Friday, November 30, 2012
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Arbitration Policy Held Binding on At-Will Employee
By JACKIE FUCHS, Staff Writer
Northrop Grumman Corporation’s mandatory arbitration policy was binding on an at-will employee, this district’s Court of Appeal ruled yesterday.
Div. One, in an unpublished opinion by Justice Victoria Gerrard Chaney, held, however, that a class action waiver contained in the policy might be unenforceable, and remanded the matter to the trial court for further proceedings.
Plaintiff Krishna Papudesi began her employment as a systems analyst with Northrop in 2003. As a condition of her employment she signed a one-page agreement which provided, in part, that her employment was at-will and for no definite period of time. She also agreed to “comply with the rules and policies of Northrop.”
The document was silent, however, as to how disputes between the parties were to be resolved. The final paragraph contained a standard integration clause, which said that the document constituted the entire agreement between Northrop and Papudesi with respect to the subject matters covered therein.
In 2006 Northrop distributed to its employees its new mandatory 14-page dispute resolution procedure, which provided for binding arbitration before JAMS or AAA. It stated that the arbitrator would be vested with “authority to decide any disputes regarding discovery,” and that any party that sought more than three depositions would be required to hold a joint meeting with the arbitrator to discuss discovery issues, limitations and scheduling.
The policy also contained a clause stating that both Northrop and its employees waived the right to bring any covered claim as a class action.
The document concluded with the following language:
“By accepting or continuing employment on or after 1 November 2006, all covered employees agree to submit any covered disputes to binding arbitration, rather than to have such disputes heard by a court or jury.”
Papudesi continued to work for Northrop until her employment was terminated in 2008.
In 2010 Papudesi sent Northrop a demand letter for wrongful termination and infliction of emotional distress. Northrop demanded arbitration and Paudesi complied.
But while arbitration proceedings were ongoing, Papudesi filed a class action lawsuit in which she alleged that Northrop had failed to pay overtime wages, provide meal and rest periods, pay wages in a timely manner, or provide itemized wage statements.
Northrop moved to compel arbitration and stay all civil court proceedings, arguing that its dispute resolution policy constituted a valid agreement to submit any employment disputes to binding arbitration.
Los Angeles Superior Court Judge Richard Fruin disagreed, finding that Northrop’s policies were invalid because they constituted an attempt to modify Papudesi’s original employment contract and had not been signed by either Papudesi or an officer of Northrop as required by the agreement. He did not rule on Papudesi’s claim that the agreement, if valid, was unconscionable or whether the class action waiver was enforceable.
In reversing Fruin’s decision, the panel held that among the “matters covered” by the agreement were the at-will nature of Papudesi’s employment and Papudesi’s compliance with Northrop’s policies. Nothing in the contract, however, Chaney said, prohibited Northrop from introducing new policies without a signed writing. Papudesi was an at-will employee and Northrop was entitled to alter the terms of her employment by instituting new policies as it saw fit.
Although the trial court declined to reach the issue of whether the policy, if valid, was, unconscionable, the panel found that the record was sufficient to allow a review of the matter.
Chaney noted that unconscionability has both a procedural element, which focuses on oppression or surprise arising from unequal bargaining power, and a substantive element, which looks to the results and determines whether they are overly harsh or one-sided. In making its evaluation, the court is to use a sliding scale: the more procedurally unconscionable a contract is, the less substantive unconscionability is necessary and vice versa.
Northrop had superior bargaining power, the panel said, and presented the policy on a take-it-or-leave-it basis. Accordingly, the policy was procedurally unconscionable to a degree.
But, it added, Papudesi could not have been surprised by the terms of the arbitration policy and, therefore, it was necessary for her to show significant substantive unconscionability for the policy to be unenforceable.
Papudesi argued that Northrop’s arbitration policy is unconscionable because it limits discovery and remedies. But the panel disagreed because the policy places no limit on the arbitrator’s discretion to expand discovery, and gives the arbitrator the authority to order any discovery necessary for a full exploration of issues in dispute.
Both JAMS and AAA discovery rules, moreover, come into play in situations not covered by the policy’s discovery rules. Together, Chaney wrote, Northrop’s policy and the JAMS and AAA rules entitle employees to adequate discovery.
Papudesi argued the arbitration policy was also invalid under Gentry v. Superior Court (2007) 42 Cal.4th 433, which held that in certain circumstances a class waiver that interferes with an employee’s unwaivable statutory rights is unenforceable.
Northrop countered that no Gentry analysis was needed because the U.S. Supreme Court’s recent decision in AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740 overruled Gentry. In that case the court held that a categorical state rule invalidating class arbitration waivers is preempted by the Federal Arbitration Act.
The panel disagreed, concluding that Gentry survives because it sets forth not a categorical rule but a multifactor test that rests in part on whether a class action is, in the words of Gentry, “likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration.”
Because the trial court incorrectly ruled, however, that no valid arbitration agreement existed, it declined to consider the factors set forth in Gentry and curtailed plaintiff’s discovery on the relevant issues. As a Gentry analysis is fact intensive, the record was, therefore, insufficient to permit the panel to make a determination on the enforceability of the class waiver, the justice said.
Presiding Justice Robert M. Mallano and Justice Jeffrey W. Johnson concurred in the opinion.
Scott A. Kruse, Eugene Scalia, Jesse A. Cripps and Lynn Hang of Gibson, Dunn & Crutcher represented defendant Northrup Grumman.
Papudesi was represented by Michael D. Singer and J. Jason Hill of Cohelan Khoury & Singer, and by Aegis Law Firm and Kashif Haque.
The case is Papudesi v. Northrop Grumman Corporation; B235730
Copyright 2012, Metropolitan News Company