Wednesday, March 20, 2013
C.A. Rejects Bid to Force Arbitration of Employee Class Action
California ‘One-Sidedness’ Rule Not Preempted Under Supreme Court Ruling, Divided Panel Says
By KENNETH OFGANG, Staff Writer
The U.S. Supreme Court’s 2011 holding in favor of enforcing arbitration agreements that ban class-wide arbitration does not extend to cases in which the arbitration clause is so one-sided as to be unconscionable, the Court of Appeal for this district ruled yesterday.
In a 2-1 decision, Div. Eight reinstated a putative class action brought by a former employee of American Management Services, LLC and tossed out Los Angeles Superior Court Judge Michael Johnson’s ruling that the employee must individually arbitrate her claim that the company violated wage laws.
Leasa Compton, a property manager with AMS from 2006 to 2009, filed suit in 2010, claiming the company failed to pay minimum and overtime wages, provide rest and meal breaks, and properly reimburse expenses.
In April 2011, while the case was in discovery, the nation’s highest court decided AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740. The case held that the Federal Arbitration Act preempts California public policy against enforcement of contract clauses that require the parties to arbitrate disputes on an individual, rather than on a joint or classwide basis.
Following the ruling, AMS moved to compel arbitration of Compton’s claims against it, on an individual basis. The company cited an arbitration clause in Compton’s 2006 employment agreement.
The clause required that all disputes between the parties, excluding those involving unfair competition or trade secrets, be submitted to binding arbitration, except that the employer was allowed to sue for “injunctive and/or equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information.” It also barred joint or classwide arbitration proceedings absent the consent of all parties, and required that arbitration be initiated within one year of the accrual of a claim.
Johnson ruled that the motion was timely because it was filed promptly after Concepcion was decided, and that the arbitration clause was enforceable under the Supreme Court’s decision.
But Justice Laurence Rubin, writing for the Court of Appeal, said Concepcion did not abrogate the rule of Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83 and later cases that an arbitration agreement that one-sidedly favors an employer—such as by forcing employees to arbitrate while allowing the employer to litigate disputes with employees—may be declared unconscionable and unenforceable by a court.
“AMS contends that the rule of one-sidedness as applied by Armendariz…and…other decisions…violates Concepcion because a lack of perfect mutuality of obligation is not generally grounds to invalidate a contract under California law,” Rubin wrote. But decisions both before and after Concepcion have followed Armendariz, which remains binding on the Court of Appeal, the justice said.
The agreement that Compton signed with AMS is unconscionably one-sided, Rubin explained, because it requires the employee to arbitrate every conceivable claim that an employee might raise, while allowing the employer to sue under some circumstances.
One-Sided and Unconscionable
Also one-sided and unconscionable, the justice said, are the provisions that require that arbitration be demanded within a year of a claim’s accrual, whereas the various types of claims likely to be raised by an employee are generally subject to two-, three-, or four-year statutes of limitations, and the types of claims that the employer has reserved the right to litigate are subject to three- or four-year statutes.
Justice Madeleine Flier concurred, but Presiding Justice Tricia Bigelow dissented.
“Even without consideration of whether Concepcion changes the Armendariz unconscionability analysis in California, I do not see any traditional unconscionability issues in the agreement apart from the potential implications of the waiver of class claims in arbitration,” the presiding justice wrote. “As to the waiver of class claims, I would find this is a case to follow Concepcion and find the waiver enforceable. “
The agreement between the parties, Bigelow wrote, is not “so tainted with illegality” as to be unconscionable. It binds both parties to arbitrate the types of claims asserted by Compton, and to the extent that there is an unfair “carve-out” of certain types of claims, that provision may be severed and invalidated without declaring the entire agreement unconscionable.
Similarly, she argued, the one-year limitations clause can be invalidated, allowing employer and employee to bring their claims within the applicable statutory limitations period.
The plaintiff was represented on appeal by the R. Rex Parris Law Firm and Lawyers for Justice, the defendant by Thomas G. Mackey and Brian D. Fahy of Jackson Lewis.
The case is Compton v. American Management Services, LLC, B236669.
Copyright 2013, Metropolitan News Company