of herself and other aggrieved employees.

The trial court denied Shipt and Target’s motion to compel arbitration, reasoning that Leeper’s PAGA action did not include any individual claims subject to arbitration under the parties’ agreement. The court concluded that the action was solely a representative PAGA suit without any individual causes of action requiring arbitration. Shipt and Target appealed.

The Court of Appeal reversed holding that every PAGA action necessarily includes an individual PAGA claim based on the unambiguous statutory language and legislative history. Consequently, the Court directed the trial court to issue a new order compelling arbitration of Leeper's individual PAGA claim and staying the litigation of the representative PAGA claim portion of the lawsuit as required under Adolph v. Uber.

Court of Appeal holds that trial court erred in dismissing the nonindividual PAGA claims plaintiff brought on behalf of other aggrieved employees, after ordering plaintiff’s individual PAGA claims to arbitration

In Huff v. Interior Specialists, Inc. Pauline Mary Huff filed a class action and a Private Attorneys General Act (“PAGA”) action against her former employer, Interior Specialists, Inc., (“Interior”) alleging various wage-and-hour violations. Huff opposed the motion arguing that the arbitration agreement was invalid because it was signed by someone else named “William” in DocuSign. The trial court disagreed finding sufficient evidence that Huff consented to the agreement. The trial court then consolidated the class and PAGA actions. Interior then moved to compel Huff’s PAGA claims to arbitration. The trial court reiterated its earlier finding that Huff validly signed the agreement and, relying on the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, ordered Huff’s individual PAGA claims to arbitration and dismissed her nonindividual PAGA claims without prejudice for lack of standing. Huff appealed.

The Court of Appeal reversed the dismissal of Huff’s nonindividual PAGA claims based on the California Supreme Court’s decision in Adolph v. Uber Technologies, Inc. which rejected Viking River’s interpretation of California law on standing. The Court did not address Huff’s arguments concerning the electronic signature, as the reversal based on Adolphrendered it unnecessary. The Court remanded the case with directions to stay Huff’s nonindividual PAGA claims pending the completion of arbitration on her individual PAGA claims.